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Bringing the family business community together

Governance Practices In GCC Family Firms

23rd June 2015 Paul Andrews

Joint research report published by The Pearl Initiative and PwC based on governance practices in GCC family firms.

The global economy is built on the family firm. Many of the largest multinational corporations began as family firms, and around 90% of the world’s businesses can be defined as family firms, both in developed and emerging markets. The majority are small and medium-sized enterprises (SMEs), but some are very large companies, especially in the Gulf Cooperation Council (GCC), where many such firms started life as small trading concerns, but over two or three generations have grown into substantial diversified conglomerates, covering sectors as diverse as retail, automotive, construction, import/export, shipping, insurance, agriculture, financial services, real estate and manufacturing.

In fact, in the Gulf region some 80% of gross domestic product (GDP) outside the oil sector is generated by family businesses.

Family firms here have benefited from dominant positions within their own markets and little effective competition from overseas, robust trading networks within individual markets and strong relationships with the banks, which until the recent financial crisis, made access to finance far easier for GCC firms than it is for family businesses elsewhere in the world.

There are many distinguishing characteristics of the family firm.  The single most obvious point of difference, of course, is the ownership structure, and while this tends to take the form of direct and total family control, some firms also have non-family shareholders and/or executives, and a stock market listing is quite common, especially in Asia.

The family ownership structure also leads to notable differences in corporate governance provisions and companies operating within widely different cultural and social contexts need a governance framework that reflects this, especially in relation to sensitive issues such as Board structures and succession arrangements. In the GCC there are a number of firms with very few formal procedures, and while this may have worked well for the founders, the potential for conflict grows with each transition to a new – and by definition larger – generation of family shareholders.

This is one reason why family firms in the Gulf region are becoming more aware of the importance of good corporate governance and the role it can play both in ensuring sound management within the firm and in attracting external customers, investors and business partners outside it. Awareness of these factors has definitely increased in the last five years, but there is still more that most GCC family businesses can do to improve their practices in this vital area.

This Report sets out the findings of an in-depth analysis of corporate governance in the GCC family business sector. The aims of the Report are to:

1. Raise awareness and understanding  on governance issues, trends and  existing practices amongst GCC  family firms.

2. Enable family firms to benchmark their  own business against others in the  region and gain insight from how  similar businesses address these issues. 

Download the report here and find out more about the governance challenges facing family firms in the GCC region.  This report has been publsihed with the permission of PwC.

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