Is Middle East unrest bad for business? This is a key question international law firms are asking themselves. But the answer is not what you might expect, particularly in the private client sector, says Mustafa Hussain

The 'butterfly effect' is a concept of chaos theory regarding how a small occurrence in one place can, through an interconnected chain of events, result in a huge effect to another place. Popular culture has visualised this theory with the well known example of a butterfly flapping its wings in one location, causing a microscopic rush of air, which builds to create a hurricane elsewhere in 
the world.

The globalisation of business and interdependence of markets has heightened the sensitivity of businesses to the butterfly effect. This is nowhere more apparent than in the origins of the global financial crisis. Who would have predicted that a mere reduction of interest rates in the US would lead through a chain of sub-prime lending and liquidity shortfall events to the worst financial crisis the world has seen since the great depression?

While the financial crisis resulted from a much more complex set of conditions that had incubated the effect, there are also more simple illustrations of the theory. In March this year it was reported that shares in a British luxury fashion house founded in 1856 in Hampshire suddenly dropped 5.5%. The cause? An earthquake on the other side of the world in Japan. The company was, of course, Burberry – one of the top 100 brands in the world and a firm favourite of the Japanese luxury market.

What affects businesses affects the lawyers advising both those businesses and their owners. Given this alignment of fates, it is not surprising that international law firms are carefully assessing the situation in the Middle East.

The wave of demonstrations and protests occurring in the Arab world this year has undoubtedly had an impact on law firms – but not in the way you might expect. The sight of tanks rolling in to the city streets where Western businessmen and locals had just days before been going about their routine trade is undoubtedly unsettling. But rather than a bunkering down on the market for private client work, the Arab Spring continues to have almost the opposite effect.

A number of the most prominent businesses in the Middle East are owned or controlled by super high net worth families. Established over the last century, these families, often led by a patriarch of defined character, have built up conglomerates that have interests ranging from construction, automotive, financial services and butterfly-effectretail industries to more recent investments in funds, life sciences and intellectual property. Real estate is also a firm favourite asset class for such families, notwithstanding their essentially nomadic roots.

The political sensitivity and sheer speed with which the Arab Spring spread around the region acted as a catalyst for many of these families to instruct firms to establish trusts or reorganise their corporate holding structures offshore. Their altruistic motivation is the pull factors of protecting their life's work and legacy for the next generation through efficient structuring and succession planning. However, there are also push factors – usually tax and a desire to dissipate or pre-empt tension between family members through use of corporate governance and planning.

These push and pull factors have been common through the last few decades, but regional families have often been slow to wholeheartedly embrace the use of private client solutions to organise, plan and integrate their family businesses. Their reluctance often stems from the desire to keep control of their assets and maintain their authority through reliance on traditional cultural or honour-led channels. The combination of the increasingly sophisticated knowledge of younger generations of Arab families and the sheer scale of their global businesses has prompted a rethink by patriarchs. They are now embracing trusts and succession planning for their offshore holdings more confidently than before. This is no small feat, given that the very concept of a trust as we think of 
it in the UK is alien to some Arab civil jurisdictions.

The Arab Spring has acted as a catalyst for the movement towards wealth holding structures. The previous luxury of time suddenly and scarily evaporates when you look out of the windows of your high rise office to see crowds of protesters standing off against tanks in the streets below.

Of course, it would not be fair to say that the Arab Spring has not affected institutional or retail business in the Middle East. Reports coming out of the region indicate a bunker mentality in the immediate aftermath of violent protests. This was compounded by the practical impact of local professionals not being able to leave their homes, expatriates being evacuated and overseas investors having cold feet after seeing television and internet feeds. This has affected the pace of such business as it now unfolds again in those territories that seem to have calmed. However, the perception of tension is still there and it will be interesting to see what the long-term effect of that will be on regional business as the short-term normality returns.

In the meantime, in addition to private client work, law firms that also offer reputation management, immigration and Islamic structuring advice have seen a pick up in work from private clients in the region. In revolution-type circumstances the mere suggestion of an 'inappropriate' allegiance of a family by state-controlled media can prompt a need to flee. Even those who are politically unaffected may no longer be confident of holding portfolios or keeping their family members locally and they are taking pre-emptive steps to plan, from seeking Commonwealth passports to establishing trusts.

The net effect fits with chaos theory: the butterfly may have waited until the spring to flap its wings, but the winds are certainly not all moving in one direction.

Mustafa Hussain is a Middle East specialist within the wealth group at Taylor Wessing.