Islamic family offices have been severely challenged in 2020 as a result of the global coronavirus pandemic. If 2020 has revealed anything about the current state of play for Islamic family offices, it is the dual imperative of (i) strategic planning and careful preparation for not only unexpected risks but also anticipated succession issues within Islamic family offices while (ii) remaining true to the Shariah principles that the family has established for itself.
Review of 2020
While the past year saw most Islamic family offices understandably focused on investment-related themes in the wake of the global pandemic and the tumult in the financial markets, the areas of greatest exposure included a focused need to improve their technology and reporting systems. Many Islamic family offices prioritized a top-down review of how technology should serve the family more confidentially and effectively.
Preview of 2021
In the wake of an unprecedented and cataclysmic year, the principle issue is how Islamic family offices can identify meaningful and thoughtful benchmarks by which to thrive in the new year. The baseline for 2021 for Islamic family offices will not only build on priorities identified and met in 2020 but will also revolve around a myriad of complementary priorities, not the least of which may be a dual focus on shielding against risk and arming for success.
Shielding against risk
Islamic family offices will continue to face a range of challenges ranging from an unpredictable investment climate and the repercussions of the global pandemic to the operational pitfalls of guarding against systemic risk in an increasingly uncertain and erratic world. While most Islamic family offices may feel fully equipped to cope with the investment issues they face on a daily basis, managing risk may be an altogether more complex undertaking.
For instance, while more fully equipped and institutionalized Islamic family offices may enjoy the benefits of larger and more experienced staff, greater resources and specialized expertise, smaller Islamic family offices may suffer from a dearth of the same.
For those Islamic family offices lacking the requisite internal expertise, controls and technology infrastructure to counter systemic threats ranging from cyber hacking to institutional fraud, the threat of these risks may be exacerbated by institutional complacency and a general misunderstanding and underestimation of the potential risk at hand.
Evidence demonstrates that few Islamic family offices actually incorporate a comprehensive risk management architecture, including privacy and reputation management, physical security, as well as personnel evaluation and monitoring.
Arming for success
As 2021 looms over the horizon, highly functioning and effective Islamic family offices would be best served to pay closer attention to family governance and incorporate it deeply and thoughtfully into the fabric of the Islamic family office.
One of the seminal lessons of the global pandemic includes the ability of Shariah compliant family offices to ready themselves for a change in leadership.
A family governance architecture curated for the Islamic family office will ideally include a family constitution, family council and family education agenda. At the same time, talent identification and succession planning also need to advance in tandem with an eye toward building the next generation of effective leadership within the Islamic family office.
An essential component is to create a succession plan that not only adheres to Shariah law yet also borrows where appropriate or advisable from a complementary western model, with a primary focus on the following five imperatives:
• Tailor an achievable succession plan that incorporates the unique nature of the Islamic family and the family office it serves
• Identify family members or third-party individuals who possess the requisite skills and cultural sensitivity to step into leadership positions within the Islamic family office
• Implement job rotation within and outside the Islamic family office as a means to cultivate additional knowledge and experience and to polish communication and interpersonal skills
• Integrate the succession plan into the overall strategy for the Islamic family office in order to sharpen recruiting efforts and identify talent gaps, and
• Focus proactively on succession for the patriarch of the family and the day-to-day management of the Islamic family office.
The long-term effects of the 2020 global pandemic played an outsized role for Islamic family offices in terms of strategic planning and operations. Continuing to develop risk management tools and practices and addressing succession issues should be at the forefront of priorities for Shariah compliant family offices in the year ahead.
The key to critical success of any risk management plan is the development of an “all risk” approach that takes the entire Islamic family enterprise into account, which requires integrating proactive and reactive policies and procedures throughout the Islamic family office firmament.
At the same time, integrating a cohesive and detailed plan to prepare for the passing of the leadership baton within the family and the family office serves as a logical corollary to effective risk management.
Not surprisingly, entrepreneurial Islamic families are in the best position to effectuate a meaningful focus to guard against systemic risk and to plan for the next generation of family office leaders.
Marc J Halsema is the managing director and chief of staff at Pennington Partners & Co. He can be contacted at [email protected]