1. 16 Issue 41 • MAY 2015
In-house view/
Family Business
Challenges
& Solutions
T
he challenge of family business succession
planning is as old as families themselves.
In the past, family succession planning was
limited to the endeavours of transferring
a simple skill or craftsmanship from a father to his
son. Today, global family businesses have grown in
size and complexity to become large multinational
conglomerates, such as Marriott, Hermes, Cargill or
BMW. These businesses are all at least three generations
old and represent successful businesses supported by
strong families. The oldest family business in the world
that has survived until recently is the Kongo Gumi
business from Japan. Founded in 578, this business has
managed to survive for 40 generations through humility,
discipline and rigorous planning.
Family businesses in the GCC form the
backbone of the region’s economy.
Generational change is inevitable, therefore
planning ahead is pivotal to ensure unity and
a smooth succession across generations.
Fadi Hammadeh of Al-Futtaim Group talks
about the key ingredients necessary to build
a lasting succession plan.
Importance of GCC Family Business
It is estimated that over 80 per cent of the businesses
in the GCC are family-owned, contributing up to half
of their respective countries GDP.
A significant number of GCC family businesses
are currently in a transitional phase between the
founders and siblings generations, and have identified
succession planning as one of the most important
challenges for their business continuity.
Objectives of Succession Planning
There are two overarching objectives behind any
succession planning exercise: to achieve management
and ownership continuity, notwithstanding
generational transition.
FAMILY BUSINESS
CONTINUITY IN THE GCC:

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Family Business
Management continuity aims at ensuring that
the family business continues to be managed by
the right people in the best interests of the family.
Ownership continuity on the other hand relates to
the desire to maintain the family business ownership
within the family and ensure that its economic unity
remains intact.
The likely alternative to proper and timely
succession planning is potential corporate chaos and
disputes between heirs leading to decision-making
paralysis and fragmentation of assets. There are
plenty of public examples of family feuds caused by
poor succession planning, such as the Ambani family
in India, the Gucci family in Italy or the Redstone
family in the US.
Pillars of Successful Succession Planning
There are four quintessential ingredients necessary
to build a lasting succession plan:
Owner’s Will
The successful initiation and implementation of the
succession planning exercise depends largely on the
will of the owners, without which no planning can
take place.
Human will is the culmination of both rational and
irrational mental processes. It is therefore not unusual
for family owners to resist succession planning,
or take too long before becoming convinced of the
need to commence the planning process. One core
challenge at the heart of this is the innate desire to

3. 18 Issue 41 • MAY 2015
In-house view/
Family Business
cultivate and retain control. Because founders may
feel that succession planning is like planning for their
own funerals, feelings of denial, anger and depression
are not uncommon as they work through succession
issues. Patience, trust and positive communication are
therefore key to initiate the process.
Values
Family values are the genetic code of the family
business. Shared values and culture exercise a
strong pulling power and have helped to maintain
the unity and homogeny of human groups and
societies throughout human evolution. It is not
only that shared values can bring family members
together, they can also define their common
objectives for the future. When the values are clear
and well-articulated, making decisions and avoiding
disputes becomes easier. It is therefore important
to communicate family values as early as possible
during the planning process to ensure alignment.
Corporate Governance
The term corporate governance was coined on the back
of major corporate failures in the 80s and 90s to address
the agency problem in publicly-listed companies. While
corporate governance became a statutory requirement
for publicly-listed companies, it has remained an
option for private businesses. However, more family
businesses, including some in the GCC, have willingly
begun to adopt their own customised corporate
governance practices as a precursor for better access
to funding and business opportunities.
Family business corporate governance seeks to
address additional challenges. These include putting
in place appropriate structures to separate family
from business, enhancing positive communication
and dialogue between the family members, ensuring
transparency and accountability as measure to
avoid disputes, and managing the expectations of
family members regarding dividends, education,
employment and charity, amongst many others.
This process invariably includes the drafting
of a family constitution to govern the different
dimensions of family relationships and its interaction
with the business. It also involves the creation of
various family governance bodies such as family
assembly, council or office and ancillary policies
relating to family education, work and remuneration.
Viable Legal platform
Despite their best intentions to work together, family
members sometimes hit a brick wall. Families in
business should hope for the best and plan for the worst.
For family business in common, civil or canonic
jurisdictions, it suffices in order to provide a legal
platform for management and ownership continuity,
to write a will or create a trust depending on the value
and nature of the assets in transition. Once this is
done, most of the effort during the succession planning
process is then directed towards family governance.
Despite this, statistics show that only 30 per cent
of all family businesses make it to the siblings’
generation, 12 per cent to cousins’ generation and
just 3 per cent through to 4th generation.
The use of an appropriate legal platform for
successful family business succession planning has
even greater importance for GCC family businesses.
This is because in jurisdictions which enforce Shari’ah
heirship, the concept of wills and trusts is generally
limited. This is not to say that any established trust will
be automatically declared as non-Shari’ah compliant,
but there remains considerable doubt about their
enforceability in the GCC.
Therefore, the most significant challenge that faces
family business continuity in the GCC is the creation
of a legal platform upon which family succession can
be built. Drafting a family constitution or creating
a state of the art governance model is meaningless
unless they are legally binding and enforceable.
Moreover, many GCC family businesses remain
poorly governed and organised as partnerships or
sole proprietorships, which makes their continuity
prognosis look even less promising.
There are certain legal tools that family businesses in
the GCC region may use as platforms for their succession
planning. None of these is without its flaws but each
constitutes a better strategy than doing nothing:
Corporate laws
Existing GCC corporate laws may provide a few stop
gap measures that can assist a family business in its
succession planning. Depending on the jurisdiction,
Ownership
continuity relates
to the desire to
maintain the family
business ownership
within the family
and ensure that its
economic unity
remains intact

4. 19theoath-me.com • the Oath
in-house view/
Family Business
Text by:
Fadi Hammadeh, group general
counsel, Al-Futtaim Group
family business advisors may be able to incorporate
such rules in their company articles of association
to mitigate the risks of management paralysis and
ownership fragmentation.
Islamic Waqf
The concept of Waqf has historically emanated from
ongoing charity beyond the lifetime of the settlor (Al
Waqef) referred to in the Hadiths of the prophet of Islam.
Al Waqf Al Ahli (family endowment) is an offshoot
of charitable Waqf. It is guided by the principles of
continued good deeds and that relatives are more
worthy of charity. By creating a Waqf Ahli the founder
will benefit his own offspring out of the fruits of assets
under Waqf, whilst at the same time protect such
assets from the unscrupulous behaviour and greed
of future owners.
A typical Waqf structure involves the drafting
of a deed called Hijat and the appointment of
beneficiaries as well as a manger called Nazer. Waqf
is an ingenious method to secure continuity and
can be adapted to the needs of family businesses.
However, many questions arise concerning the
Waqf structure as a platform for family businesses
succession planning, over which the different
Islamic faiths and scholars have historically
disagreed. These include permanency of Waqf,
joint capacity of the settler and beneficiary,
revocation of Waqf and whether or not money can
be the subject of a Waqf, amongst many others.
Trust
Within the context of succession planning, a trust
allows GCC families to prepare a deed that identifies
the settler(s), beneficiaries, trustee(s), assets under trust
and sets out the family owners’ preferences regarding
management and ownership of the family business in
the future. The enactment of DIFC Trust Law No.11/2005
and other trust laws in Qatar and Bahrain has offered
families in the region an additional tool to consider
regarding their succession planning.
A trust is very similar in theory to the Islamic Waqf
with minor differences relating to the ownership of
assets and permanency of existence. A major difference
between the two is the abundance of legislation, court
precedents and real life examples that regulate every
aspect of trusts, making them relatively more reliable
and predictable.
Settlers of trusts in the GCC will have to be mindful
of compliance with mandatory heirship rules as well
as of the potential loss of national treatment that many
GCC family businesses benefit from in their home
jurisdictions, such as commercial agencies, ownership
of real estate or certain shares in regional stock markets.
Way forward
Family business is an integral element of the fabric
of GCC societies. Its importance goes beyond its
monetary relevance to the owners and extends to
its role in supporting social stability and economic
prosperity. Its continuity is therefore equally
important for workers, lenders, business partners,
government agencies and national economies.
GCC family businesses have now reached an
existential crossroads, facing numerous succession
planning uncertainties, on the top of the challenges
that their global counterparts normally face.
The onus is therefore on GCC policymakers to
provide family businesses in the region with the
necessary legislative tools to enable them to plan for
their continuity. Such legislative tools will need to
demonstrate understanding of the particular nature
of the family business and support its aspirations for
longevity, privacy and ownership exclusivity.
It is towards this end that a draft law is being prepared
in Dubai under the auspices of the Family Business
Network GCC (FBN GCC). The law proposes to facilitate
the continuity of family businesses in Dubai and
beyond within a well-defined and enforceable legal and
regulatory frameworks, by using new tools such as Waqf
Ahli and family ownership.
About the author
Fadi Hammadeh is assisting in the drafting of the family
business legislations currently under review. This article
is a short summary of a book he is currently completing
bearing the same title and due to appear shortly.
Succession
planning is one of
the most important
challenges of
business continuity