How Corporate Governance Protects Family Businesses and Preserves Family Values

The family-owned business has long formed the bedrock of the Middle Eastern economy, constituting as much as 90% of all companies and contributing around 60% of GDP in the region.

Download Brochure

CG for You

Traditionally, family businesses have been reluctant or resistant to introducing corporate governance structures, perhaps viewing them as unnecessary or disruptive to their business model. A common misconception held by such businesses about corporate governance is that it removes or reduces the family’s control over their affairs. In fact, implementing an effective governance framework can often strengthen the business by embedding family values into the DNA of the business, while protecting against disruption and inter-family disputes and grievances. The potential benefits are significant both in terms of current performance and future growth and stability, protecting the value and unity of the family business for subsequent generations.

Protecting the family

The nature of most family-owned businesses means that executive and decision-making power is initially concentrated in the hands of a few individuals, but as the number of family members involved in the organization increases with each succeeding generation the business can become disorganized and disputes can arise. An effective governance framework makes clear the line between business and family matters, helps ensure each stakeholder has clear expectations about their roles and responsibilities, and provides a level playing field in terms of accountability, with no distinction between family and non-family members.

Sustainability

Long-term planning is especially important for the majority of family-owned businesses in the Middle East which are currently transitioning to the third generation. In our experience, this transition is a period of particular fragility, with under a third of family businesses surviving this stage intact. Succession planning is an essential tool for any organization, but in the case of family businesses, it is particularly relevant, as there may be a disconnect between the traditional model of inheriting ownership control versus a merit-based model which considers the best strategy for the health of the business.

Facilitating investment

When a family business is seeking outside investment, transparency is vital in proving to potential shareholders or lenders that their interests will be recognized and addressed on equal terms with those of the controlling family. This perceived extra risk can substantially increase the cost of borrowing, or limit the pool of investors available to provide capital. We find that family businesses that demonstrate effective governance are better placed to attract outside investment, whether from shareholders or financial institutions.

Corporate governance strengthens, rather than weakens, family businesses.

If properly managed, transitioning from the informal structures which many family businesses in the Middle East are built on to a model which incorporates best practice in corporate governance will complement rather than detract from the unique advantages and strengths of a company. In our experience, family-owned businesses that adopt a solid governance framework find themselves in a best-of-both-worlds scenario. They are able to maintain the drive, passion, and trust that comes with family control while building the transparency and accountability needed to manage internal disputes, disagreements, and changes in leadership with the minimum amount of friction, and successfully attract investment or access external capital. Ultimately, corporate governance is a key element of good stewardship, strengthening the foundations of family businesses, and ensuring they continue to thrive.

Want to test your Corporate Governance knowledge?

Click here for a quick quizz

Interesting Facts

Did you know that less than a third of family businesses survive beyond the tenure of the founder? Or that only 5% to 15% remain under the control of the founding family into the third generation and beyond? Download our infographic to find out more interesting facts about the unique situation and challenges faced by family businesses in the Middle East.

Download full infographic
family

Our Services

Download our brochure to learn more about what we can offer for Family Business

Download Brochure

Not sure what service you need?

Take our Corporate Governance Self-Assessment

Upcoming Trainings

We offer a range of capacity-building programs to help family businesses implement good corporate governance, institutionalize their values, manage generational change, and protect and sustain their businesses.

If you have any questions or would like to reach out to us on the programs, please email: [email protected]

Our Experience

MEIoD has worked with a broad range of family businesses within the Middle East over the last ten years, helping build stability and sustainability into their business model, improve succession planning, attract and retain talent and enhance their ability to source inbound investment and funding.

See full client list

Testimonials