Creating a consistent approach to sustainable family businesses

Family businesses are considered an essential driving force of the Middle East’s economy. These businesses have played an integral role in transforming several industries in the region ranging from retail, property, energy, and financial services. In fact, recognising their contribution to the economy, the UAE has recently launched a programme that aims to double family-owned businesses’ contribution to the nation’s gross domestic product to $320bn by 2032. 

Wealthy families are increasingly exploring how they might contribute to a meaningful and lasting on society, not just through philanthropy, but also in the way they run their businesses and manage their investment portfolios. The pandemic and global social equality movements have shed a light on inequality and made people reassess what it means to be wealthy. People are also becoming more aware of pressing environmental issues such as climate change. 

With wealth in the spotlight, the reputational risks for the wealthy have increased if they are not seen to be acting ethically. We’re approaching a new era of transparency and accountability, with more individuals curious about how others spend their money. We’ve also seen a generational shift in the opinions around the purpose of wealth. Younger generations have grown up with a greater awareness of global social concerns and are questioning what their families are doing with their wealth and whether they can utilize it to drive positive change.

These transitions present a great opportunity for families to examine the vision, values, and purpose, for their wealth and to integrate their approach across their businesses, financial portfolios, and philanthropy. Defining a core set of values, that everyone in the family agrees with, provides a way to engage younger family members by encouraging them to take on new roles and foster greater awareness. This can also aid in succession planning by preparing the next generation for the responsibilities that come with wealth.

What can they do?

It used to be that families that made money through their operating business or investments would deploy those assets with one set of values and strategies, and subsequently spend their private wealth on philanthropy and other family initiatives with a different set of values and strategies. Family businesses can develop a model for sustainable family wealth by integrating their beliefs and purpose into all elements of their capital.

Give wisely

Many philanthropists are motivated by a strong desire to solve social problems and help others. Having spent years accumulating and growing their wealth, they want to give back and make the world a better place.  Many people’s charity aspirations will be guided by their values, ethics, and what inspires them. They are often driven to give as a result of life events and choose to support issues that have personally affected them.

Involving the family in philanthropy can also leave a lasting impact. Engaging with the next generation in philanthropy can help teach them critical lessons about their family’s values and foster collaboration. It may even assist in preparing children or grandchildren to run their own foundation. The COVID-19 pandemic has uncovered complex societal challenges ranging from climate change to inequality, underscoring the critical role of modern philanthropy in addressing them.

While conventional philanthropy has consisted of donating a percentage of one’s family, business, or individual fortune to charitable causes, wealth owners are increasingly finding opportunities to generate economic returns while also making a positive impact on the world. As a result of this approach, many families have aligned their charitable giving with their business and investing ambitions.

Reassess business opportunities

Business owners are increasingly realising that they must consider other stakeholders, in addition, to generating profits for. They understand that their businesses could thrive when they take care of their employees as well as the communities in which they sell their products and services.  

Many countries have made reporting obligations mandatory, outlining companies’ broader influence on society and the environment. For many businesses, this entails incorporating environmental, social, and governance (ESG) considerations into their existing procedures to address the societal implications of their commercial activities.

In recent years, several businesses have prioritised issues of social inclusion and racial equality. The growing prevalence of the climate crisis has also increased the emphasis on businesses reducing their carbon impact. 

Realign the investment portfolio

Impact investing is a growing trend that extends beyond ESG criteria to include investments that directly address social or environmental concerns in addition to financial gain. By incorporating impact considerations into investing in this manner, families may directly match their portfolios with their ethical and charitable ideals.

Overall, the most successful families that have owned assets for more than 100 years are those that adapt. It’s about being flexible and adapting to a changing world. Investment banking can help family businesses discover the approach that’s right for them and find the best ways to start implementing their vision across all aspects of their wealth.

Maya Prabhu is the MD, head of Wealth Advisory for the UK, Europe, the Middle East and Africa, JP Morgan.