Unveils report on ‘Dispute Resolution for Family Businesses in the GCC’
The Family Business Council Gulf has unveiled its latest report on ‘Dispute Resolution for Family Businesses in the GCC’, with the executive summary now available for the public featuring the summary and key findings.
Research for the Conflict Report addressed three key questions: What are the dispute resolution mechanisms, beyond litigation, available to meet family business needs? Are those dispute resolution mechanisms effective in light of family business considerations? What are the implications of the findings for family business stakeholders, including family business owners?
Based on interviews and key findings, the report, commissioned to Al Tamimi & Company, recommends family business owners to proactively pre-empt conflict through robust family governance and communication as well as by incentivising family members to resolve conflict, should it arise, through mediation.
The report observes that mediation as a consensual form of alternative dispute resolution is closely aligned with GCC culture and history. This process is faster, less costly than arbitration and litigation, less antagonistic and taxing on the family harmony in the long-run, less disruptive to the business, and more private without exposing family matters to public scrutiny. It can prove highly effective if the assigned mediator is trusted and accepted by all conflicting family members and the mediator is equipped with a discerning acumen – commercial, cultural, legal and psychological – to manage the intricacies of a family business conflict.
The report also points out that the current offering of alternative dispute resolution in GCC is inadequate and therefore stakeholders with interests in the success of family businesses can take several steps to improve mediation options in GCC including raising awareness, training mediators specialized in family business disputes, and considering mandatory mediation for family business disputes that escalate to courts.
Further, to support community of family business owners, the report includes a directory of mediation and arbitration centres in the GCC as well as a tool for self-assessment for conflict readiness.
A live poll during the sixth annual Legal Roundtable supported the findings of the Conflict Report. Over 75% of attendees reported they did not have or did not know if they had a dispute resolution mechanism in their family governance structure. Many were unsure about the reliability of alternative dispute resolution (ADR), with just over half (53%) saying that ADR was ‘somewhat reliable’. All polled said that ADR would be more reliable if the practitioner was specialised in family conflict, supporting the findings of FBCG’s Conflict Report. Overall, those polled observed that the most perceived common causes of conflict in family businesses are leadership succession and management decisions.
In the context of current crisis, family members may disagree on the direction and management response of the family business to the global pandemic. Without pre-emptive measures these disagreements can escalate to conflict and be another source of disruption to the family business.
Omar K. Alghanim, Chairman of Family Business Council – Gulf, reiterated FBCG’s commitment to raising awareness of pre-emptive measures and mechanisms for conflict management available to GCC family businesses.
He said: “FBCG’s research addresses issues that are critical, not only to family businesses but also to the whole region and the outcomes are even more relevant now as markets witness unprecedented challenges following the Covid-19 situation. Family businesses make up a significant part of our region’s economy, so proactively mitigating against conflict-related risks is very important. Our work showcases the myriad ways in which families can resolve their differences and prevent permanent damage to the value they’ve created over generations.”
Alghanim added: “Our Conflict Report is a first-of-its-kind initiative to articulate the options available to family businesses, as well as what governments and legislators can do to support continuity. At FBCG, we aim to launch such initiatives to support the regional business environment and carve a path for the prosperity of all.”
In the GCC, roughly 80% of family businesses are at the critical transition phase of first to the second or second to the third generation, based on a 2015 FBCG and McKinsey study. It is estimated that USD 1 trillion worth of assets are to be transferred to the third generation over the next 10 years, according to a report by the World Economic Forum.