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Governance, succession issues still hound GCC family firms – Banking & Finance

Family businesses in the GCC region face serious challenges in a highly competitive modern-day business environment, according to a new report.

Orient Planet Research’s study said key issues such as corporate governance and succession continue to stalk family-led enterprises in the region.

According to the report, governance, financial and succession concerns are turning into challenges due primarily to the force of globalisation, the rising number of family members in each generation, the growing size of the company, and the difficulties associated with succession planning.

Over half are currently transitioning from second to third generation, with many unprepared for succession, it said.

Nidal Abou Zaki, managing director, Orient Planet Group, said: “Many leading GCC corporations are still being run by family dynasties today. While family businesses may have some advantages over other business entities, especially in terms of commitment to quality and care and concern for their employees, they still face unique management issues.”

In the GCC, between 70-80 percent of the private sector belong to this category, making family-run enterprises the backbone of regional economies.

In the list of top 65 families based on wealth, the average family net worth in Saudi Arabia stood at $6 billion followed by the UAE and Kuwait, while the entire MENA average stood at $4.5 billion.

The largest GCC family-owned businesses collectively generate $100 billion in annual revenues, according to a recent study by the Gulf Family Business Council (GFBC) and McKinsey & Company.

As the second largest shareholder after the government, family-controlled businesses substantially drive the national economy of GCC countries and collectively represent a significant variable in the development equation of the region, the report added.

The report found that a structured governance process and succession planning are crucial especially since these businesses are expected to undergo a generational change over the next five to 10 years. Currently, over half of these businesses are transitioning from their second to their third generation, and many are unprepared for the succession.

In terms of corporate governance, for instance, there is still a pressing need to implement higher standards to pave the way for better access to finance on more favourable terms and improve the ability to attract foreign investment and stronger talent.

The report notes that although business owners generally view corporate governance as good business practice and recognise its value, most of them have not fully adopted modern global corporate cultures.

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