It is said that up to 98 percent of businesses in the Gulf are family owned. That number is possibly incorrect; as it may be one or two percentage points higher. The fact is in the Gulf everywhere you turn you encounter a family business. Chances are the groceries you have in your refrigerators at home are supplied by a family business. The school you send your kids to is owned by a family business. Even the hospital you gave birth in is probably owned by a family business. Family businesses contribute up to 70 percent of developing economies Gross Domestic Product. However, in the GCC, it goes a step further. The Saudi petrochemical giant SABIC is 70 percent owned by the Saudi Public Investment Fund which in turn is owned by the Saudi government, which basically is a family business. The same logic applies to National Bank of Abu Dhabi, Dubai’s DP World, and Qatar Telecom all of whom are mostly owned and controlled by the government.
On the other hand are regular family businesses that choose to list such as Kuwait’s fast food giant Americana which is owned by the Kharafi family, Dubai’s Mashreq bank and Oman Insurance, both owned by the Al Ghurairs and Dana Gas founded and managed by Sharjah’s Jaafar family. Listed companies such as these bring the real total number of family businesses that much closer to one hundred per cent versus 80 percent in the USA that includes Walmart and Ford. In India, the Ambani brothers’ family empire, estranged as they are, contribute five percent of India’s total economic output and over 10 percent of its indirect tax revenues.
The advantages of family businesses include less of the hire in droves and fire in droves mentality that plagues non-family run businesses as well as generally having a longer term view on investments since they don’t have to please the smallest of shareholders or the greediest of large corporations. However, one thing is certain; it is a challenge for them just to survive. Sibling rivalry (see Ambani example) as well as irreconcilable visions often lead to family businesses being split up. Apparently, less than five percent survive to the third generation, mostly due to a lack of a viable succession plan. The Gulf has had its own share of family business disagreements which thankfully have been resolved discreetly and expeditiously. When the Al-Futtaim cousins Majid and Abdallah had irreconcilable differences in the first two years of this decade, the then crown prince of Dubai had to step in to resolve the issue which resulted in the split of the 1930 established firm in two. There are two matters to be highlighted in this example, Sheikh Mohammed Bin Rashid’s intervention allowed for an amicable split of the group between the cousins away from the courts, which is not always guaranteed to happen in the future. Second, fortunately, the two cousins were able to enlarge their empires although the general logic seems to be that firms in emerging economies need to consolidate rather than split in order to compete in a globalised world.
Even the best of UAE family businesses are no strangers to disputes. The Al Ghurair Group, founded in 1960 was split between the two respected brothers Abdullah and Saif in the 1990’s preceding the Al Futtaim cousins disagreement in 2001. And the once formidable Galadari Group faced challenges in the 1980’s that almost lead it to bankruptcy had it not been for the intervention of the Dubai government in 2006 which now holds a 30 percent steak as well as chairmanship of the group.
The reason I highlight this issue is because family businesses play an integral part in the Gulf economies. In fact, because the Gulf states are abundant with so many of them these family businesses can act as a safety net for their countries and the region to recover sooner than others where family businesses are less common and are bogged down by taxes, politics and bureaucracy. The Gulf governments must act to safeguard these important institutions and enact a mechanism of conflict resolution or conflict management. Second and third generation family businesses must be offered assistance to avoid their disintegration and oversee a workable succession plan. So far, we have had a little more than lip service from Gulf government institutions regarding this issue.
On the other hand the pan GCC Kanoo business empire and Oman’s WJ Towell group, both dating back to the 1800’s as well as the century old Yateem Opticians from Bahrain are prime examples that must be highlighted of how a well run firm can not only survive generations but thrive if a proper succession plan was in place to ensure sustainability. Conflict management committees can be established in which members from these family business groups can sit and assist in case another major family business faces challenges such as when the founder passes away. Dubai’s DIFC already has a mechanism to host family businesses to turn into holding companies in order to manage the estimated $500 billion wealth they control which could be enhanced by offering training to younger generations within family businesses on dealing with such challenges proactively and educating the older generations about the importance of a succession plan despite the issue being taboo.
After all, these above businesses survived two word wars, three Gulf wars, the 1930’s recession and the subsequent collapse of the pearl diving industry in the Gulf – events that dwarf the current financial crisis. With proper structures in place, government support and succession planning they will lead the Gulf out of this recession and forward into the next decades of the 21st century.
This article was originally published in the July 2007 issue of Gulf Business.