During these challenging and uncertain times, there is a greater need for multi-generational family businesses and family offices to provide reassurances to successors by ensuring continuity. Building a robust family governance framework can help ensure that your wealth—and your family’s values—will continue to thrive.
In the Middle East, many family business patriarchs have multiple children. Choosing a successor is therefore a delicate challenge. There is also increased involvement of third-generation children in family businesses, each with different roles. Furthermore, an increase in female family members taking managerial roles in family businesses is also an important factor to take into consideration in succession planning.
Decisions such as when to involve third-generation family members, whether to include non-family members and managing the dynamics of second-to-fourth-generation involvement is quite tasking, which is why it is important to have clear and honest discussions.
Discussing wealth with children and other family members
While discussing wealth with children may feel like a sensitive topic to broach, the good news is that discussing your family’s financial resources should not start—or end—with a dollar amount. Instead, talking to your children about your wealth can be a slowly unfolding process that gives family members a chance to explore what they want for themselves, for each other, their future and (perhaps) for the world at large.
Along the way, you can trace the family’s roots, identify core values, and teach children to think carefully about the wealth they enjoy now and will one day inherit. Together, you can develop a unique narrative for how your family sees itself and what they need to do to safeguard their future.
How do you achieve that? Share your vision and be aspirational in your conversations. The key to making them successful is to listen to others and respond thoughtfully. See a child’s question as an opportunity to share goals, detail expectations and communicate values. Their reasons for asking may help you focus your response. Besides, incorporate your core values into a motto that sums up your family’s approach to wealth.
Helping your children learn how to manage wealth is a lengthy and multifaceted process. Family meetings with members from different generations should be organised as often as needed to preserve the family’s legacy for future generations.
Family businesses in the Middle East
Family businesses are considered an important driving force of the UAE economy as they contribute to more than 90 per cent of the economic activity in the country. (Source: Gulf Business). For families with active business interests and investments, succession remains a priority.
Many family business patriarchs have multiple children, so choosing who the most suitable successor is can be a delicate challenge. Moreover, managing the fast-paced ambitions of the young with those of the old guard who are not keen to let go can prove quite challenging, but they are achievable.
We are aware that second-generation business leaders are trying to avoid making the same mistakes as their first-generation predecessors when passing their wealth to their children and they are creating adequate criteria for the next generation. For example, they may impose education and/or outside work experience requirements before joining the business formally.
Managing the power struggles between different family branches will be the major challenge going into the future. In some larger families you can have second- through fourth-generation family members involved in the family business at the same time. They are working at different paces and have different goals/ambitions in mind. A well thought out corporate and family governance strategy will help the family business progress.
Digital strategy and transformation in family wealth
According to an August 2020 survey conducted by Tharawat, 82 out of 100 leading family firms are accelerating their adoption of digital technologies.
Younger generations are immersed in technology, so they will be very keen to promote digital transformation within family offices and family businesses. Families should find out what digital transformation means in their industries and companies while recognising how it can enhance their processes.
The future of family wealth
Covid-19 has profoundly changed our way of life and the way we view our future. As a result, many family offices and family businesses have had to adapt to new ways of doing things, re-think what is best for the future generations and not just the short-term return of investments. It is important to be pragmatic about longer-term plans and how to sustain a family business during a crisis, but this can also help you progress.
Also, it is always vital to have a clear view of each family member’s purpose and how they can make their mark and support them in doing so.
So, what is the magic formula for permanent success and unity in family wealth? Having a common purpose and understanding is what brings a family closer and makes them stronger in every sense.
Tara Smyth is head of Middle East, North Africa and Turkey at J.P. Morgan Private Bank