Formalising The Family Firm At Al Majdouie Group
16th January 2015 Paul Andrews
Focusing on the future at the Al Majdouie Group, one of the biggest transport and logistics firms in the Middle East.
Al Majdouie is one of the biggest transport and logistics firms in the Middle East, with 7,000 employees working not just in Saudi Arabia but all across the Gulf. The company was founded in 1965 by Shaikh Ali Ibrahim Al Majdouie, and all his five sons now work in the business, and sit on its board.
And as the family has grown, so has the firm, expanding into automotive, manufacturing, food, steel, real estate, and training and education.
Such ‘horizontal’ expansion is a typical business pattern in the region, with many private companies growing by diversification into successful conglomerates. Family firms often find it particularly useful as a model, as it opens up more opportunities for individual family members to run their own divisions.
Though the conglomerate approach can have challenges as well as advantages: as Abdullah Al Majdouie, the group’s president, says, “it’s good in that it spreads your risk when times are tough, but it brings its own risk in that you can lose focus if you try to be equally proficient across a whole range of different sectors.”
But so far, the strategy has been very successful: “We are looking at the energy industry, and our training and education business is opening up a whole new sector for us.” Abdullah believes that the only way to survive is to grow, and that includes exploiting the full potential of digital: “That’s not an option any more, it’s necessary to keep the business alive. We have a dedicated communications unit for social media, interacting with customers and managing our online reputation.”
Focus on good governance
In the last ten years the company has been through a significant restructuring, and adopted a far more rigorous approach to both corporate and family governance. For example, the third generation, who are now taking up their own roles in the firm, have to work outside the business for at least three years first. As Abdullah Al Majdouie says, “In the early days, we needed everybody in the family to be part of the company. But now we think they have to earn it. They have to go through the stages of career development.”
The company also has two independent external directors on the board, and very much not as ‘window-dressing’: “They are there to support and advise us but not necessarily to agree with us,” says Abdullah. “We have agreed with the family that we have to have a mix of family members and non-family members throughout the business, because this will ensure we benefit from new ideas and don’t fall into one way of thinking. One thing we’ve learned is that, whatever the cost, you have to bring in talent to grow. It’s our number one challenge - getting the right people.”
Succession planning is a key part of that. As Abdullah acknowledges, it is usual practice in the region for the eldest son to take over (and he is also the eldest in his family), “But that doesn’t always mean that the eldest is the best candidate. A conventional company can advertise and hire the best, but when it comes to family businesses, a lot of emotional issues come into play. That is why the transition should be planned well, and that takes at least three, four, five years, if you do it the right way. I have already told my brother Yousef that he should prepare himself to take over in the next couple of years, and I am now involving him in elements of my role that are not part of his current job, just as my father gave me the chance to learn and make mistakes, but under his supervision and guidance. It’s all about cycles – the business has to go through cycles, and the family has to go through cycles. We’re all realistic about that.”
Abdullah is also realistic about the potential for conflict, especially as the family grows: “When you’re a family business it's not an employer and employee relationship. It is partner to partner, regardless of the age differences - regardless of whether you have been in the business for 30 years and your younger brother just came in yesterday.”
But he is confident that a combination of robust governance, strong values and open dialogue is the best way to prevent conflict before it arises, and ensure the long-term survival of the business: “In some ways the soft part is even more important than the hard part. The hard part is governance, and the soft part is the values - the values that are embedded in the family members right from their childhood, and which they all share.” Abdullah believes this has been the foundation for Al Majdouie’s success, and if you ask him what he is most proud of, the answer is immediate: “Our family cohesiveness.”
This article has been reproduced with permission from PwC who undertook a series of interviews as part of their 2014 Global Family Business Survey. To find out more about the survey and the services offered to family firms by PwC please click here.