More than half of the GCC’s family businesses are in the midst of transition from second to third generation but only 15 percent are likely to survive the upheaval, according to a new study.
A survey of the largest GCC family-owned businesses which collectively generate $100 billion in annual revenues also showed that while all families are involved in some form of charitable giving, very few have developed organised philanthropic efforts.
Only 36 percent of the sample group had defined a clear strategy for their giving, the survey said.
The poll by the Gulf Family Business Council (GFBC) and McKinsey & Company also said most family businesses could do more to develop an effective integration plan to facilitate leadership transition.
Abdulaziz Abdullah Al Ghurair, chairman of GFBC, said: “More than half of GCC’s family businesses are in the midst of the transition from the second to third generation. This is a critical transition as just around 15 percent of those businesses are likely to survive it.
“One major risk during this transition is for large family businesses to get fragmented. Preparation is needed to avoid loss of family harmony and business disruption which in turn leads to loss of economic value.”
The study revealed that 44 percent of family businesses have an employment policy in place for next generation from the family, but only 17 percent of businesses have an effective assessment method in place to identify roles and responsibility for the next generation.
It recommends that the ‘rules of the game’ should be clearly stated to the next generation as early as possible to allow for effective succession planning and transition of leadership.
Two other key findings of the study were related to corporate governance and the businesses’ philanthropic efforts.
While family businesses have made significant progress in putting corporate governance systems in place, few have been successful in completing end-to-end effective implementation.
Of the businesses researched, over 66 percent of participants reported that they have started to put the building blocks in place. However, only around 33 percent reported that the practices are fully adopted and are working effectively.
Ahmed Youssef, partner at McKinsey & Company, said: “Looking forward, we are optimistic about the pace of change, especially given the surge in awareness among family businesses on the need to change. We are also conscious that the real test is yet to come.”
In April, GFBC released a legal white paper on succession planning, discussing challenges.
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