GCC family firms are becoming more aware of the increasing importance of corporate governance but it is still not yet a high strategic priority, according to a new research report “Family Matters, Governance Practices in GCC Family Firms”, conducted by the Pearl Initiative, the GCC-based, private sector-led, not-for-profit organisation set up to foster a corporate culture of transparency, accountability, good governance and best business practices in the Arab world, and PwC the leading professional services organisation.
The research programme involved interviewing over 100 family firms across the GCC and covering all major industry sectors. The research drew intelligence from family firms operating in single and multiple markets, as well as taking a cross-section of companies under first, second, third and more generations of family management.
A key focus of the report is to recognise the importance of corporate governance in family firms and to understand the issues surrounding implementation. As ownership passes from one family generation to the next, the report highlights that the key drivers to improve governance and transparency are linked to the desire to develop and pass on a healthy and efficient organisation to the next generation.
The research shows that there is growing appreciation amongst family firms of the importance of a strong well-functioning Board that acts as the right interlocutor between the family and the company. 55% of the family firms interviewed have Board members from outside the family, and 42% of firms have at least one non-family non-executive director on the Board. The value of independent directors is becoming more recognised, especially where they bring strategic, corporate governance, legal and finance skills. Family firms with independent directors cite improved Board dynamics as a benefit, in that it can add increased planning, discipline, strategic focus and structure to Board meetings, with key decisions less likely to be made by-passing the Board.
On issues of family governance, family firms are recognising that a lack of family governance structures can be the biggest cause of conflict, particularly around succession. Clear criteria for selection of family members leading the business, and well-thought out structured governance and transparency for those not directly involved, are becoming more important, particularly moving into the third generation. 52% of the firms interviewing have defined clear responsibilities between the family shareholders and the Board, and between the Board and the executive management, but only 20% of firms feel that they have fully implemented this so far.