According to a research report conducted by Jersey Finance, these are the single most important concerns of GCC-based family businesses. Spanning from private banks, trust and fiduciary services providers and consultants, to law firms, other professional service firms, retail and more, 55 % of respondents deemed business succession planning to be the most vital issue at stake, followed by legacy planning at 23 %.
As a relatively young country with a fast-growing economy, the rapid expansion experienced by many family businesses has seen them boom over the past generation. With this evolution, they’re looking to transition their wealth to the next generation. For them to want to do so successfully is a given, but it’s a move that comes with its fair share of challenges, particularly in such a young economic landscape with many of these transitions taking place for the first time.
The adolescence of the countries across the GCC has meant that its markets are equally as youthful, and with the new wealth that comes with that type of development and growth, the businesses looking towards succession planning are relatively new to the tradition of inheritance. With no existing established model of inheritance traditions in the region, the concept of successfully managing inheritance and wealth succession is as-yet unfamiliar to many. Unlike in Europe, where the economic history of the region has seen a tried and trusted model of inheritance appear over the centuries with its own established practices, in the GCC many of these cases are still “first-generation” instances. While they are keen to learn how to do so, they’re in need of guidance to be able to do it successfully.
However, finding the right guidance is a tricky field to navigate, one that involves more than just selecting the right expertise. Due to the many generational cultural differences that have taken place between the growth of the previous generations, and the vast amount of development that has occurred between the original establishment of many of these businesses and their contemporary existence, the approach towards business – and those involved in every step of the process – is evolving just as quickly with it. The difference in the wants, needs, and attitude between the generation who built the wealth, and those who it is transitioning to, is vast and distinct enough to add an increasing level of tension to an existing issue within inheritance management – that of disharmony within a family, which figures show to hold back the ability to plan smoothly at 11 %.
As the younger generation draws in the knowledge and education they’ve received overseas or from an ever-developing schooling system within the region, they seek to ensure that businesses are being run up to par with international standards, particularly when it comes to professionalism. Combine this with the evolving means of communication of the younger generation, and the effects of digitisation, technology and the subsequent impact on the way we communicate and run businesses, and the gap grows ever-wider.
Consequently, as these businesses grow, the younger generations are seeking to implement new ways in which the business is run; from hiring practices, the employment of non-family members, employee management, benefit schemes, standardized pay scales and salary ranges. They might seek to introduce modernized payment systems in some cases, build in opportunities for growth and learning in terms of careers or changing the workplace model. Changes could also include investment in technology and innovation, both in terms of software and hardware used by the company, as well as investing in training for utilizing the technology and the ability to innovate with it for staff members at all levels.
The challenges that can come with this much change in such a short time span are two-fold: one, in that the older generation has not had enough time to absorb the volume of change and may not understand or agree with the direction the younger generation is taking, leading to clashes around the future of the business. Another is the challenge of implementing such large-scale change in a short time period, both in terms of the long- and short-term impact on company structure, costs, daily systems, and more. Although the older generation is concerned about the loss of culture, the younger generation has made it clear that what they are seeking is a way to incorporate these changes whilst maintaining their culture, in a seamless transition that retains historical, familial, and business values while moving forward into the modern age.
According to the Jersey Finance research, just over a third (34 %) of respondents claimed that it was misconceptions about key issues that are a large part of the problem, while just over a fifth (21 %) believe clients aren’t even sure how to start the discussion at all. The survey results also indicate however, that both generations are in fact striving towards the same goal, and are open-minded towards change if it enables them to retain their essential culture while working towards a positive impact. Although they have the same ambitions, the lack of communication and understanding in where to start the discussion, let alone the planning, is a set-back – and one that can easily be solved by hiring the right expertise to guide them along the way.
More than half of the report’s respondents (53 %) believed family office products were the most popular structures among GCC families, and just under half (46 %) believed that this would still be the case in five years’ time. This indicates that there is still a place – and a desire – for family-run businesses to dominate in the region. However, without incorporating the changes necessary to adapt to modern times, the younger generation is rightly concerned about the potential impact and subsequent financial strain a stagnant attitude towards transformation could bring – and the burden that they, and the business, would have to bear from it.
As we at Jersey Finance are clearly aware, there is no one-size-fits-all solution. However, by working together, using a future-focused approach there are multiple means to solving these challenges, through a unique and tailored approach that seeks to individually tackle every issue presented by each family and business. While there are several common themes that a majority of businesses are able to look towards, individualised advice from financial experts is the key to making these transitions successfully. Forward thinking, bespoke counsel can also help to avoid other issues that arise from estate or succession planning, such as family disputes, or “cleaning up” from bad advice that clients may have previously been given.
Fortunately, a majority of these HNW investors and family businesses are already aware of the scale of the issue. Both financial experts and advisors, and the HNW investors and businesses themselves, also recognize that this is a pivotal time of growth for the region. They know that it is vital to work with the right advisors to manage their wealth ambitions, so they can then “have it all” – and that it is possible to make the necessary changes for successful growth, without having to make any sacrifices that they aren’t ready to, nor will ever want to make.