Family business: setting a benchmark

From Ford to Walmart, family-owned businesses are cornerstones of the global economy, often outperforming their corporate counterparts. Vision explores what it is that sets them apart and considers the situation in the Gulf region where such businesses are setting impressive benchmarks

Globally, family-run firms are fundamental to all the world’s major economies. More than a third of the US companies ranked in the Fortune 500, Fortune magazine’s annual list of the top US businesses, are run by families. Family companies in the US generate around 60 per cent of the country’s employment and 78 per cent of all new job creation, accounting for an estimated 50 per cent of GDP. Multinationals ranging from India’s Tata Group to South Korea’s huge Samsung Group and American institutions such as Levi Strauss and Gap are all family-owned organisations. These giants have at least one member of a family with a sizeable stake – often the controlling interest – in their ownership, with a minimum of two members involved in day-to-day operations.

Family firms in the Gulf Cooperation Council (GCC) especially are faring well. Most businesses in the region fall under family ownership with almost three quarters of the workforce employed within numerous sectors including hospitality, engineering and retail.

The Family Business Network (FBN) opened its first Middle East chapter in April, with its headquarters in Dubai, under the leadership of His Highness Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, Crown Prince of Dubai and Chairman of the Dubai Executive Council. At the launch, His Excellency Abdul Aziz Al Ghurair, Chairman of Al Ghurair Holding PJSC and Chairman of the FBN GCC, remarked that: “With more than 80 per cent of business in the GCC under family ownership and 70 per cent of the workforce employed by these companies, the Family Business Network is essential and fits very well with the region’s rapid development and requirements. FBN will surely provide a forum for families from across the Gulf to share their knowledge, experience and best practices while also enabling connections with leading family businesses from around the world. The development, growth and sustainability of family businesses in this region will be a key priority for FBN GCC.”

Family values

It is estimated that almost three-quarters of family businesses in the Middle East are managed by the second generation, with one-fifth in the third generation of ownership. Financial independence, cautious spending and the ability to take a long-term view are central to the success of many GCC family-run businesses. Often the strong sense of family values sees such firms outperform bigger corporations.

Narain Jashanmal, General Manager of the books and magazines division of UAE-based distribution and wholesale giant Jashanmal, is a fourth-generation member of the company. “We have an informal family board that sits outside of the professional board for issues related to the family and the family’s engagement with the business,” he says.

“We have a chairman of that board, who is then the family member on the board of directors. So there’s only one family member there, even though we’re the majority owners. We resolve problems, taking everybody’s view on board. We deliberately separated things so any family issues don’t spill on to the business side.”

Valuable insights

With development, growth and sustainability top priorities for the FBN GCC, prominent national family-run firms have valuable insights to share about their journey to success. Smooth succession is essential and Jashanmal emphasises the need for family members to be involved in day-to-day operations. “The reason for family members to work in the business is to have an in-depth understanding of how it works, so we can be effective as responsible shareholders and/or effective directors, making meaningful contributions. On the executive side, we have a professionalised management with a non-family chairman and non-family CEO, COO and CFO.”

Younger generation

So what of the future of family-owned companies? Jashanmal is optimistic. “On a global level, if you consider the long term, family businesses are more efficient and better run: longer employee retention, better return of equity to shareholders, better dividend payouts.” It all lies in the decision-making process. “I would say the same of this region because the businesses tend to be in the younger generations. Decision-making is swift and uncomplicated because the majority equity is in the hands of very few people. They are able to make decisions very quickly, reacting to the context, rather than having a long, drawn-out process. All of these qualities contribute to the success of family businesses.”