One of the major strengths of GCC economies has been the continued growth of family businesses. They are the bedrock on which the private sector has been built, accounting for an estimated 75 per cent of the private sector economy in the GCC and they have been critical to the Arabian Gulf in developing prosperity, leadership styles, business values and its spirit of enterprise.
However, as these businesses mature and ownership passes to second- and third-generation family members, the way that they are managed and governed is subject to growing scrutiny by the wider family and other stakeholders.
UAE family companies compete for revenue and resources with all other types of organisations worldwide, and this often requires them to bring policies and procedures in line with international standards.
Informal governance structures that may have worked well for the founders of the business may not meet the divergent needs and interests of new generations.
Whether subsequent generations operate as owner-managers, directly involved in the business, or simply as shareholders, the widening of ownership will inevitably mean that family members will start to demand higher standards of protection of their interests.
This will be particularly so if there are differing views over business strategies and the distribution of profits, as well as power struggles and rivalries within the wider family.
All these risks point to a need for good governance structures to ensure that the business is managed effectively, preserving its future and the interests of all of its owners and stakeholders.
There is no single model for governance, particularly for family companies. But family companies in the UAE have the opportunity to learn from the successes of public companies and to avoid repeating their mistakes.
For example, rather than trying to develop a standard model of governance, it may be better to embrace some key governance principles against which to measure the safeguards within the company.
One of those principles is likely to be transparency of decision making.
This will ensure that family shareholders are able to protect their interests in the way decisions are made, in the way assets are held and used, and in the way that money flows through the business.
Another principle may involve appointments. Succession in family companies is often based simply on family position, but to safeguard the future of the company, selection of the next generation of leaders must take into account competence and leadership capability.
Conflicts of interest will also need to be carefully managed. Family members with executive responsibilities will need to segregate the interests of the company from other business interests that they might have.
Inevitably these changes will lead to a greater degree of formality in the way that the business and its leadership operate. At first sight it is likely to appear bureaucratic and tiresome, yet in the long run it could be critical to preserving the business for the future and maintaining harmony within the family.
There is nothing more likely to cause rifts within the wider family than the suspicion that some members are acting in a selfish or unfair way regarding family’s wealth and reputation.
The UAE family company has many strengths, including a strong sense of vision and pride (often based on the name and reputation of the founder); deep loyalty and engagement of leadership teams; a long-term strategy for growth rather than short-term profit; and a concern for reputation and influence for good, rather than just money.
Good corporate governance will not only preserve these strengths, but can also maintain harmony with the wider family. If the price of doing so in a more complex world involves a bit more accountability and record keeping, then that is a price most families should pay willingly.
Stephen Brooks is the director at Oxford Strategic Consulting and an expert in people management and organisational development.