In Saudi Arabia, business runs in the family
Family businesses play a crucial role in the global economy. If taken together, the top 500 would constitute the world’s third-largest economy, accounting for about $7 trillion in annual sales and employing more than 25 million people.
In this respect, Saudi Arabia is one of the most prominent countries in the region. According to the Family Governance Forum, there are an estimated 538,000 family businesses in the Kingdom, 63 percent of the total operating enterprises. They contribute $216 billion to the gross domestic product of Saudi Arabia, and employ about 7.2 million people, 52 percent of the total workforce.
In family businesses, decision-makers are often from the family that owns the company and leads it over successive generations. An important strength of such companies is their fixed activities and the focus of their owners on managing its affairs. Many family members join the company at an early age, and quickly learn the mechanism of the work, their responsibilities, and how to manage the company and understand the nature of the market that it operates in.
Family businesses face many legal challenges, including the overlap between ownership and business interests, which can threaten the company’s sustainability. It is important to emphasize professionalism in the management of a family business, especially at that potentially tricky time when the reins of power are being passed from the founding generation to its successors.
To address this challenge, and in the understanding that company owners do not necessarily possess the skills and experience to manage, many family businesses have separated ownership from management and have appointed an independent professional board of directors.
Another potential challenge is that traditional management methods may be viewed by succeeding generations as out of date, while the founding generation may be reluctant to take younger family members’ opinions into account when making decisions. It is a fact that in such businesses personal family issues can affect management matters, and vice versa.
The most comprehensive solution to these issues is effective corporate governance, which takes place in several phases. It begins by embracing the goals of governance and the belief in its impact on business sustainability and development. Obviously, the principles of good governance provide a long-term vision for the future of the company, the status and role of senior executives, defining the ability and powers of executive committees to deal with the board, the preparation of strategy and regulations, risk management, and control mechanisms.
An important step in improving understanding of the mechanism of family businesses was the establishment by Commerce and Investment Minister Majid Al-Qasabi of the National Center for Family Businesses, at the Chamber of Commerce in Jeddah. The aim is to promote family values, sustainability and growth, and increase the chances of a business’s success.
Dimah Talal Alsharif is a Saudi legal consultant, head of the health law department at the law firm of Majed Garoub and a member of the International Association of Lawyers. Twitter: @dimah_alsharif