Family businesses make up over 85 per cent of the whole Arab World’s non-oil GDP, and have significant influence and sway, both societally and politically as a result of their extensive networks and relationships.
Badr Jafar, Managing Director of the Crescent Group and CEO of Crescent Enterprises, a UAE-based conglomerate operating across multiple core sectors of the global economy, addressed the World Economic Forum in the Dead Sea in Jordan on the key role that Arab family-owned businesses can play in global economic development.
Jafar explained that as a result of this influence, “Family businesses across the Gulf Region and the rest of the Arab World have a major opportunity to positively engage in dealing with the socio-economic challenges that exist in our Region, including the massive youth unemployment, skills deficit, and inadequate ecosystem for promoting entrepreneurship.”
“However without actions to institutionalize and professionalize their governance structures, family businesses face large risks of major destruction of value,” Jafar added.
Almost three-quarters of the Region’s family businesses are owned and managed by the second generation, with only 5 per cent in the hands of a fourth generation or beyond.
Global statistics show that less than 10 per cent of family businesses globally continue to create value beyond the third generation mainly due to this value being destroyed as a result of inadequate succession planning, and so with over $1 trillion of assets set to be handed over to the next generation in the next five to ten years, according to a recent report by the IMF, without the right corporate governance frameworks in place there is significant scope for conflict and complications which will in-turn reverberate across all sectors of Arab societies.
A recent PWC survey revealed that only 42 per cent of family businesses have a shareholders’ agreement in place, and more than three quarters currently have no procedures in place to deal with conflict.
Jafar explained that even though many similar qualities are shared by family businesses across the world, it is important to view the family business in its cultural and economic context to understand its achievements and identify its needs. According to Jafar, Arab family businesses take great care in transmitting their values not only to the next family generations but also to their stakeholders.
These traditions are grounded in a culture and value system that focuses on the longer term, an approach to commerce that is set in a wider context of sustainable human endeavor. Jafar added that “The West’s studied separation of management and ownership, and its often frenzied focus on quarterly results, does not fit immediately and comfortably into our culture. Arab family businesses are strongly embedded in their communities and consider themselves responsible not only for their own welfare but also for that of the people around them. The family’s measure of commercial success lies more in retaining a strong family business culture and providing ongoing security for the family than it does in simply making profits. We as family businesses must go after success, not profits.”
According to Jafar, family-owned businesses must be seen not only in terms of assets but as a combination of property and values. That is, family businesses have implications that involve more than merely serving a financial purpose; they are a means of sharing certain values and providing a service to the community in which it is integrated. This is why, at a time when executives, investors and even public opinion bemoan the lack of values in the corporate world, family-owned businesses are shaping up to be the role models to watch. According to the recent PWC survey, Arab Family businesses are thriving, with over 83 per cent of surveyed businesses reporting a growth in sales over the past year as compared with 65 per cent globally.
“With success comes deep responsibility and we as family business in the region must actively seek to play an important role in addressing some of the challenges that our great region of the world faces,” Jafar added.
The role of women was emphasized as being of paramount importance to the health of the region and its economic development. According to cited reports, there is a direct correlation between a societies’ gender diversity and its financial success.
Badr Jafar highlighted that “there is a bad mismatch in the Arab World today, where the highest rate of education is among our women, but women also suffer from the lowest rate of employment. Family businesses have the best opportunity to engage more women in leadership and management positions in the companies, which in turn will have a direct positive impact on the health of their economies.”
Concluding his remarks to the World Economic Forum, Mr Jafar stated: “The growth and development of the Arab family business within the last two decades has shown that the journey from family to broad equity-based ownership is not the only path on which a successful company can travel. In addition, the combination of ownership and management which family businesses offer can and, indeed, should provide the basis for a new way of economic thinking. Adapting the previously dominant profit maximization motive to allow for more long term thinking regarding people and resources is perhaps more in the gift of a family business than its fully quoted counterparts”.
Jafar was joined on the high-level panel by Omar Alghanim, CEO of Alghanim Industries, Samer Khoury, President of Consolidated Contractors Company (CCC) and Iyad Malas, CEO Majid Al Futtaim Holding.