Middle-east Arab News Opinion | Asharq Al-awsat

Debate: Family-owned businesses still have a role to play in Gulf economies | ASHARQ AL-AWSAT English Archive 2005 -2017
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File photo—Traders work at Egypt’s Stock Exchange in Cairo on December 8, 2013. (REUTERS/Stringer)

Modern world economies have significantly evolved beyond individual and family methods of business ownership. However, these types of businesses, whether small, medium-sized or large, continue to play a significant role in the basic sectors of a number of advanced and emerging economies. As is well-known, before oil became the main source of national income in the Gulf, the business world in the Arab Gulf was established through the efforts of business-owning families that developed significant economic ties between the region’s different countries such as Saudi Arabia, Kuwait, Bahrain and the United Arab Emirates, as well as other countries, such as India, Iraq, the Levant countries and east African countries.

Despite the legal and administrative developments governing businesses across the region, family-owned companies continue to have a significant role in the economy of the region, engaging in important sectors such as commercial agencies, manufacturing industries and financial firms. These businesses may hold companies that own shares in related companies, banks or investment portfolios inside and outside the Gulf countries.

Some family businesses in the countries of the Gulf Cooperation Council (GCC) own financial and property assets estimated at billions of dollars whether in real estate, industrial companies or listed shares. Without doubt, these businesses are now facing serious challenges given the economic and legal developments, which require modern methods of decision-making on investment or business administration. Also, the issue of ownership being passed down from one generation to another may be among the most significant challenges, particularly when heirs lack the proficiency and diligence of the business founders and in some cases can completely undermine it.

The experiences of developed countries may prove useful in terms of the process of developing and transferring family-owned companies into joint stock ones in a bid to help reduce financial and administrative dilemmas. Germany is one of those countries that depended, through its economic development, on family-owned companies. This was the case until the 1980s when family-owned businesses were the prevalent pattern for owning business. When the founders of these companies became long in the tooth, they determined to transform their companies into joint-stock ones, making profits from listing shares. Having reconstructed their companies, the founders, with the agreement of the new shareholders, would then continue to run the companies. Indeed, many owners of family businesses made significant profits through this process of reconstruction.

The lack of developmental and creative capabilities poses another significant challenge to the family-owned businesses. This may arise from dependence on family members who may be professionally and technologically unqualified to run the companies. However, many family-owned companies in the GCC have come to rely on modern administrations, appointing scientifically and professionally qualified staff to relevant positions.

Examples of family-owned companies that have successfully transformed themselves over the past years into private or public joint-stock companies include the Saudi Zamil Group Holding Company. The Kharafi Group in Kuwait has also become the equivalent of a holding company, owning shares and assets in a variety of companies listed on Kuwait’s stock market or in other Gulf, Arab and international companies. Needless to say, such transformations may help address issues relating to inheritance and resolve differences that may ensue among heirs concerning rights ownership or management methods. What’s more, family-owned companies can make big profits from listing their shares and thus generate capital in a bid to expand their activities or develop the current ones.

With determination, family-owned companies can continue to improve their performance, develop productivity levels and adopt developmental and creative mechanisms. Therefore, no one can simply assume that the role of family-owned companies will diminish, particularly when current challenges can be dealt with through employing modern and appropriate administrative techniques and mechanisms. There may be better legal methods for owning businesses, but joint-stock companies, particularly those listed in the stock market, may facilitate better mechanisms for dealing with partners or choosing better executive administrations.

This does not in any way mean the end of family-owned companies in this part of the world. Allowing owners of these companies to develop themselves in a manner that serves their economic interests is by far the best way of strengthening the economy

The counterpoint to this piece can be read here.