In the Arab World, family firms make up 85 per cent of the region's non-oil GDP. While many are small to medium-sized enterprises - the cornerstone of any successful economy - the success of the GCC economies, coupled with the enterprising minds of business leaders during the region's boom years mean that a significant number of these organisations have become multinational and highly diversified businesses.
Every family-run entity inevitably experiences transitions as older family members hand the reins of stewardship to the next generation's most commercially minded. With this generational transition comes increased scrutiny from stakeholders within the family - each with a voice, each with an opinion, but not all with a direct responsibility for the running of the business. The potential for intra-family conflict, therefore, is significant.
As the inevitability of such conflict becomes increasingly apparent to family business owners across the region, so too does the search for methods to sufficiently pre-empt and manage potential fallouts resulting from such disputes. Families should proactively seek out alternatives to traditional forms of dispute resolution for the swift and cost effective resolution of intra-family conflicts, and the security such options provide.
Arbitration as a means to resolve disputes enjoys wide recognition among family businesses and other GCC commercial entities. However, it is mediation - a confidential negotiation process facilitated by an independent third party - that is most suitable for family businesses. Mediation can be used either before a dispute arises as a preventive measure to align interests or once the dispute has occurred.
There are several benefits for family businesses engaging in the mediation process. The Islamic world has long fostered a tradition of conciliation and consensus, the roots of the modern-day mediation mechanism. In recent times, it is the privacy and confidentiality of the mediation process that has become of great significance to the region's family businesses, traditionally discreet about their inner workings.
Mediation sessions and related mediation communications are usually strictly private proceedings that allow disputing family members and their representatives to work collaboratively without involving the wider community or the media. In terms of confidentiality, information disclosed to a mediator by the parties in the course of the mediation cannot be divulged by the mediator, unless the parties agree.
Like a family doctor, the mediator must maintain the confidentiality of all information obtained in the mediation, and all records, reports or other documents received by a mediator while serving in that capacity must remain confidential.
Furthermore, family members are obliged under the agreement to mediate to maintain the confidentiality of the mediation and not to attempt to introduce it as evidence in any subsequent arbitral, judicial or other proceeding outside the mediation process. This includes views, admissions or proposals of the other party, unless agreed to by the parties or required by applicable law. In the Middle East, this is proving particularly attractive for family businesses seeking a resolution for disputes arising, whether to do with succession or otherwise.
In addition to the privacy and confidentiality afforded by mediation, there are significant cost benefits for family businesses choosing this form of alternative dispute resolution. Successful mediation is significantly more cost-effective than arbitration, litigation and any other dispute resolution mechanism. Typically, each party pays a set-up fee, the compensation of the mediator (based on an hourly rate) and the cost of conference facilities where required.
Moreover, it is the increased likelihood of compliance and fulfilment of the terms of the agreement reached in mediation that is of most value to family businesses. As mediation is based on mutual agreement, parties typically comply with the outcome, thereby avoiding the need to rely on other means to enforce judgements and preserving the relationships between family members and the honour of the family itself.
The mediation process is simple. Before the mediation can begin, disputing family members must agree in writing to procedures determined between themselves, or to an existing set of procedures, for example those of a specified mediation centre. Next, the parties must mutually agree on the selection of an independent mediator. There follows the preparation for the mediation session ahead of the session itself, where each party is given time to describe their views of the dispute.
The mediator will also hold private meetings with family members to facilitate towards a solution by exchanging possible settlement ideas.
The mediator then works towards narrowing the differences between the family members. When the parties reach a settlement by mutual resolution, the terms are written in the form of an agreement, often with a clear approach outlined with a plan of action that all participants support.
As a mechanism for the resolution of intra-family disputes, mediation matches both the needs of the business and the cultural expectations of all parties. There is every reason for its use to grow, thereby helping to enhance both the managing of family businesses and the overall business climate in which they operate in the Middle East.
James MacPherson, is the chief executive of the Bahrain Chamber for Dispute Resolution