This publication highlights the family businesses in Kuwait as such businesses represent significant weight and impact on local economics.
The family businesses in Kuwait in particular and the GCC in general began to pay attention to succession plans as part of their strategies for managing their business for the long run.
Recently, a significant shift has been monitored in the tendencies of family businesses to identify the best methods and the appropriate options to develop plans for transferring powers and inheritance.
The traditional pattern of the life cycle of a family business is to continue for over three generations at maximum, starting with the founding dean, moving to the developer generation who accompanies the founding dean and has been inspired by his experiences, then to the third generation, to whom the shares of business ownership go as an inheritance. The continuation of such businesses is subject to the harmony between the heirs regarding future goals. If there was a positive harmony, they will be able to legally restructure the business and adopt organizational management systems. If there was not enough harmony, difficulties will soon emerge and the family business will deteriorate and eventually vanish.
Time for Succession Planning in Family Businesses
The most important element to focus on is to think of the right time. The question here is when the time is best suited for retirement or the introduction of the next generation to management, especially as such a generation will not have the same experience. This will require the transfer to be in a gradual process to ensure a successful transfer of powers. This time is often the most critical for any business. Therefore it is important to allocate enough time, effort, and expertise to pass such a critical phase.
The Islamic Shari’a specifies the details of inheritance. However, inheritable business needs prior planning that complies with the Islamic Shri’a while at the same time determining the mechanism by which the business can continue operating in the future.
Corporate Governance in Family Businesses
Companies Decree-Law No. 25 of 2012 as amended by Law No. 97 of 2013 has been issued in Kuwait to require, in Article 216, business entities to apply the corporate governance rules issued by the relevant local regulators.
- Central Bank of Kuwait (CBK) for banks
- Capital Markets Authority (CMA) for shareholding companies
Although family businesses are not subject to the control of these regulatory bodies, such businesses can be guided by the rules and principles of corporate governance and adopt the voluntary and optional application of such rules as these rules constitute a good and solid foundation for sound management in the relations of partners from the same family away from emotions and disparity in experience and capabilities.
Baker Tilly International Network Questionnaire
In this context, Baker Tilly International network, based in the United Kingdom, in collaboration with Swinburne University, conducted in January 2013 a study on the economic and psychological impacts which control the issues of succession in family businesses. The study has been reflected in the form of a questionnaire addressed to the owners of family businesses around the world. The preliminary results of the questionnaire indicate that 1,000 participants from 52 countries around the world have fully completed the data of the questionnaire which was prepared in seven different languages. Their participation has resulted in the following outcomes:
- 17.9% had already adopted future continuity plans.
- 31.8% started developing future continuity plans
- 50.3% have not yet begun developing future continuity plans.
Baker Tilly Kuwait renders Family Businesses Succession Planning consultancy
Baker Tilly Kuwait has specialized experts to provide Family Businesses Succession Planning consultations guided by the accumulated local and international expertise in this regard.
Article by: Hisham Sorour – Managing Partner – Baker Tilly Kuwait
01 August 2013