Corporate Governance in Family Owned Businesses: Importance of Constitution and Governance

By Saleh Hussain

The book deals with the features, characterastics and forms of Family Owned Businesses and their importance to the economy of world at large. It gives statistics about FOBs in the Gulf and Middle East. It also include the following:
- The need for a rebust Corporate Governance
- Family Constitution
- Strong Risk Management System
- How to prepare for going Public
- Corporate Social Responsibility examples.

• Language: English
• Publisher: eBookIt.com
• Release date: May 3, 2017
• ISBN: 9789995890100

Book preview

Author’s Note

My journey with Corporate Governance started in 1998, when asked by my son Esam, who was then studying in United Kingdom for his MBA, to help with providing reference materials on the subject. Reacting to that request, and in fact reacting to the new terminology of Corporate Governance (CG), prompted a desire to investigate the meaning and application of CG. I read then good number of research papers on the subject. In 1999 and 2000 I attended an annual conference called International Corporate Governance Conference at Henley Management College, currently known as Henley Business School. I continued to attend the conference on annual basis until 2002/3.

During the years I attended those conferences I met Prof Chris Mallin, who has active interest in the subject. We discussed the issue at length and agreed to undertake a field study on "Corporate Governance in the listed Companies in Bahrain. I did the field- work, collected the data and information and sent to Prof. Mallin for analysis. The paper was published in 2002 under the joint names of Prof. Chris Mallin, University of Birmingham and Saleh Hussain. Corporate Governance: An International Review, Vol. 10, pp. 197-210, 2002

We then worked jointly on another paper Dynamics of Corporate Governance in Bahrain. We published the paper in 2003 in the "Journal of Corporate Governance. Corporate Governance: An International Review: Volume 11, Issue 3, pages 249–261, July 2003.

Since 2002 until 2015, I continued the journey into Corporate Governance. As of the time of writing this book, I have authored around twelve books on the subject in Arabic and English languages.

Furthermore, in complete departure from my position as General Manager of a bank, I decided in 2007 to establish my own consultancy firm specializing in provision of corporate governance services which include: writing new CG manuals for clients, assisting with implementation and conducting training sessions to Board Members and members of executive management.

Bahrain is the first among Gulf Cooperation Countries (GCC) to issue a comprehensive Corporate Governance Code. The Bahrain CG code was issued in March 2010 by Ministry of Industry and Commerce (MOIC) and Central Bank of Bahrain (CBB).

The code made it mandatory to comply for all financial institutions & Banks and listed companies operating in the Kingdom of Bahrain effective January 2011.

In drafting the code, Bahrain formed a national committee with members from public and private sectors. I was given the honor and opportunity to be a member in that committee.

The regulators in this part of the world, Middle East and GCC in particular, have been working on introducing CG guidelines for the past few years. They continue to upgrade those guidelines as we speak. The target applicants of the so far issued regulations are the listed companies and financial sector in the region. Both listed companies and financial sector represent between 15% and 20% of total GDP in the Middle East and GCC. The remaining major portion of the economy approximately 80% remains outside the domain of requirements and mandatory application of CG requirements. This 80% represents government and family owned businesses.

I have included in some of my previous books a chapter or two on CG in Family Owned Businesses and Government Owned Companies. But I thought that was not enough.

Hence, I thought of writing more about family owned businesses FOBs and this book is on the very subject. The importance of family owned businesses to the economy of the world cannot be over emphasized. The contents of the book will provide the respected reader with a lot of information, facts and statistics about FOBs worldwide, in the Middle East and in GCC.

The FOBs represent major contribution to any country not only through the businesses they own and control but also through their various ownerships outside their direct businesses through shareholding in other businesses in any economy internally and externally.

As FOBs develop and expand, the need arise for them to address many organizational and governance issues. If they chose to voluntarily address these issues, they are the winners but if they wait then they might be subjecting their business to difficulties or asked by regulators to comply with CG and other regulations while they might not fully prepared.

They have the choice for now but not for long.

Saleh Hussain

August 2016

Introduction

Fact #1 : Families who work well together often build strong businesses that are hard to compete against.

Fact#2: Families who struggle to work well together simply find it hard to compete.

Relationship Advantage Inc.

Family Owned Businesses (FOBs) are the very important streamline of blood or oil or both, for the engine of the world economy. They represent no less than 75% of entire world General National Products (GNP). The FOBs employ between 35% to 65% of workforce in any one country. The weight they carry entitles them to have undeniable impact on the social and financial dimensions of any economy.

In this book, we look at the importance of FOBs, their contributions to the world economy and the issues they need to address to overcome structural, governance and business issues. Relationships between owners of FOBs and their siblings and relatives, if not clarified, could break the backbone of FOBs and cause some of them to vanish. Most of FOBs vanish when they reach third generation and the most alarming cause is lack of proper governance system.

The FOBs have a common problem. This problem revolves around their inability to segregate and resolve family position from ownership and management. We try in this book to shed light on the challenges facing FOBs and the opportunities open to them to prosper and advance.

The book contains SEVEN chapters. Chapter ONE gives an introduction about family businesses and various definitions of FOBs.

Chapter TWO deals with facts, figures and characteristics of FOBs on worldwide basis, Middle East and GCC. The stated facts and figures in the chapter were derived from respected sources and good number of them represents studies and surveys conducted by professional institutions.

Chapter THREE deals with challenges and opportunities of FOBs and gives SWOT analysis of their businesses.

Chapter FOUR addresses the need for introducing Corporate Governance practices to be embraced by FOBs. Contents of CG practices as detailed, cover important areas such as role of Board of Directors, Board Committees, Succession Planning and internal & external control. In addition, the chapter discusses the need for a robust risk management system and compliance environment. To have a strong CG, you need to have in place number of policies and procedures. These are covered in this chapter as well.

Chapter FIVE explains why a family constitution is important for FOBs. The contents of such document are included. Role of family assembly, advisory board and committees are among many issues covered in the constitution.

Chapter SIX addresses the option for FOBs to go public. It explains the pros and cons of going public and the need to plan for an IPO. Examples of GCC family businesses that went public are given.

In Chapter SEVEN we talk about the role of FOBs and Corporate Social Responsibility. The support of CSR by FOBs has a number of rewards for them. The clarity of appreciation CSR by FOBs makes a win-win situation for the companies and the society.

We hope that contents of this book prove to be useful.

Chapter 1

Family Owned Business Defined

There is a need to define Family Owned business and there are difficulties to do that. The need to define is important to know in general terms, what it is we are talking about and what terminology we use and how people understand such terminology. Regulators too need to have a clear definition to ensure that relevant laws and regulations are directly linked to the right definition.

The difficulties