Exclusive Employment Sharp rise in family disputes, says Emirati lawyer By Gavin Gibbon June 8, 2023 Conflicts arise from generational shift Insistence on family control regardless of qualification UAE and Saudi introduced legal changes to support family firms The UAE has seen a marked increase in disputes within family-run businesses which is likely to continue, according to a leading Emirati lawyer. Habib Al Mulla has been practising in the UAE for four decades and had until five years ago only seen one dispute case involving family members and shareholders of a company. However, Al Mulla, who has drafted and advised on Federal and Emirate-level laws, has encountered 12 cases recently. UAE family businesses: ‘bigger cake, bigger problem’ Younger Arabs invest in equity markets, tech and Islamic finance How the new Saudi Companies Law could affect your business “We are talking about large conglomerates,” Al Mulla said. “We’re not talking about small entities, we’re talking about billions of dirhams.” A report published by KPMG last October noted that the top 10 family businesses in the region, as ranked by assets, employ 600,000 people and have a net worth of more than $31 billion (AED114 billion). The report also revealed that 38 percent of these businesses are still chaired by the first generation, while 47 percent are run by the second generation and just 15 percent are managed by the third generation or later. A survey conducted among high net worth individuals (HNWIs) in the Middle East in June last year by Swiss private wealth management bank Lombard Odier found that, out of 300 established HNWIs, only 24 percent have already put a full estate plan in place for their private assets. Al Mulla said the conflict was arising from the shift from one generation to the next. “The founders are passing away and the new generation is coming in," he said. "Previously it was one person, possibly two, that were making decisions, making it easy for them. “Now you have 10 or 12. Obviously everyone has their own opinion on how businesses should be run. “That’s why you have all these disputes and I think it will continue for a while before it starts to settle.” Disputes and insistence on family control regardless of qualification are the biggest challenges facing GCC family businesses, according to a survey carried out at the launch of the DIFC Family Wealth Centre last month. The remaining top five concerns were talent retention and recruitment, lack of legal structure, digitisation and new technology, and tax. SuppliedEmirati lawyer Habib Al Mulla says family-run business disputes can amount to billions of dirhams In February last year Dubai’s ruler Sheikh Mohammed bin Rashid Al Maktoum appointed a judicial committee to resolve a dispute among the heirs of the late Majid Al Futtaim, founder of the emirate’s property and retail conglomerate. “Succession planning is now a hot topic,” said Hani Kayal, deputy CEO of Saudi-headquartered Seraj Holding. “There’s no one-size-fits-all solution but a lot of conflict can be avoided if you plan ahead and the first milestone is putting in place strong governance. “In the family office I oversee, every son has a vertical that they’re responsible for and that way, while the sons work independently of each other, they all share in each other’s losses and gains.” In an effort to address this, both the UAE and Saudi Arabia have recently introduced significant regulatory and legal changes aimed at supporting family businesses. In January 2022, then UAE President Sheikh Khalifa, issued a new family business ownership governance law to ease the transition to successive generations. The law was implemented in January this year. The following month, Dubai’s ruler Sheikh Mohammed issued a decree establishing the Family Business Centre in Dubai which has a mandate of helping companies draw up succession plans in order to drive their sustainability and growth. Meanwhile, in January this year, Saudi Arabia implemented a new Companies Law which allows for the enactment of a family charter to regulate ownership, governance, management, work policy, relatives’ employment, and dividends distribution in an effort to ensure the sustainability of family-owned companies.