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Middle East family firms focus on corporate governance

They face the difficult prospect of handling succession to the third generation

Gulf News

Better corporate governance is a matter of survival for the many family companies that handle 80 per cent of non-oil GDP in the Middle East and North Africa region. The vast majority are in their second generation of owners and are facing the difficult prospect of handling succession to the third generation.

 

“In the next ten years, more than $1 trillion of businesses will pass a generation of owners. The records show that 15 per cent of businesses fail in the first transition from first generation to the siblings partnership, and 45 per cent fail in the next transition to the cousin’s consortium,” said Badr Jafar, President of Crescent Petroleum and founder of the Pearl Initiative, talking to Gulf News at the World Economic Forum in Davos.

The Pearl Initiative is a not-for-profit organisation that promotes better business practice including corporate accountability and transparency and is working with many family companies across the region to improve their governance.

“We need to strengthen these existing big businesses so that we can handle the demographic crisis more effectively and provide the jobs that the rapidly growing population will need,” said Jafar.

“We cannot just rely on entrepreneurial start ups, important as they are, because only 1 in 10 will succeed. Therefore it would be folly to allow the expected high proportion of family businesses to fail if they can be helped improve their governance and survive.”

Pearl Initiative

The Pearl Initiative works by holding roundtables with businesses that want to engage, which often include governments, civil society groups, and multinational companies, all of whom have an interest in promoting good governance.

It has partnered with business schools like Judge in Cambridge and INSEAD to provide free education to the participants.

The organisation is a partnership of more than 60 leading UAE, regional and multinational companies, which is expected to grow to 100 in the next two years. It has engaged with thousands of CEOs and a growing number of companies have taken part in its programmes.

One track the Pearl Initiative has had considerable success is fighting corruption. Jafar explained that five years ago many companies in the region denied that there was much corruption, partly because they saw some of the activities simply as endemic business practices in the region.

Jafar said one of the most satisfying things about the turn around in attitudes to corruption was that companies saw it as working to their benefit and once that happened change happened quickly without the necessity of masses of new legislation that some were arguing was a vital catalyst.

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