Saudi Arabia’s family businesses, which control a big chunk of the largest Arab economy, are considering enforcing strict corporate governance rules to safeguard their interests following the 2008 global financial distress and a severe debt default problem involving two domestic family firms.
Senior family business leaders in the world’s oil superpower discussed the plan at a family business forum held in the eastern port of Dammam this week and one of them said there is a trend for the introduction of governance rules that had been almost virtually absent in family companies.
“Saudi Arabia is slowly moving towards the implementation of a truly professional corporate governance regime, a business reality not known some thirty to forty years ago,” said Abdulla M. Al-Zamil, chief executive officer of Zamil Industrial, one of the largest family-managed and owned diversified groups in the Kingdom. “More family-owned businesses are focusing their attention in the implementation of more proficient corporate governance,” he said in an address, carried by the Saudi English language daily Saudi Gazette.
He said the implementation of corporate governance within the Saudi family businesses is an “involving process” and will take time to be fully enforced by family corporate groups in the Gulf Kingdom.
“Conference and forum, such as this Corporate Governance in Family Business Forum, is important. is telling owners of family businesses that it is for their interest to embrace corporate governance as the way to conduct business.”
Regarding money owned by members of families, including women who have huge amount of money in banks, Al-Zamil said that in addition to the need for these cash to be well-managed, there are now investment portfolios available where these stashed cash can be protectively invested.
“There are investment companies that have created channels wherein these dormant monies can be invested, among them mutual funds, local share funds, and others,” Al Zamil told delegates from Saudi Arabia and other Gulf states.
He said family business members are now more educated and have realized that money sitting in banks, “unproductive and untouched,” should now be invested in productive ventures. “This is where corporate governance comes in when these family members go into business,” Another delegate at the forum said he is not surprised to find out that corporate government among Saudi businesses is more advanced than other similar groups in other Gulf countries.
“There is more implementation of corporate governance in Saudi Arabia; and that many of these Saudi family businesses are establishing professional board to run their businesses and are setting up remuneration plans,” said Amin Nasser, Partner of the Middle East Family Advisory Leader at the Pricewaterhouse Coppers International in Dubai.
Nasser suggested that Saudi family businesses, in establishing corporate governance, should also create their own family board, in addition to the business board managed professional managers.
The family board of directors and the business board composed of professional managers should be distinctly separated, he said.
“In its exercise of corporate governance, a family business should have its own constitutions and by-laws, exercise accountability, and commit itself to fairness.”
In a survey conducted by Pricewaterhouse Coppers in 2010 involving some 1,600 executives working in 15 industrial sectors in 35 countries, including Saudi Arabia, it was found out that failures of most family businesses is due to the lack of succession plan, family conflict, and failure to consult other members of the family which is indicative of lack of communication.
Nasser said about 70 percent of families in the Middle East are saddled with conflicts. He noted that over 80 percent of the family businesses in the region are either owned or controlled by families. “Many are now managed by second to third generations of managers.”