Roots of Gulf's big ventures

The Life: Gulf families founded businesses hundreds of years before some Gulf nations were born.

Hischam El Agamy, an expert on Arab family businesses, says the companies' diversity helped them weather tough financial times. Charles Crowell for The National

The Gulf has one of the highest concentrations of family businesses in the world. Some are decades older than the countries from which they operate - but their roots stretch back further still.

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"They started as traders in ancient times," says Hischam El Agamy, an expert on Arab family businesses.

"It was [the trader], his kids, his nephews and extended family. They did not call themselves family businesses. They called themselves traders. But that's what they were," says Mr El Agamy, the executive director of the Swiss business school IMD.

Over time, as they matured into modern businesses, they branched out into industry.

"They said 'I would like to manufacture this box. I have the main materials but I need nails for this box and I need frames for this box. Instead of being dependent on somebody I will [open] a small factory making nails and I will [open] a factory making frames'," says Mr El Agamy.

"The West came and said 'this is wrong. You have to focus'," he says.

Some did, but others did not, among them the 122-year-old Kanoo Group.

It is the first Arab shipping agency in the region and is now involved in more than a dozen industries such as travel, chemicals and courier services.

This diversity helped many family businesses weather financial storms. Mr El Agamy estimates that 70 per cent of employees in the Emirates work directly or indirectly for family businesses.

Even as they dominate the economy, all local family businesses face a common challenge.

"In a normal enterprise, you have what we call corporate governance, so you have the board, which protects the shareholders. And then you have the board controlling the management. This is very simple," says Mr El Agamy.

In a family business, it is more complicated. All family members involved must know their roles - and the rules.

"They need a family council, which discusses the future - where would we like to be in five years? The family council will translate this into a strategic signal to the board, to the corporate governance of the business," says Mr El Agamy.

In general, family businesses in the Gulf are doing "relatively well" in this regard, he says. But this is not enough.

"The growth in the region in the last 20 years has been so fast. When you grow your business you need much more sophisticated governance systems for the family and for the business," adds Mr El Agamy.

They also have to look very carefully at how they empower younger family members.

A general manager in one of the leading family-owned conglomerates in the UAE recently warned that only 15 per cent of family businesses would survive through to the third generation as the majority lacked a governance structure to guide future generations.

"This, in addition to lack of discipline, not being able to articulate and pass on the knowledge of the business, as well as family business issues, will make it difficult for family-owned businesses to survive," Osama Al Rahma, the general manager of Al Fardan Exchange, said at the Family Business Forum hosted by the UAE Internal Audit Association.

But the governance challenge is not exclusive to family businesses in the Gulf. It has also been at the centre of a long-standing dispute involving the French company L'Oréal, the world's largest cosmetics and beauty enterprise.

In October, Françoise Bettencourt-Meyers succeeded in having her mother, the L'Oréal heiress Liliane Bettencourt, declared mentally unfit and unable to manage her extensive fortune.

"Why? Because this family had the governance on paper but the mother never really empowered her daughter. She remained in power," says Mr El Agamy.

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