FBN GCC releases legal white paper on sucession planning

Fadi Hammadeh and HE Abdul Aziz  Abdulla Al Ghurair

Most family-owned businesses in the GCC will face a succession challenge within the next decade. A groundbreaking legal white paper by the Family Business Network GCC provides a set of concrete recommendations and highlights the need to strengthen legal framework across the GCC, after assessing the legal structures available to GCC family businesses for their succession planning.

An estimated USD1 trillion in assets will be transferred to the next generation of family owned companies over the next decade in the Middle East. The handover from the first to the second generation, and increasingly, the second to third generation will have tremendous implications on the sustainability and growth of companies. What is needed now, the FBN GCC says, is for family businesses to take adequate time to incorporate the legal structure that best fits their succession plan, unique family dynamics, and goals.

 “We have realised that without a well-planned and resilient legal structure for a family business, the pursuit of continuity by focusing on good governance, professionalisation and next generation can be futile,” said HE Abdul Aziz Abdullah Al Ghurair, chairman of the Family Business Network GCC. “It is critical that family businesses take adequate time to incorporate the legal structure that best fits their family business succession plan, unique family dynamics and goals."

Many family businesses in the GCC have gradually shifted their attention to succession planning and a focus to maintaining the family legacy. In turn, founders are seeking efficient means to transfer ownership to future generations. FBN GCC legal white paper analyses the effectiveness of legal structures, such as the Trust legal framework in the Dubai International Financial Centre (DIFC) in the UAE and the Waqf legal framework, a recognised Islamic concept, explored as a succession planning tool by GCC countries, including Saudi Arabia.

Fadi Hammadeh, general counsel of Al-Futtaim Group, who helped author the white paper, talked about what makes FBN GCC white paper unique, “FBN GCC legal white paper presents an aggregate outlook at legal obstacles, risks and solutions for succession planning, in the context of GCC family dynamics. This is the first time that a study takes a comprehensive approach, across GCC countries, and across various legal vehicles.”

Hammadeh also eluded to the need for a family business law in each GCC country to address some of the current legal structure challenges,“Effective family business succession planning aims to achieve management and ownership continuity. GCC family businesses are particularly vulnerable to risk of fragmentation due to lack of impenetrable legal frameworks to support their continuity.