Implementing corporate governance in Saudi family businesses
Family businesses, which represent the larger share of Saudi Arabia’s economy, are now more aware of the need to apply methods of corporate governance in their business models so as to protect their interests.
The Saudi Gazette said on Friday that this development might be the consequence of the global financial crisis in 2008, which saw family businesses defaulting.
Good governance was one of the topics discussed at the Family Business Forum held Tuesday at the Al Sharqia Chamber of Commerce and Industry in the eastern province of the Kingdom.
Speakers talked about how family-owned enterprises could play a more significant role in the country’s development. The forum was held in association with the GCC Board Directors Institute (BDI).
Abdulrahman Al Rashed, Chairman of the Chamber, said at a news conference: “In challenging economic times, good corporate governance practices have never been more important and with a significant percent of the eastern province's economy being based on family-owned businesses, there has never been a more opportune time and context to hold this forum.” (Mr. Al Rashed is a namesake of, but not related to, Abdulrahman Al Rashed, General Manager of Al Arabiya.)
Abdulla M. Al Zamil, Chief Executive Officer of Zamil Industrial, one of the largest family-managed and owned diversified groups in the Kingdom, said: “Saudi Arabia is slowly moving toward the implementation of a truly professional corporate governance regime, a business reality not known some 30 to 40 years ago.”
Mr. Al Zamil was talking to Saudi Gazette about how more family-owned businesses are focusing their attention on implementing a more proficient form of corporate governance.
He said that process would take time before aspects of it are fully implemented in family businesses. “[That’s why this forum] is important. It is telling owners of family businesses that it is in their interest they embrace corporate governance [techniques] into their businesses,” he said.
Regarding money owned by members of families, including women who have huge amounts of money in banks, Mr. Al Zamil said that in addition to managing cash flows well, there are now investment portfolios available for investing that cash.
“There are investment companies that have created channels where dormant monies can be invested—like mutual funds, local share funds, and others,” he said.
He also said a new generation in family businesses is now more educated and has realized that money sitting in banks, unproductive and untouched, should be invested in productive ventures. “This is where corporate governance comes in,” he said.
Amin Nasser, Partner of the Middle East Family Advisory Leader at Pricewaterhouse Coopers International in Dubai, said he was not surprised to find Saudi businesses had advanced corporate business working styles in comparison to other Gulf nations.
“There is more implementation of corporate governance in Saudi Arabia,” he said, adding, “Many of these Saudi family businesses are establishing professional boards to run their businesses and are setting up remuneration plans.”
Mr. Nasser suggested that Saudi family businesses, when establishing corporate governance, should also create their own family boards, in addition to one managed by professional managers.
The boards should be distinctly separate, he said.
“As is in accordance to corporate governance, a family business should have its own constitutions and by-laws, exercise accountability, and commit itself to fairness,” Mr. Nasser said.
In a survey conducted by Pricewaterhouse Coopers in 2010 involving some 1,600 executives working in 15 industrial sectors over in 35 countries, including Saudi Arabia, it was found that most family businesses fail because they lack a succession plan, suffer family conflicts, and fail to consult other members of the family which is indicative of lack of communication.
Mr. Nasser said about 70 percent of families in the Middle East are saddled with conflicts.
According to a report in the Saudi Gazette, in the Middle East, over 80 percent of family businesses are either owned or controlled by families. Many are now managed by second to third generations of managers.
(Ikram Al Yacoub, a writer at Al Arabiya, can be reached at: email@example.com)