Corporate Governance in Family Owned Businesses. Saleh Hussain

see it as one of the most important ways to secure the long term health of the business and improve transparency, efficiency and access to capital and talent

      •However, CG is a lower strategic priority at present in comparison to wider operational and commercial concerns and overall profitability

      •The top governance issues to GCC family firms are succession and management of conflict

      •Other issues include, transparency and accountability, management structure and improving rules and processes and better Boards

      •The need to address the family governance and the need for a more rigorous approach to help separate family concerns from business concerns

      On another front, a large number of commercial, service and not-for-profit companies are managed by owners or members of families. Hence, the interrelationships between family and non-family businesses are complex and influential in terms of control and interest. Despite the importance of the FOBs in the economy of every country, we still see an absence of them in the legal requirements for corporate governance in the same way other types of companies are included.

      Taking into account the fact that the stakeholders to which the FOBs direct their goods and services are the same as those targeted by other forms of businesses and companies, we fail to see the logic in excluding them from the requirement of corporate governance laws. Application of the corporate governance requirements to FOBs will assist in a significant way, taking into account their importance to the economy and in strengthening and promoting the good practices of any corporate governance regime.

      h.Advantage Consulting in its report, referred to above, compares the characteristics of FOBs regionally and internationally as shown in the following table:

Regional	International
Businesses are decades old and often still in the hands of the first generation	Family owns more than 50%
Vast number of investment opportunities are available, so the family diversifies	More than one generation is involved in the running of the business
Availability of capital and opportunities encourages investment outside of core competency	Business tends to have a core focus
The family generally involves itself in the day-to-day running of the businesses it owns or is invested in	Family involved in day-to-day operations
Some select most suitable manager to run their businesses
Lack of transparency	Striving for transparency due to regulatory requirements
In many cases, family acts more as an asset manager than as an operator

      i.ATKEARNE, in their paper, “Family Business in the GCC: Putting Your House in Order (2010), gives the following characteristics for the success of family businesses in GCC:

      -Strong entrepreneurial spirit and exceptional leadership.

      -Solid political and business relationships.

      -Intimate knowledge of regional and international high growth markets.

      -Limited Competition from international companies.

      -Access to abundant liquidity and a low cost workforce.

      -Unique Corporate Culture.

      j.A study by Dianna H B Welsh and Peter Raven, “Family Business in the Middle East: An Exploratory study of Retail Management in Kuwait and Lebanon, interestingly looked into following areas to link them to the type of family businesses in the Middle East. These areas include: The influence of Religion, the Influence of Family, the influence of nationality and the influence of culture. These areas of influence impact the business generally and family businesses particularly.

      k.Bahrain Family Business Association: publication titled “Assessment of Family Business Enterprises in the Kingdom of Bahrain” list the following key findings of a study conducted on the FOBs in Bahrain:-

      -The family businesses feel satisfied with their current strategic planning process;

      -The Corporate Governance in the surveyed companies showed weaknesses but was not raised as a major concern.

      -There is a serious gap in succession planning

      -Majority surveyed companies do not see going public is important to them.

      The study gave the following recommendations and conclusions:

      -FOBs, need to establish a clear strategic direction and plans with annual review of these plans.

      -Introduce continuous change and upgrade to IT systems;

      -Have an effective Governance structure

      -Well defined management and ownership changeover.

      -Well defined succession planning

      -Build a capable and talented management team.

      -Focus on becoming performance oriented.

      2.5. Stages of FOB – Ownership and Common Issues

Ownership Stage	Dominant Shareholder issues
Stage 1: The Founder(s)	•Leadership transition •Succession •Estate planning
Stage 2: The Sibling Partnership	•Maintaining teamwork and harmony •Sustaining family ownership •Succession
Stage 3: The Cousin Confederation	•Allocation of corporate capital: dividends, debt, and profit levels •Shareholder liquidity •Family conflict resolution •Family participation and role •Family vision and mission •Family linkage with the business

      Source: IFC