Tharawat magazine - Volume 12

The Arabian Publication for Family Businesses Volume 12 Oct-Dec 2011

20

Family Business Innovation

58

Discovering Latin America

From stimulating innovation to creating value in family businesses.

First part of the Spotlight series on Latin American Family Businesses.

Special Features

Boards Family Business

the performance of family businesses around the board table

40

On the Boards of Family Businesses

66

The Al Bohsali Family Business

A review of the particularities of the boards in family businesses.

The 200-year old family history dedicated to traditional sweets.

Asset Management Wealth Management Asset Services

Fact: families grow.

Assertion: so should their investments.

Private bankers since 1805 Pictet & Cie (Representative Office) Sheikh Zayed Road Park Place, 12th Floor PO Box 125567 Dubai / United Arab Emirates Tel: +971 4 308 5858 www.pictet.com

Independent minds

tharawat magazine

The Arabian Publication for Family Businesses Publisher and Founder Dr. Hischam El Agamy Editor and Manager Ramia El Agamy editor@tharawat-magazine.com

Assistant Editor Wafa Nasser Farhoud wafa@tharawat-magazine.com

Editor-at-Large Farida El Agamy Creative Director Emad Khourfan emad@tharawat-magazine.com

Translation House Tarjomeh Localization Ltd., Dubai, UAE Printing House Al Ghurair Printing, Dubai, UAE Acknowledgements Many thanks go to The authors for their work and input.

The advertisers for their kind contribution.

The readers for their feedback on the previous issues and their continuous interest in Tharawat magazine.

Brownbook publishing and the bin Shabib family for their kind and relentless support.

The Al Ghurair’s printing facilities for their excellent work.

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VOL 12 | Oct - Dec 2011 Any other use, including but not limited to, the publication, reproduction, modification, distribution, transmission, republication, display, creation of derivative works, or performance of the content, or any other use of the Content for commercial reasons, is strictly prohibited without the express written consent of Tharawat Publishing FZ LLC. If you wish to use content or artwork from Tharawat magazine please e-mail: info@tharawat-magazine.com for permission.

To advertise in Tharawat Magazine please email us at: advertising@tharawat-magazine.com www.tharawat-magazine.com ISSN-2077-3714 Tharawat magazine is printed on recycled woodfree paper.

Disclaimer

Tharawat magazine is published four times a year by Tharawat Publishing FZ LLC, a company registered in Dubai Media City. Reproduction without permission is strictly prohibited. All content in this publication, including but not limited to all text, visual displays, images, and data (“Content”) is the property of Tharawat Publishing and its content suppliers or licensors and is protected by the United Arab Emirates and International copyright laws.

The compilation of all content in this magazine, including but not limited to the collection, arrangement, assembly, and coordination of content, is the exclusive property of Tharawat Publishing and is protected by United Arab Emirates and International copyright laws. The content in this magazine may be viewed as information gathering resource. Tharawat Publishing FZ LLC cannot be held responsible for any unsolicited material.

Volume 12 Tharawat Magazine

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contents

VOL 12 | OCTOBER - DECEMBER 2011

08

Contributors Abdullah Adib Al Zamil Researcher on the governance of family businesses, KSA

Amro Al Bohsali Partner in operations, Al Bohsali Sweets, USA

David L. Deeds, Ph.D. Schulze Chair of Entrepreneurship, The University of St. Thomas, USA

Didier Cossin Professor of Finance and Banking, IMD, Switzerland

76

Dr. Hischam El Agamy Founder and Executive Director, Tharawat Family Business Forum and Tharawat Magazine, UAE and Switzerland

Edward Nicholson Managing Partner, Mercator Partnership Limited, Consultant to Maitland Group, UK

Essa Al Ghurair Vice Chairman, Al Ghurair Investment LLC, and Chairman, Al Ghurair Foods, UAE

Fahad Al Mansour Project Supervisor, Kadi Holding, KSA

Helen Ranson Managing Director, RANSON Branding Consultants, UAE

Marylise Abou Haidar Sinno Chairman/CEO, Capanama Holding sal, Lebanon

Matthew Ranson Brand director and strategist, RANSON Branding Consultants, UAE

Mohammed Tahiri Engineer & MBA from UCLA & IE Business School, entrepreneur and innovator with the Tahiri Family, Morocco

Mustafa Hussain

Regulars 06 P ublisher’s Note

A few words by the publisher.

08 F amilyBusiness2FamilyBusiness

A case study on a young family business member and his early dilemma.

74 R eviews

Facts and Figures, Books and Websites.

Solicitor, Wealth Group, Taylor Wessing, UK

Rami Al Turki President, Khalid Ali Alturki & Sons (Alturki), KSA

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VOL 12 | OCTOBER - DECEMBER 2011 contents

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43 46

27

15

Features 14 Family Business Ventures with Multinational Corporations

An overview on the dos and don’ts for family businesses partnering with multinationals.

20 F amily Business Innovation

Discussing the advantages of valuedriven innovation and the changes family businesses have to go through to realise it.

26 From Family Enterprise to Enterprising Family

How rethinking the family strategy can lead back to the founder mentality and to an enterpreneurial spirit. economies.

www.tharawat-magazine.com

Special Features 34 D irectors: Piloting The Force of A Family Business

The different types of directors on a board, their responsibili-ties, and skills required.

40 On The Boards of Family Business

The particularities of family business boards and the role of non-family board members.

46 Q &A: Marylise Abou Haidar Sinno

A personal account outlining an experience on the family business board.

48 Independent Directors

The role of independent directors in increasing the family business board performance.

Volume 12 Tharawat Magazine

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contents

VOL 12 | OCTOBER - DECEMBER 2011

69 70

SPOTLIGHT ON LATIN AMERICA AND ITS FAMILY BUSINESSES

54

SMEs 66 The Sweet History of the Al Bohsali Family

For over 200 years the Al Bohsali has been handing down the secrets of traditional sweets throughout its family generations

70 S ME Branding

Q&A with Helen and Matthew Ranson detailing the importance of branding strategies for SMEs in the Middle East.

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Tharawat Magazine Volume 12

Spotlight 56 Latin America in Facts and Figures

Spotlight on Latin American countries, with a focus on commodities and GDPs in relation to the rest of the world.

58 D iscovering Latin America and its Family Businesses

Description of the macroeconomic landscape of Latin America and a map to some of the most renowned family businesses of the region.

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Publisher’s Note

Dear readers,

A

fter the long and hot summer days, Tharawat magazine is back with what we hope is a refreshing wave of family business information and news. We present our 12th issue featuring exciting new authors, articles, interviews and a brand new section: In our special feature section we turn our attention to one of the most important governing bodies in a family business or any firm for that matter: the board. Our authors discuss structures, decisionmaking processes, advantages of non-family members in the board room, and give personal accounts of their experiences on the family business board. With contributions and views from Mustafa Hussein, Abdullah Adib Al Zamil, Prof. Didier Cossin, and Marylise Abou Haidar Sinno, an interesting mosaic emerges, which, when you take a step back, spells out clear messages of best-practice for family business boards.

Dr. Hischam El Agamy Publisher and Founder Tharawat magazine Tharawat Publishing FZ-LLC

The editorial team is particularly excited about our new magazine section ‘Spotlight’, which will take you on a journey around the world and discover family businesses in different countries and regions. In this issue we are embarking on our first expedition: We start our discovery of Latin American family businesses and turn our attention to a region that has seen significant transformation over the past decades. In this first of our three-part Spotlight on Latin America and its Family Businesses, author Edward Nicholson gives a comprehensive introduction to a part of the world that is gaining increasing importance in global economics and which relies very much on the sustainability of its family businesses.

Also our features section is back in its usual rigour after this long summer; this time it holds contributions on family business innovation by Mohamed Tahiri from Morroco, the dos and don’ts of family business ventures with multinational corporations by Rami Alturki from Saudi Arabia, and an introduction to the concept of the ‘enterprising family’ by Prof. Deeds from the US. As usual there is something for everyone and we hope you enjoy the read!

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Tharawat Magazine Volume 12

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MIRACULOUS, UNFORGETTABLE FULL OF EXPECTATION

BUT FOR MILLIONS OF CHILDREN, IT’S ALL THEY GET. Every year 3.1 million babies die in their first month of life. EVERY ONE leaves a heartbroken family. EVERY ONE of us can stop children dying. To find out more about the campaign and how you can help, go to www.everyone.org

Registered charity England and Wales 1076822.

Anna Kari

The fIrST day Of LIfe...

Introduction FamilyBusiness2FamilyBusiness

In this issue’s FamilyBusiness2FamilyBusiness case study we tell the story of the fictional SAK family or rather of one of their young family members LSSA: During his studies and external work experience LSSA discovers more and more his propensity towards design and creative work and finds a satisfactory position in a renowned international company. LSSA’s family is now pressing him for a decision about his future and his possible role in the SAK family business. Danny Pagarani and Fahad Al Mansour give their solutions to an Early Dilemma.

The Early Dilemma

T 8

he SAK family represents what you could

from second to third generation. The eldest cousin is the

expect from a Lebanese family business

Chairman and used to hold Managing Director position of

with a long history of commitment to its

the luxury and precious metal division. The two other cousins

country but also great experience in Europe

are each running a group of companies: one in commodities

and especially in France, where several

trading and food, which was the original business of the

generations of the family have been educated. The core

family. The other cousin, SSA, is running the jewellery and

business started by the founder of the family business in 1920

precious metal group of companies as well as the retail shops.

was based on the trade of food and commodities. Soon, and

The SAK jewellery shops managed to create a niche, which

as opportunities arose in the region, the family also started

suited the local markets and expanded in the 70s in Europe

trading in precious minerals and high value jewellery.

and the USA to capture the Arab emigrants’ market.

The family is managed by its third generation; three cousins

The family during the transition from the second to the third

who have succeeded to overcome the famous critical transition

generation developed a simple constitution regarding the

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FamilyBusiness2FamilyBusiness Introduction

family members’ entry in the business; any family member

on showed particular artistic talent. From an early age he got

could apply to any vacant job. His or her qualification would

access to the jewellery workshops of the family business and

be matched to the job and the external candidates. In case of

mingled with craftsmen whose talents made the great success

equal qualification, the family member would be favoured

of the SAK brand in jewellery and luxury goods. The family

over anyone else. Before applying to the family business,

observed LSSA with some affection and a dream that may

however, family members should spend at least three years

be one day he would bring his talent to the family business.

in other companies to gain working experience. While this rule was very good for developing the management skills of

In 1990, LSSA finished high school in Beirut and joined one

the young generation it also brought disadvantages; some of

of the universities in Paris for a business degree. Following

the young generation members and possible successors chose

his passion he joined an evening design school specialised

to remain outside the family business. Such was the case of

in luxury goods and fashion. In his third university year, his

LSSA, the son of the MD running the jewellery and precious

involvement with artist workshops was taking most of his

metal group of companies and the retail shops. LSSA early

time and he struggled to finish his business degree. During

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Volume 12 Tharawat Magazine

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Introduction FamilyBusiness2FamilyBusiness

his holiday LSSA would go to visit his old friends, the designers

freedom in the organisational structure of SAK. But since

in the family business. He shared his new ideas with them but

the moment he left Beirut he had always had his thoughts

he never dared to bring them to the attention of his family.

about what SAK could do better. The experience with NSF had allowed him to analyse SAK’s performance from the

In 1995, LSSA started his job search. He decided for the old

outside. He was confident that he could bring some ideas

French company NSF, and was rapidly recruited as a trainee

that would allow SAK to enter new market segments.

in the design department. LSSA’s family was happy with the choice and hoped that he would learn a lot and bring new ideas to the family business. LSSA was rapidly integrated and in a few months he was working with a team to design various products of a new wave of fashion targeting the

1. How would you recommend the executive committee to approach LSSA? 2. What are your recommendations for LSSA for his meeting with his father and uncles?

young generations in Latin America and was given much responsibility very quickly. Although LSSA remained in very close contacts with his parents, cousins and above all his designer friends, he felt that he was going through a different experience. At NSF he felt the freedom and the passion of innovation that he did not feel in Beirut in the ateliers and hallways of SAK. In 1998 the SAK executive committee, consisting of LSSA’s father and his two cousins were meeting in Beirut with the various CEOs of the group’s companies to discuss the mid-year results. Although the overall business results were satisfactory, several managers involved in the luxury and precious metal companies were flagging some risks through new forms of

Solution 1 Danny Pagarani, International Initiatives Manager, 3rd Generation, Choithram Group, UK

competition. The executive committee decided to organise an extraordinary meeting, toward the end of the year, involving

If LSSA’s father and the rest of the executive committee hope

the key employees and workers in the fashion and precious

to encourage LSSA to join the family business they need to

metal group of companies.

understand the reservations and hesitations he has towards joining. LSSA’s father should approach LSSA in an informal

LSSA, in the middle of his third year at NSF, knew he needed

setting and candidly discuss the future. Both father and son

to make a decision. His fathers and two uncles were coming

should appreciate their mutual desire to work together and

to spend their holiday in France and wanted to see him and

use this positive convergence to overcome any old issues.

he had no doubt that the main subject of the discussion would

Each should set out their expectations but should not expect

be his future plans. Even though the SAK management always

any final decisions to be made then and there or expect any

left members of the family free to decide about their future,

particular result. The main purpose of the first discussion

LSSA was aware of the upcoming meeting to discuss SAK

should be to understand each other’s current and future

Luxury division’s competitiveness.

thoughts regarding the business. It may become clear that their visions are incompatible, and this should not be a

10

LSSA relished the international exposures through this

source of consternation. If the first discussion proves fruitful

frequent travelling for NSF. He would never gain such

LSSA’s father should return to the rest of the committee so

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FamilyBusiness2FamilyBusiness Introduction

Solution 2 Fahad Al Mansour, Project Supervisor, 4th Generation, Kadi Holding, KSA The executive committee should understand the arguments that are important to LSSA and make him feel that the family business is a priority. Moreover, they should tell him about the things that he will never find in NSF and make sure that he does in the family business; for example, greater authority, serious responsibility, and more money. These could be tools that motivate LSSA and make him decide to join the family business sacrificing the freedom he has at NSF. On the other hand, these things might not attract LSSA. In this case, the committee should ask LSSA what exactly he needs and then negotiate with him.

LSSA, has no doubt that the main subject in the meeting with his uncles will be his future plans. Therefore, he has no choice but to be ready to make a decision and to inform his that they can forge a well-defined role for LSSA. It should

family about it. Given his history, LSSA must have a special

be made clear from the outset which of LSSA’s expectations

relationship with the company. In addition, the fact that he

will be met (be it travel, or the freedom to direct the business

has always had his thoughts about what SAK could do better

towards new market segments) and why other expectations

is an indication that he is loyal to this family business. So

are unreasonable or unlikely to be fulfilled. The committee

now I think if LSSA decides to work with the family, the only

should also make clear why they feel LSSA is important to

challenge is how to convince the uncles to provide him with

the future of the company and state where exactly it is that

whatever makes him feels the freedom and the passion of

LSSA will add value. When the committee is clear among

innovation that he used to feel at NSF.

themselves about what it is they want from LSSA they should make their proposal. Once again all parties involved should

In conclusion, I believe that LSSA should prepare a business

remember that the reason this situation has arisen is the

case to explain his ideas to the SAK’s executive committee,

desire they share to work towards a common purpose, which

while the committee should prepare an offer for LSSA that

is a strong foundation indeed.

makes him likely to want to join the family business.

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FEATURE

FEATURES 14

20

26

Family Business Ventures with Multinational Corporations

Family Business Innovation

From Family Enterprise to Enterprising Family

Discussing the advantages of value-driven innovation and the changes family businesses have to go through to realise it.

How rethinking the family strategy can lead back to the founder mentality and to an enterpreneurial spirit.

An overview on the dos and don’ts for family businesses partnering with multinationals.

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FEATURE

Family business ventures with multinational corporations

Any family business leader will confirm that ventures and alliances with multinationals are a complex matter. In addition and all likelihood, each and every one of them will systematically stress the importance of finding the right partners for growth. Family businesses, maybe especially in the Arab world, are in a unique position of being able to provide high quality access to markets for multinational corporations (MNCs), and yet, recognising each other as potentially beneficial partners to future expansion is not enough to ensure that a venture will be successful. Rami Alturki, President of Khalid Ali Alturki & Sons (Alturki), KSA, gives a first-person narrative of his experience in forging strategic alliances and joint ventures with multinationals and defines the most important dos and don’ts.

Family Business Ventures with Multinational Corporations

14

In the Beginning or ‘How I started’

the Americans. I became the Director of Territory

I joined our family business in 1999 after having

Development, which meant that I was responsible

completed my studies and first years of work

for the appointment of sub-licensees. It was the first

experience in the US. When I started, my first

venture that I witnessed first hand and I worked on

assignment was part of a new venture: We had

it for about two years. Unfortunately, our partners

created a new company that was to act as a master

ended up going under as the industry took a severe

licensee for satellite communication in the Middle

hit around that time. We had to wrap the whole thing

East and Central Asia. At the time the industry was

up. That is how quickly these things can go wrong.

booming and our partner was an American company.

Fortunately for us, we had not yet reached the point

When I began my work our family business had

where we had made any sizeable investments. In

just started negotiating the master franchise with

terms of loss, I guess, it could ohave been much worse.

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Family business ventures with multinational corporations

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FEATURE

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FEATURE

Family business ventures with multinational corporations

FIG. 1: Alturki Business Portfolio

Our family has always operated under a vision

businesses. That is why I have come up with a

that drives us towards building differentiated

list that encompasses the crucial dos and don’ts,

businesses. The idea is to partner with MNCs and

according to me, for achieving successful alliances

build extraordinary opportunities that would not be

and ventures between these two entities.

possible would either party act on its own. We have

16

over the years added many of these types of ventures

Partnerships or ‘Why We Need Others’

to our portfolio (see Figure 1). In my own career

Before you start looking or talking to potential

I actively participated and led the development

partners, it is important to understand why

of our joint-ventures with WR Grace, Exova, and

you want or even need to team up with another

Velosi. I learnt many important lessons from each

organisation. Can you succinctly state what and

and every venture and will certainly continue

how a partner will contribute to your business? Is

to learn with every new partner we acquire.

it a new technology, market access, distribution

Essentially, however, I think that partnering with

channels, production facilities, or all of the above

MNCs holds a few specific challenges for family

and more? When the answer to these questions

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Family business ventures with multinational corporations

is clear then finding the right organisation and

fit element for a positive collaboration prospect.

collaborating with it will become easier. Moreover,

Not understanding a company’s culture ultimately

once the right partner comes on board the weight

means not understanding how it takes decisions

you are pulling should become lighter not heavier

and that is undoubtedly a bad premise from which

and you should be able to achieve more than if you

to start a business venture. The decision-making

had acted on your own. If a partner adds to your

process as well as the day-to-day activities are key

burdens then you might want to reconsider.

information components that you may want to find

FEATURE

out about. Next to understanding corporate culture DNA or ‘What defines us’

it is, of course, key to understand national culture as

No matter how many ventures and alliances a family

well. You are always dealing with people and they

business enters, it should know its core values and

are influenced by their backgrounds.

strive to remain true to them. You can change the appearance of it all and modernise branding and

Key Contacts or ‘Who you should have on

marketing, but you should remember who you are

speed dial’

at all times. So before a family business enters a

MNCs often have a fast rotation system when it

partnership with a MNC, family members might

comes to their employees and it is by no means

want to sit down and define what it is that defines

sure that you will be dealing with the same person

their business; discover their family business

throughout the process of your intended venture.

DNA. This will also help you in differentiating

Most MNCs rotate their people quite frequently

yourself from others; a business that has a clear

so you need to expand those relationships across

vision of its capabilities and values will stand out.

levels of the organisation: you need to be sure of

Automatically, an external partner will be able to

a personal relationship with the chairman, board

recognise in what ways it can contribute to and

members, and the CEO. However, mostly the

benefit from you as a family business.

people you will interact with in a first instance are regional or country managers. Relationships with

Principles or ‘Cannot compromise on values

these people are key and can define the success or

or principles’ You should understand and know your own principles and make sure that you never compromise on them. No matter how badly you want to partner with a certain organisation, if you pretend to be something you are not, somewhere down the line it will catch up with you. Pretending that you can adhere to visions that do not fit with your principles is of no use and makes both parties loose a lot of time and energy.

Culture or ‘Try to understand it’ If as a family business you want to work with a MNC you have to get a firm understanding of its corporate

No matter how badly you want to partner with an organisation, if you pretend to be something you are not, somewhere down the line it will catch up with you. Pretending that you can adhere to visions that do not fit with your principles is of no use and makes both parties loose time and energy.

culture. Culture is probably the most important

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FEATURE

Family business ventures with multinational corporations

failure of the venture, which is why having access to

If you have to lead a venture or partnership and

several levels of the organisation hedges your risk.

are a poor communicator then chances of success become slimmer with every misunderstanding.

Communication or ‘Talk it out and write it down’

18

I cannot emphasise this enough: 99.99% of the

Negotiation or ‘Always negotiate from a

problems that I come across on a daily basis can be

position of strength’’

explained by a lack of or poor communication be it

In seeking partnerships with MNCs you have to

verbal or written. In my experience there is often

try and negotiate from a position of strength. It is

not enough written communication, which should

paramount that you try and avoid the feeling that

be used to clearly define what the positions of the

you have to save the deal at any cost. The danger

respective parties are. This also links into providing

is that once you start feeling that this is the most

the proper legal documentations; it is paramount

important deal you have ever undertaken you will

that you spend enough time with your lawyers to

start compromising on your principles just for the

draw up communications and contracts properly.

sake of it. Most underestimate that getting the deal

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Family business ventures with multinational corporations

done is just one stepping stone; do never forget that you have to live with it afterwards for a long time. Of course, it is not always equally achievable to come from a position of strength. There is no universal recipe to achieve it and sometimes it will not be possible at all. In any partnership there is always a real possibility that you will be struggling and that

FEATURE

My father always asks me this one question in order to test my motives in pursuing a deal: „Are you going to go hungry tomorrow if you do not make this deal happen?“

you will loose money. However, you should always try and keep the upper hand in negotiations. My father always asks me this one question in order to

corporate charges that often are not mentioned

test my motives in pursuing a deal: „Are you going

in first negotiations. If you are not careful you end

to go hungry tomorrow if you do not make this deal

up working at cost and with no profit at all. Your

happen?“. Asking myself that question has often

partner will end up making all the money from

proved useful and necessary to me; sometimes we

the top line and when it comes down to profits

get so caught up in the deal that we forget to think

you will have spent half of it already on fees. It is

of what happens if it should fall through or what

nearly impossible to get yourself out of that type

other options there are.

of position.

Emotions or ‘It’s not personal, it’s business’

Leadership or ‘It’s lonely at the top’

When forming ventures it is important to keep your

Even in a family business it can be lonely at the

emotions in check. When you deal with the business,

top: You have to take responsibility and look out

it has to be about the business and nothing else. If you

for yourself and the people depending on you. As

let your emotions run the show you automatically

leaders it is great to have advisors but ultimately

loose your partner’s respect. In a family business

you have to take responsibility and understand

this may be a particular challenge and, therefore,

every last detail. You should never stop investing

a particular topic that needs to be discussed before

the effort and can never just rely on what other

negotiations with outside partners start. Most people

people are telling you. Of course, it is crucial that

ask me ‘how can you not become emotional? This

you make sure to have a great team around you

is your business!’. I agree with them, however,

whether it consists of family members or not.

emotions drive you towards making decisions that you will not be able to relate to at a later date when

These are the main lessons I have learned, and I

you are in a different frame of mind.

have learned them the hard way. Sometimes my father was able to spare me disappointment by

Business Model or ‘The reality of your bottom

sharing his wisdom with me. Much like in human

line’

relationships, no venture or partnership is perfect,

Another recommendation: Do not get into a venture

but maybe the above pointers can increase the

or partnership without really understanding your

chances of success.

partner’s business model. How do they run their business? Do your due diligence on financials: When discussing the bottom line make sure that you are aware of all the royalties and the extra

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Author Rami Alturki, President of Khalid Ali Alturki & Sons (Alturki), KSA

Volume 12 Tharawat Magazine

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FEATURE

Understanding Family Business Innovation

Innovation is recommended by many but only truly executed by few. In order to understand how family businesses can become successful innovators, it is essential to understand the family business itself. By nature family businesses in the Middle East have many competitive advantages because of their unique combination of resources, their implied trust between stakeholders, and their long-term strategic vision. Undoubtedly, these families have shown that they know how to make money; the real question is whether they are also creating value. Mohamed Tahiri, Engineer & MBA from UCLA & IE Business School, entrepreneur and innovator with the Tahiri Family in Morocco (operating in import, manufacturing and distribution of plastic sandals, and real estate), explains why family businesses are uniquely placed to enable innovation, what they can change and how they can gain competitive advantages.

Understanding Family Business Innovation

T

he word ‘innovation’ originally

past, even if the circumstances are not relevant

stems

word

anymore. Secondly, through that path-dependency

‘innovare’, which stands for ‘to

large companies fail to undertake ‘disruptive

renew or to change’. In this article

innovation’. As opposed to ‘sustaining innovation’

we explore how family businesses

which improves on existing products and services,

can understand and incorporate innovation and

disruptive innovation requires an entirely new

why it is important for value creation.

value proposition (new product or service for a

from

the

Latin

new customer segment) that might not always be

The family business advantage

aimed at the main existing customer segment of a

When family businesses orient themselves towards

company and therefore would be more difficult to

innovation, they may not be aware of the fact

implement, in an environment of short term vision,

that they already hold a considerable competitive

and constant pressure from the shareholders, and

advantage over other companies. Large non-family

the financial market

companies encounter two obstacles when it comes

20

to innovation: First, they are strongly influenced

To manage these issues successful international

by their past in their present and future decision-

companies look for innovation outside. For instance,

making. What they experience is what is called in

Google is viewed as a highly innovative company,

strategy “Path Dependency”, or being anchored

however, most of the ground-breaking innovation

by the decisions that made them successful in the

comes from outside; the company buys small start-

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Understanding Family Business Innovation

FEATURE

FIG.1: The drivers of innovation in family businesses

growth

Innovation Fast Execution Trust between stakeholders

ups that comprise innovative products and services.

Value is created only if these three factors are

It can be argued that both these obstacles present

present. Family businesses generally do not have

themselves to a lesser extent in family businesses.

big issues with trust between stakeholders as they

Often they do not have to answer to external

are known for their strong ties not only amongst

shareholders and, therefore, can have a more

family members but also with their suppliers and

long-term vision. Moreover, through the mix of

communities. However, families often find realising

generations that are managing the family business,

the other two factors somewhat more difficult. This

path-dependency might be lessened, and therefore

brings us invariably back to the required mindset and

innovation might be easier to implement once the

culture of a company that will lead to innovation.

necessary mindset is acquired.

In order to assess the financial success of a family

The drivers of innovation in family businesses

businesses we should not question whether the

We can generally state that growth for any company

company is making enough money compared to the

depends on the combination of the following three

risk that it is taking. The only way for a family business

factors (See Figure 1):

to make above average returns, and outperform

company is making money, but rather whether the

Innovation

the competition is by making sure that the three

Fast Execution

components of innovation, fast execution, and trust

Trust between stakeholders

are combined. If the management is not able to

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FEATURE

Understanding Family Business Innovation

produce above average returns, the shareholders are

that will have a positive impact on our society, we

generally better off by investing in the stock market.

will be able to drive innovation and create value.

The change that is needed

The relationship with risk and failure:

Middle Eastern family businesses are said to be

Unfortunately, in oriental culture and family

quite set in their ways and to adhere to traditions

businesses especially, risk is never perceived as a

and customs. This has served most of them very

learning opportunity. Of course, taking unnecessary

well as through conservative approaches to risk and

risks is never encouraged, and we should always do

business the family legacies have been preserved

our homework and due diligence. However, when

over several generations. However, in order to

we assess risks we tend to ask the question ‘What

take the business to the next level and to be able to

if I fail?’ while instead, a much more interesting

credibly incorporate innovation as a strategy, family

question would be ‘What is the cost of failure?’.

businesses have to change in the following respects:

If the cost of failure is relatively low and the time it lasts is short, companies should proceed and

A Culture of purpose: For years and years we

take the risk. The most important thing is to assess

have been taught that we should and can motivate

that the recovery from failure is faster than that of

employees. Yet, in real life, the truth is that we

other competitors. Family businesses should start

do not have the ability to motivate others; we

thinking like venture capitalists: if two out of ten

can, however, inspire them. Inspiration can only

projects succeed and yield what they wished for in

come from sharing a sense of meaningful purpose

profit, then that is an excellent outcome. The failure

throughout all the layers of an organisation.

of the other eight becomes relative.

Having a vision is not enough to ensure that a family business can foster innovation; it needs

Careful with social contracts: That there are

a meaningful purpose and to lend a purpose

certain social contracts is true for any society:

credibility a company requires the right leadership.

Pressure from failure, and pressure to have the

By meaningful purpose I mean any change that has

resources needed before seizing an opportunity.

a positive and great impact on our society, and that

Maybe in oriental culture these contracts are still

makes all stakeholders proud of their contribution.

somewhat stricter than in Western culture. Many companies, for instance, stop short of innovation

The way we measure success: If the business

because they feel they do not have the resources

measures success by how much money is made,

and capabilities to start the processes needed.

it might quell the risk-taking that is sometimes

My professor George Geis at UCLA always said:

necessary to evoke change and innovation cannot

‘Entrepreneurship is the pursuit of opportunity

prosper. If success, however, is defined by the value,

beyond the resources you currently control.’

and the impact on the society that the company

22

creates, then the whole mentality changes.

George Bernard Shaw once said ‘The reasonable

According to Steve Jobs, Co-Founder and Chairman

man adapts himself to the world; the unreasonable

of Apple, one of the most important relationships

one persists in trying to adapt the world to

in our lives is the one we have with money. As long

himself. Therefore all progress depends on the

as we keep money in its proper place and only see

unreasonable man.’ Family businesses should try

it as a tool or a commodity to achieve something

and move away from the mentality that all the

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FEATURE

The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself.

Therefore, all progress depends on the unreasonable man.

George Bernard Shaw

these changes then the road towards sustainable innovation and the creation of value becomes clear. Businesses should understand that change is the only constant in today world from which resources need already be in place before they

they can gain.

undertake a project.

How to stimulate innovation Not about R&D: Many make the mistake of

Once a family business has acquired the mindset for

measuring innovation by how much a company

change, there are a few things it can do to stimulate

invests in R&D. It is always about the people that

innovation and fast execution:

work for the company and the way they are led. IBM used to spend much more on R&D than Apple and it

Diversity in people and industries: Hiring people

still did not provide them with the competitive edge

from different industrial backgrounds can stimulate

they needed to outdo their competitors. Innovation

innovation enormously. Indeed, we often see that

is not reserved to a new product development but

the biggest innovation in industry A can be provided

can come from any function for instance, marketing,

by people that have a background in industry B. This

distribution, production, or finance.

leads us to realise that the future is already here, it is just not very evenly distributed, as William

The way we appraise performance: In family

Gibson said. Sometimes this means that if we want

businesses in the Middle East, people only get

to innovate in the automotive sector that we might

fired because they fail to do their job. No one ever

want to look at the progress in the pharmaceutical

gets laid off because they missed an opportunity or

industry for inspiration. Experience has shown that

failed to produce a new business idea. If innovative

the results can be surprising.

and forward thinking is not a part of an employee’s appraisal the danger of complacence and the

Partner with international companies: Another

suffocation of new ideas inevitably ensues. New

way to stimulate innovation for Middle Eastern

performance appraisals should be installed in

family businesses, is to partner with international

family businesses that value innovation.

companies. Here we need to make a distinction

If family business can successfully implement

between the partnerships that are based on

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FEATURE

Understanding Family Business Innovation

In the end, innovation and value come from doing common things uncommonly well.

realisation of new ideas and opportunities.

Question everything: There is no room for complacency in running a family business or any business for that matter. The family has to keep questioning what they do and what they believe in,

franchises and agency agreements and those

even the very essentials of the businesses. There is

that produce knowledge transfer. Innovation in

a great lack of that questioning mentality in family

partnerships will only be motivated if there is a

businesses even though it is a great tool towards

shared purpose.

fostering innovation.

Investment in innovation: Family businesses,

Bottom Line

especially in the MENA should invest in start-

When a company embraces an innovative mindset,

ups and incubator processes. There are a lot of

it is still not guaranteed that innovation will ensue.

companies in Europe and the US, as well as the

Many innovative thinker never get anything done.

Middle East itself that are short of financing and

Indeed, in order to succeed a company cannot stand

would represent great investment opportunities.

still at an innovative attitude but has to become an innovative executer. In other words, it has to

Partner with connectors: In order to successfully

acquire the third factor towards value creation fast

make innovation known, a company needs people

execution. In the end, innovation and value come

with relationships and communication skills that

from doing common things uncommonly well.

share the common purpose. This is very tricky because the communication that is needed is

In family businesses the young generation can

targeted at disseminating the innovation inside

contribute much to bringing about innovation and

as well as outside the company. Thus, we need to

fast execution. In fact, they are the key towards new

find people that can connect internal as well as

ideas and approaches. Young family members are

external stakeholders.

often not burdened with the path-dependency and have less difficulty in questioning existing paradigms.

Allocate innovation-time: We have to create

They are not scared of challenging core values, which

space and time for innovation to take place.

to a certain measure can be beneficial. Of course,

Google employees, for example, have to allocate

they must be well-educated, preferably abroad, and

20% of their time to innovation activities that have

have external work experience. In order to be able

nothing to do with their day-to-day jobs. It is not

to convince the older generation of their new ideas,

optional; they have to allocate that time to new

young family members have to be able to demonstrate

ideas. Engaging employees in this way increases

convincingly how value is added in the long run, and

the chances for sustainable innovation.

learn how to manage the resistance to change.

Review the processes: In order to enable innovation the family business has to make sure that its processes are optimised. They have to be efficient and up to date or else they can inhibit the

24

Tharawat Magazine Volume 12

Author Mohamed Tahiri, Engineer & MBA from UCLA and IE Business School, entrepreneur and innovator with the Tahiri Family, Morocco

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FEATURE

From Family-Enterprise to Enterprising-Family

When a family-enterprise seeks to diversify its risk and grow its activities, many different paths may lead to a successful outcome. Typically, mergers and acquisitions and strategic alliances come to mind as well as using the family’s own wealth as an injection to further strategic goals. However, an option that is rarely considered or openly discussed is that of promoting entrepreneurship within the family as a tool to diversify risk and increase the family wealth. Prof. David L. Deeds the Schulze Chair of Entrepreneurship in the Opus College of Business at the University of St. Thomas, USA, discusses the benefits for family wealth and the next family generation when shifting from a family-enterprise to becoming an enterprising-family.

From Family-Enterprise to Enterprising-Family

T 26

he family-enterprise is the backbone

culture and norms. These are part of what has been

of the world’s economy and is

broadly termed the advantage of “familiness” a

critically important to the economic

term tagged by Habbershon, Williams & MacMillan

growth and development of every

in 2003. However, family-enterprises and their

nation. There is mounting evidence

owners face distinctive challenges and two in

that the family- enterprise on average outperforms

particular are well established: The first is the need

publicly owned firms. The centrality of the family

for the owners of family-enterprises to diversify

in the enterprise provides several competitive

their wealth. The second is the need to incorporate,

advantages including a long-term perspective

train and put to best use the most important family

on investments and performance, stability in

asset – the next generations. Shifting the mindset

leadership and values, and strong organisational

from being the owners of a family-enterprise to

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From Family-Enterprise to Enterprising-Family

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FEATURE

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27

FEATURE

From Family-Enterprise to Enterprising-Family

being an enterprising-family can provide a solution

in potentially profitable opportunities. This can

to each of these challenges.

lead to the erosion of the competitive position.

In fact, unless judiciously applied, the extraction

Family-enterprise owners are limited in their ability

of wealth from the family-enterprise in order to

to diversify the wealth of the family because the

lower the risk to the family’s wealth may in fact

bulk of the wealth is retained within the business.

have the reversed effect and increase the danger

This concentration of wealth within a single firm

of failure. While managing the family’s investments

leaves the family with excessive firm-specific risk

may provide the training necessary to become a

and, often, the family’s wealth under- diversified.

financier, it does not provide the managerial,

The traditional road is to use the markets to achieve

operational and entrepreneurial training and

financial diversification of this risk. This requires

challenge that prepares the next generation to build

the family to extract wealth from the business to

on the family’s previous success.

invest elsewhere in stocks, bonds, hedge funds,

28

real estate, and others. However, taking substantial

Another potential solution to the issue of under-

amounts of cash out of the family-enterprise often

diversification is acquisitions. Acquisitions can

leaves it weakened and unable to grow and invest

leverage the wealth and competitive advantage of

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From Family-Enterprise to Enterprising-Family

the family-enterprise by buying another firm that expands markets, products and/or market power.

When acquisitions go well they provide profitable growth opportunities and increased margins via synergies between the family-enterprise and the acquired firm. Acquisitions also diversify the risk to the family’s wealth by decreasing the business’ dependence on a few products or markets.

However, acquisitions are extremely challenging

FEATURE

Over time the family tends to focus on growing the business, improving operations, and creating a strong and stable business structure whereby the family shifts from an enterprising-family mindset to having a family-enterprise mindset.

and historically have had a low rate of success.

Furthermore, the costs of an acquisition are usually underestimated. The integration of the two organisations is almost always much more difficult

business: Family supported entrepreneurship. It

and longer than expected. The possible negative

requires the family to shift from a family-enterprise

impact of the acquisition on the operations of the

mindset to an enterprising-family mindset whereby

core family-enterprise is rarely considered nor

the family continues to nurture the core family-

properly estimated. A successful acquisition once

enterprise while at the same time returning to

completed and fully integrated can be beneficial

its entrepreneurial roots. Every family-enterprise

to the family’s wealth in the long-run, but in the

begins with an entrepreneurial act – the founding

short-term can create considerable added risk.

of the business by the first generation. Over time as

Hence, unsuccessful acquisitions pose a substantial

the family tends to focus on growing the business,

threat to the health of the family’s business and

improving operations, and creating a strong and

wealth. They can provide the managerial training

stable business structure whereby the family shifts

and challenges that prepare the next generation

from an enterprising-family mindset to having a

to lead, but, given the size of investment and the

family-enterprise mindset. The solution to both

high risk of failure, this is not a task for novices

the diversification problem and the challenge of

or the ill-prepared. Acquisitions are difficult and

making the greatest use of the next generation is to

require substantial managerial skill, experience

once again become an enterprising-family.

and expertise and do not necessarily teach the next generation how to be entrepreneurial and innovative.

What does it mean to be an enterprising-family?

Being an enterprising-family does not mean

The preceding solutions to the challenge of

pursuing wild risks or simply indulging the next

diversifying family-enterprise owners’ wealth

generations’ business visions without questioning.

are well established and widely employed with

The following core requirements need to be fulfilled

varying degrees of success. However, there is

for this concept to be a success (See Figure 1):

another alternative, which is under-utilised and when properly employed leads to lower risk, the

1. A mind-shift from a focus on utilising the existing

creation of substantial new wealth, and provides

resources towards seeking new opportunities.

the perfect opportunity to train, evaluate and

2. The family needs to establish a well-defined

incorporate the next generations in to the family

process within the family structure that demands

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FEATURE

From Family-Enterprise to Enterprising-Family

FIG. 1: What does it mean to be an enterprising-family?

1

8

8

A mind-shift from a focus on utilising the existing resources towards seeking new opportunities.

1

Make difficult decisions based on the quality of the business without being clouded by family ties.

7

2

7

Establish a well-defined process within the family structure that demands clearly developed business cases demonstrating the potential for substantial growth and profitability.

2

6

3

3 Continuous monitoring and evaluation of all new ventures that are funded by the enterprising-family.

5 4

4 An acceptance of the risk of failure and the recognition that there is such a thing as a constructive failure.

5 The family must liquidate those ventures that are not achieving success in a timely manner.

clearly developed business cases demonstrating the potential for substantial growth and

6 The core of the family must act like Venture Capitalists; ruthless but constructive in their evaluation of the proposals, demanding that those who are funded meet milestones achieve heroic results and act like entrepreneurs.

5. The family must liquidate those ventures that are not achieving success in a timely manner.

profitability. This process needs to provide much

6. The core of the family must act like Venture

more than just a yes or no, rather it must provide

Capitalists; ruthless but constructive in their

a detailed evaluation of the proposed business,

evaluation of the proposals, demanding that

suggestions for refinement of the plan. If the

those who are funded meet milestones achieve

answer is no, then a reasoned explanation of why

heroic results and act like entrepreneurs.

and an encouragement to keep looking for new opportunities needs to be provided.

30

The family must nurture the entrepreneurial spirit of the next generations through training, encouragement, mentoring and teaching them about the entrepreneurial success stories of the prior generations.

7. The family must nurture the entrepreneurial spirit of the next generations through training,

3. Continuous monitoring and evaluation of all new

encouragement, mentoring and teaching them

ventures that are funded by the enterprising-

about the entrepreneurial success stories of the

family.

prior generations.

4. An acceptance of the risk of failure and the

8. The family has to make difficult decisions based

recognition that there is such a thing as a

on the quality of the business without being

constructive failure.

clouded by family ties. This is why it is advisable

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From Family-Enterprise to Enterprising-Family

that the family embed the process and the value of entrepreneurship within their business and culture.

To become an enterprising–family also requires the next generations to rise to the challenge and seek out opportunities for growth and profit. They need to create well-developed plans, business cases and presentations for their ideas, that would impress a Silicon Valley Venture Capitalist. The proper research must be done prior to initiating the venture. The next generation must not to depend on the indulgence of their parents and grandparents, but must raise their work and effort to meet the

FEATURE

To become an enterprising–family also requires the next generations to rise to the challenge and seek out opportunities for growth and profit. They need to create welldeveloped plans, business cases and presentations for their ideas, that would impress a Silicon Valley Venture Capitalist.

standards of the venture capital market. This will push them to become entrepreneurs – to seek and exploit opportunities through creativity, vision, and

the lead of Venture Capitalists in Silicon Valley and

lots and lots of hard work. Being an entrepreneur is

around the world and apply options reasoning to

the hardest job in the modern economy. It demands

their entrepreneurial investments.

that you do more with less. It accepts no excuses and demands superior execution.

What is the outcome of the transition from a successful family-enterprise to a successful enterprising-family?

At this point you may be thinking “Doesn’t

First, diversification of business risk as the family’s

becoming an enterprising-family create the

wealth is spread across markets and products and

same risks for family firms as expanding through

continues to seek out new opportunities for profitable

acquisitions?” The answer is no if well executed.

growth. Second, and most importantly, it leads to

Entrepreneurs and Venture Capitalists use

the development of the next generation of leaders of

real options reasoning to minimise risk. If the

the family-enterprises. The next generation trained

entrepreneur estimates that he needs $5 million

to act entrepreneurially, think creatively, build

for his venture, no investor will provide him that

an organisation and execute a plan is what every

exact sum. Rather, they would provide him a mere

enterprising-family needs to build on their success.

$50,000 and tell him to go accomplish something

So, if the owners of a successful family-owned

and come back. An entrepreneur minimises initial

company can execute this process and truly become

investments because they are the highest risk

an enterprising –family they can address two key

and most expensive capital. They are forced by

problems simultaneously: risk diversification and

the markets to continually prove themselves by

preparing the next generation to lead and lay the

achieving outcomes – patenting, proto-typing the

groundwork for a future of profitable growth.

product, getting the initial customer, and creating a profitable and scalable business model in order to gain the resources they need. Commitments of resources are staged and additional commitment requires that outcomes be achieved and milestones be met. The enterprising-family needs to follow

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Author Prof. David L. Deeds, Ph.D. Schulze Chair of Entrepreneurship in the Opus College of Business at the University of St. Thomas, USA

Volume 12 Tharawat Magazine

31

SPECIAL FEATUREs

Special Features

Boards Family Business

the performance of family businesses around the board table

32

Tharawat Magazine Volume 12

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SPECIAL FEATUREs

34 Directors: Piloting The Force of A Family Business A review of the different types of directors on a board, their responsibilities, and skills required.

40 On The Boards of Family Business A description of the particularities of family business boards and the role of non-family board members.

The performance of a company’s board is essential to the overall success of a business. The role of the directors on the board mainly consists of applying their skills, experience, and knowledge in order to challenge, formulate strategy, and drive the performance of the business. Many family businesses in the Arab world still function without a board of directors or establish it with only family members as board members. In this issue’s special feature on Family Business Boards, the Tharawat magazine authors explore the tasks of directors, the advantages of non-family members joining the board, and ways in which families can increase their board performance.

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46 Q&A with Marylise Abou Haidar Sinno A personal account of Marylise Abou Haidar Sinno’s experience on the family business board.

48 Independent Directors The role of independent directors in increasing the family business board performance.

Volume 12 Tharawat Magazine

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SPECIAL FEATUREs

directors: piloting the force of a family business

“ Directors:

Piloting The Force “

of A Family Business

Mustafa Hussain, a solicitor with Taylor Wessing’s wealth group, UK, and author of “The Family Business Passport”, discusses the role and responsibilities of directors in Middle Eastern family businesses.

B 34

lood is thicker than water”. These words

Why have a corporate governance policy?

constitute perhaps one of the greatest

Effective organisation is vital to the sustainability and

universal truths. The proverb is particularly

profitability of a family business and so owners should

true of the Middle East, where the family acts

always be mindful of ensuring their corporate governance

as the core component of society. The model

systems are both comprehensive and robust. Blood ties

of a family business allows the members to use these strong

may act as a distinctive strength for family businesses but

family ties as a source of loyalty, commitment and drive to

they also bring their weaknesses. There can be sensitivities

further the business. It is not surprising then that family

regarding executive succession, the role of family members

businesses represent some of the most successful enterprises

in the business, and the use or abuse of business assets to

in the region (and in the global market).

name but a few. Without a planned regulatory framework,

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directors: piloting the force of a family business

SPECIAL FEATUREs

FIG. 1: Types of Directors

NonExecutives

Shadow Directors

Not company employees nor executive office holders. They are independent and asked to join the board because of their expertise.

Not an appointed board member but exercises influence on some or all of the board and those other board members act in conformity with his directions.

Executives

Carry out strategic functions in the company but also hold employee positions (such as a CEO).

such sensitivities can become real vulnerabilities for the business.

Owners can demonstrate their commitment to high standards of corporate governance using, for example, a corporate governance policy to provide for the intention, objectives and details of how a company, its shareholders and its executives will follow best practice. The policy can provide for how a family business can operate without

If blood ties are one of the driving forces of a family business and the basis of its ownership, then strategically it is (or should be) the board of directors that pilots the operating controls.

interference from the owners but with strategic control.

This helps owners set the tone on how the business should be run. instructions by which directors can operate the business

Closing the gap between owners and directors

as a board but within the boundaries set by the owners.

If blood ties are one of the driving forces of a family

Once that connection between ownership and operations

business and the basis of its ownership, then strategically

has been documented, the directors of the company have

it is (or should be) the board of directors that pilots the

the comfort and mandate to know how they should execute

operating controls. A corporate governance policy can be

their task. They will know that they have to operate ethically,

supplemented by delegation of authority and committee

strategically and with a focus on performance, value creation

terms of reference statements. Those help to bridge the

and accountability. In order to avoid any doubt or frustration

gap between the owner’s expectations and the detailed

from the owners, the board will also know that they will be

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SPECIAL FEATUREs

directors: piloting the force of a family business

FIG. 2: Key Features of a Director’s Responsibilities

Duty to the company (not the owners).

Must act within their powers.

Must promote the success of the company.

Exercise independent judgment.

Avoid conflicts of interest.

Use reasonable care and skill.

expected to produce a timely flow of high quality information

Favoritism

for owners and have effective decision-making processes

The temptation in a family owned company will always

in place.

be to fill the board with those members of the family or friends who are trusted by the patriarch or favoured by him.

The role of directors

There is also a susceptibility to using board appointments

The role of the directors is to use their skills, experience,

for political point scoring; for example, in businesses co-

knowledge, and independence in order to challenge, formulate

owned by siblings, the owners will often seek to control

strategy, and drive the performance of a family business. There

the board using appointments who are pre-disposed or

should be a supportive relationship of mutual respect and open

politically aligned to one shareholder more than another.

communication between the family and non-family members

If a board does not have sufficient numbers of independent

of a board and between the executive and non-executive

non-executives the business can be crippled by in-fighting

directors. Executive directors carry out strategic functions

and a lack of pragmatism in decision making.

in the company but also hold employee positions (such as a

36

CEO). Non-executive directors are not company employees nor

Directors Responsibilities

executive officer holders. They are independent and asked to

Directors must always remember that their responsibility

join the board because of their expertise. When a person (such

is first and foremost to the company. They must act

as a family patriarch) is not an appointed board member but

within their powers, promote the success of the company,

exercises influence on some or all of the board and those other

exercise independent judgment, avoid conflicts of interest

board members act in conformity with his directions, then that

and use reasonable care and skill (See Figure 2). Whilst

person can be deemed a “shadow director�. There is no material

these are the general legal duties falling on directors,

distinction between the duties owed by the different types of

there will always be further specific ones dependent

directors but a particular difficulty with shadow directors is

on the local laws of a jurisdiction. For example, some

that they can result in a person being liable for responsibilities

territories have particular health and safety laws, duties

without the formality of an appointment (See Figure 1).

to employees and insolvency provisions. It is impossible

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directors: piloting the force of a family business

SPECIAL FEATUREs

FIG. 3: Good Practice When Employing Family Members in the Business

Recommendations

Advantages

Specify that family members must be qualified before they can join the business

Ensures the business is not carrying «dead weight» personnel who are unsuited to the role.

Require members to be experienced

Requiring relevant experience from outside the company brings more valuable input and enables credible contribution.

Demand capability

Presence of incapable or even incompetent personnel is de-motivating to others and can lead to value loss.

Ensure suitability

Avoids conflicts, tries not to have spouses working closely together, ensures age and position are well suited to the role.

Anti-Corruption

Expressly provide that family members cannot take advantage of their appointment for their personal benefit.

for a director to know all of these and so the need for

can be provided for using a casting vote, veto powers, or

professional advisors and legal counsel to the board is

authority to intervene.

apparent and an important appointment to get right. It is for the company to enforce a directors duties, although

Employing Family Members

in some instances shareholders can bring action on the

It is good practice for directors to implement a policy

company’s behalf.

providing for how family members may be employed in the business, including at a board level. Such guidelines

Board Control

can help avoid awkward or embarrassing situations which

No individual or group should be able to dominate a

shareholders or management find difficult to deal with or

board’s decision taking if independent governance is to be

which may cause tension, drain resources and even provoke

properly effected. If a patriarch or senior family member

disputes. Recommended provisions include those described

is concerned that they do not have sufficient control, this

in Figure 3.

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SPECIAL FEATUREs

directors: piloting the force of a family business

Directors often worry about how they fulfill their duty to act in the best interests of the company. However, provided they always act with good faith and in consideration of all the issues, they will be compliant.

company and their personal (or third party) interests.

Such interests should therefore be declared (including in particular issues regarding that director’s own service contract, loans to directors, property transactions involving directors or persons connected to them and so on). Some directors may hold board positions in more than one company and perhaps even in companies that are rivals or competitors. Such directors should ensure they remember that their obligation is to the company and they are bound by confidentiality and fiduciary responsibilities.

Enforcement is not straightforward but in circumstances where an appointment with two absolute rivals is simply unsustainable, then the director would likely have to step

Duration of duties

down from one board rather than act as a member of both.

In terms of duration, a director’s duties to the company start from the moment of appointment but they will cease

The by-laws or articles of the company will usually provide

upon resignation or retirement. Notwithstanding that, some

for the practices and procedures by which directors are

responsibilities will be held applicable even after resignation

appointed, attend meetings, vote and gain access to

(such as a duty of confidence) and just because a director

information and so on. It is important that directors

is no longer appointed when a liability is discovered does

understand all of their rights and powers so that they can

not mean that they will not be liable for acts done during

fulfill their responsibilities fully and in the knowledge of

their term.

what they can do to challenge and direct the rest of the board when their judgment demands it.

Fulfilling responsibilities Directors often worry about how they fulfill their duty to act

Maintaining Good Practice

in the best interests of the company. However, provided they

Directors should always be mindful that there can be a

always act with good faith and in consideration of all the

liability on them personally as well as to the company if they

issues, they will often be compliant. Special insurance, called

fail to fulfill their duties or execute their responsibilities

directors and officers insurance, can be effected to cover the

with the care and skill expected of them. However, having

directors performance liability. In the absence of misconduct

adequate practices and procedures in place, keeping

and negligence this would usually be sufficient to cover all

abreast of developments in law and corporate governance

acts done in good faith. Board minutes can also provide a vital

(such as with the new Bribery Act introduced in the United

documented trail evidencing that the board has considered all

Kingdom) and taking expert advice can ensure not only

the issues and reached the best decision. Appointing a company

compliance but also enable directors to effectively steer

secretary and maintaining full and accurate company records

the progress of a family business, building on the driving

is therefore not just good practice, it can be the vital proof that

force of blood ties and generating valuable growth and

a director has adequately fulfilled their responsibilities.

success.

Avoiding conflict Directors should always avoid being in a position where they may be conflicted between their duties to the

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Author Mustafa Hussain, Solicitor, Wealth Group, Taylor Wessing, UK

www.tharawat-magazine.com

Dedicated to...

Arabian family businesses

From family businesses for family businesses www.tharawat.org

SPECIAL FEATUREs

on the boards of a family business

Researchers and practitioners have established that family businesses are not exactly the same as non-family businesses. The differences lie mostly in the fact that the owning family’s involvement brings with it a unique set of influences on the process of running the business.

As a result we can see a growing body of knowledge created by academics and practitioners studying these observed differences. However, given the fact that this body of knowledge only began to gain critical mass in the 1980s, not all aspects enjoyed research beyond scratching the surface. Of the least researched elements are boards of directors in family businesses.

Abdullah Adib Al Zamil, researcher on family business governance, UK and KSA, argues that a board of directors is probably the most important governance body in any company, as it sits on the apex of its structure. His article looks into the meaning of this, the expectations set on boards and the functions it normally undertakes, and sheds light on the issue of board composition; introducing outside directors and family directors selection.

On The Boards of A Family Business

Boards of Directors as a Governance Body

of the evolution almost never exists without some sort of

Family businesses typically evolve in the following manner:

family and corporate governance to mitigate the risk of the

founder(s) stage, followed by sibling partnership, and finally

associated challenges. Luckily, this evolution from one stage

cousins consortium. More often than not, during the first

to another is, by definition, gradual. This allows individuals

stage the entrepreneurial spirit is dominant. Establishing

to prepare the company and successors for the next stage.

and growing the business by exploiting all opportunities is

This preparation is typically and ideally a result of corporate

the ongoing theme. As the company evolves into the next

governance.

stage, owners normally benefit from their strong sibling ties

40

to take them through the challenges associated with owning

Corporate governance concerns the systems and structures

and running such a partnership. However, the final stage

put in place to establish control, direction and accountability.

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on the boards of a family business

SPECIAL FEATUREs

The ultimate governance body in such a structure is the board

4. Select candidates for shareholders to elect into the board

of directors. In their book Corporate Governance, the authors

of directors. Evaluate board processes and performance.

Robert Monks and Nell Minow list five primary functions of

5. Review the compliance of systems with all applicable laws

boards of directors described by The Business Roundtable

and regulations.

that represents the largest US corporations: 1. Select and evaluate the CEO, determine management compensation, and review succession planning.

2. Review and approve the financial objectives and major strategies.

3. Provide advice and guidance to senior management.

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To those we can add: 1. P rotect shareholders’ interests.

2. O versee management performance.

3. M onitor and mediate family involvement.

4. A ct as custodians of the family values in the business .

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SPECIAL FEATUREs

on the boards of a family business

The last two functions above are obviously unique to family

empowered outside directors. The author, Cristina

businesses.

Bettinelli, describes four benefits of having external directors on the boards of Italian family businesses: Firstly,

Family Reluctance

the presence of well-selected outside directors increases

One may ask: if the benefits are so evident then why are there

the level of effort expected from each board member.

so many family businesses without a board of directors?

Family board members will put in more effort in order to

Why is there so much reluctance? We can find the answer

be taken seriously by those outsiders, thus, demonstrating

in tracing the evolution described above.

the meaningfulness of the board as a governance body. This heightened level of motivation increases the functionality

If we take a typical case of an entrepreneur in the Arabian

and benefit of the board.

Gulf region, we would normally find that he starts with a core business and diversifies his interests based on the

The second finding was the increased level of board

opportunities presented to him. Every decision has to go

cohesion: The presence of outside directors adds to the

through him and he very likely has absolute authority. As

degree to which board members positively engage with

his children join the business, typically each of them heads

each other. This reduces the risks of interpersonal conflicts

his or her own subsidiary or division, reporting directly to

as well as heightens team performance. Family members

the founder. Each of them has their own fiefdom, acting as

are less likely to expose their personal differences in the

businesses within the business, yet, finding unique ways of

presence of outsiders, which encourages them to manage

combining their efforts, often unconventionally. Capitalising

those differences constructively. Moreover, independent

on their family ties and their deep understanding of each other, the siblings can operate in a casual, informal manner often draped in a high level of secrecy.

This informality and privacy is often considered by many families to be a competitive advantage, providing the family with agility and flexibility in decision-making and reaction to market changes. While this is something that distinguishes family businesses from their non-family competitors, the presence of an effective board is more likely to add more benefits to the company than to ruin this ‘familiness’ it enjoys.

The presence of outside directors adds to the degree to which board members positively engage with each other. This reduces the risks of conflicts as well as heightens team performance.

In some cases families find themselves forced, by regulation, to establish boards of directors. In this case the board would

outsiders are serving the interest of all stakeholders, as

often consist only of family members and its duties would be

opposed to representing shareholders, which makes them

limited to meet the minimum regulatory requirements. This

more likely to work towards a more cohesive board.

can cause the family to miss out on the benefits an effective and functional board provides.

Thirdly, outside directors are found to increase the effectiveness with which the knowledge and skill of each

42

Outside Directors

board member is being exploited. In a board composed

Many of the benefits of having a functioning board of

of only family members, discussions would often flow

directors can only be realised when having independent,

towards shared skills and knowledge. Having outsiders on

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on the boards of a family business

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SPECIAL FEATUREs

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43

SPECIAL FEATUREs

on the boards of a family business

the board should stimulate discussions that address beliefs

complexity as well. Thus, the benefits of outside directors can

and assumptions often taken for granted by family members

best be seen as the family business grows both in size and age.

as well as increase the level of awareness of the collective human capital sitting on the board.

Director Selection The reality of family businesses, particularly those in the

44

The final finding relates to the role of outside directors as

MENA region shows that family board members are selected,

moderators of the effects of the family business’s growth in

in most cases, by order of seniority. This is often the case

age and size. Organisational structures and processes change

during the founder(s) and the second generation and is aided

as businesses evolve from one stage to another and grow

by the relatively smaller number of senior family members, as

in size. Research has found that boards get more involved

they can all be accommodated on the board. However, such

as companies grow and become more complex. With this

privilege cannot last forever, particularly as more young family

growth we would of course expect the challenges to grow in

members start joining the business over time.

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on the boards of a family business

It goes without saying that when choosing board members from within the family, they need to have a minimum level of knowledge and experience to be able to conduct their duties competently and to engage with the outside directors (if there are any). It is also a good idea to avoid assigning young members whom have just started their career to the board. This would cause confusion between them and their superiors in terms of who reports to whom. It could also overwhelm them with information, some of which is confidential, which could hinder the development of their own decision-making skills. It is advisable to allow

SPECIAL FEATUREs

Those with a broad business sense and experience benefit the board more than those specialised in one field, such as academics, whom can be brought in when needed to serve a specific purpose.

them to progress in their careers until they reach senior managerial levels.

Things become a little bit more complicated when choosing

The authors go on to suggest that suitable candidates

outside directors. The pool of good candidates in MENA markets

include owner-managers of other family businesses; they

is relatively small and the best ones are often snatched by large

often face the same challenges and are able to bring in their

listed companies. When asked, a senior member of a large

expertise and insight when tackling them. Division heads of

successful Saudi family business said:

large public companies are also good candidates. They are

“It wasn’t a question of ‘who should we get?’ but more ‘what

often younger, yet very knowledgeable and experienced in

do we need?’. We wanted former ministers, CEOs of large

their markets. Lastly, those with a broad business sense and

companies and respected businessmen. They had to worry about

experience benefit the board more than those specialised in

their status and reputation enough to take their roles seriously.”

one field, such as academics, whom can be brought in when needed to serve a specific purpose.

He also conceded that this would bring with it the fact that they will challenge some of the ways the family are used to do things.

The Magic Ingredient…

But as he put it: “we had to adapt!”

…is family buy-in. In order for the family business to have a

In their book The Family Business: Its Governance for

functioning effective board of directors the controlling owners

Sustainability, Fred Neubauer and Alden Lank list five types of

have to concede to the fact that they will be challenged and

people a family should not invite to the board:

their ways will be questioned. The secrecy and informality they

Professional consultants, to avoid conflicts of interest.

enjoyed will be replaced by transparency and professionalism.

Very close personal friends. They may have the trust of the

But they should not worry, as more likely than not, the better

family, but this closeness may stop them from being fully

outside directors will recognise the value the family ties bring

honest in their opinions.

in and will be able to assist the family in capitalising on it. For

Retired managers. Although some may still have a lot to offer,

the perpetual growth and sustainability of a family business, a

many have given it all during their tenure at the business and

strong, solid governance structure is essential with an effective

have no more to add.

functioning board as its central body.

Individuals sitting on many other boards. A family would want their board members to devote sufficient time and attention to their duties.

Competitors.

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Author Abdullah Adib Al Zamil, researcher on family business governance, UK and KSA

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SPECIAL FEATUREs

Marylise Abou Haidar Sinno

Q&A with...

Marylise Abou Haidar Sinno On the Board of the Family Business

When did you join the family business board and what is your current role?

I joined our family holding in 2007 and the board in 2010. I am currently the Chairman/CEO of the holding company as well as the Chairman or Deputy Manager of some of the operational companies formed in the Gulf area by Capanama Holding.

What challenges did you face when joining the board?

Age: Being the youngest in the company, it was difficult to gain authority over the older staff members through my position alone. I had to first gain confidence in myself and my competencies, and then, with time, I started feeling a respect that was due to my knowledge and experience rather than to my position and my family ties.

Company: Capanama Holding sal Country: Lebanon Name: Marylise Abou Haidar Sinno Generation: 2nd Working in the family since: 2007 Job Title: Chairman/CEO Number of Board members: 4 Number of Board meetings a year: 6

Shadow of the boss: I felt the tendency of the clients and their desire to meet with my father directly since they were used to it from before my involvement in the company. It is only recently that they started dealing with me alone, regardless of the presence or involvement of my father.

Genuine business relationship: At the beginning, I had the impression that the staff reported to me just to please my father or to get closer to him through me. It took time to evaluate the quality of such business relationships and to feel that the reporting has become genuinely business oriented.

Self confidence: I will never forget my worries and the stress I had to face when I had to negotiate a major deal in a foreign

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Marylise Abou Haidar Sinno

country on my own and for the first time. I did not sleep for almost a week before that meeting.

What do you think are the three factors that drive board performance?

SPECIAL FEATUREs

Being the youngest in the company, it was difficult to gain authority over the older staff members through my position alone. I had to first gain confidence in myself and my competencies, and then, with time, I started feeling a respect that was due to my knowledge and experience rather than to my position and my family ties.

Knowledge: It is important to acquire a deep knowledge of the company, under all its aspects: financial, legal, operational, etc. and of the shareholders/board members:

than defending objectively and with perseverance the

personality, worries, objectives, complexes, etc.

business interests.

Goals & Achievements: It is advisable to set up achievable

What is your advice for young family members who are

objectives with encouraging reward systems as well as

joining the boards in their family businesses?

frequent meetings to ensure a regular and proper follow up and monitor the implementation of Board decisions. Avoid

For young family members joining the boards I would have

the status of a “paper board”.

the following recommendations: To behave as if they were working in a non-family company.

Priorities: To make sure that the business interests always

To avoid using the family ties’ strength to wrongfully overrule

prevail on personal family interests is paramount. Internal

senior non-family staff decisions.

communication is important and essential in this respect.

To accept the advice, blame and reprimands of senior staff whether they are family or non-family members.

What are the special characteristics of family business

To focus on the general interests of the company rather than

boards?

personal interests and avoid emotional decisions.

I would identify the following features that are specific to

company meetings and not let them go home with you.

boards in family businesses:

To learn from the experience of other family businesses, in

To restrict the effects of the business problems to the

The formation of clans and groups based on family

order to avoid doing the same mistakes.

branches.

To take a positive attitude towards the advice of experts and

A lack of professionalism at the level of board members.

professionals.

The extrapolation of business problems to family circles.

Finally, to attend family business conferences and events and

A tendency to align with the founder’s opinion rather

learn as much as possible.

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SPECIAL FEATUREs

Independent Directors

Independent Directors as a key to innovation in the boardroom

Independent directors play an important role in helping family business boards transform into high performance boards. Indeed, one of the key benefits independent directors can bring to a board is a greater understanding of how outsiders view the company. Prof. Didier Cossin, Director of the Global Board Center at IMD, Switzerland, describes a 3-stage model of how independent board members progress towards promoting transparency, efficiency and innovation in family businesses and companies from emerging economies.

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Independent Directors

T

SPECIAL FEATUREs

he recent increase in attention toward corporate governance is not surprising, given the prolonged economic crisis, rising social difficulties, dramatic increases in market volatility and high-profile corporate

collapses. One approach, which has attracted considerable

interest, involves looking toward ‘closely held’ business models to discover new best practices in governance and leadership. This strategy has significant merit. Family businesses are particularly compelling, since they have demonstrated an incredible ability to outperform widely held (i.e. traditional western exchange-traded) companies, by more than 150% over a 10-year period, according to studies. Yet, this performance is not fully reflected in the value of firms, which, curiously, often trades at a discount to fair market value. Even when family businesses are welloperated, outsiders typically do not value them appropriately.

As a result, many family businesses are at a significant disadvantage when additional capital is needed, and lack the social trust, which is becoming more and more important in recent years. One explanation for why outsiders seem to be biased against family owned businesses can be concern about the lack of transparency, failure to respond to the outside environment, or not enough innovation in either the business model, management skills or technology. A similar prejudice is felt by businesses from countries outside of the most dominant market economies. Combined, this provokes a situation wherein family-owned businesses based in rising economies, including the Middle East, still do not receive

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SPECIAL FEATUREs

Independent Directors

enough consideration from outsiders, even when business

run best interest of shareholders and general public. While

is booming, and companies have strong potential to enjoy

this represents a response to a different kind of governance

continued growth into the future.

challenge, adding the right independent directors to a company’s board can promote reassurance (of an equally

The main question is Why? Family businesses need to

important kind) for stakeholders of family businesses as well.

consider important follow-up questions, such as ‘how legitimacy and good management practices?’ and ‘how can

The important role of non-executive directors

good companies distinguish themselves from local peers,

Independent directors play an important role in helping

which may be less worthy of consideration?’.

boards transform into high performance teams. Indeed,

can good companies provide externally visible signals of

one of the key benefits independent directors can bring Family businesses from emerging economies can benefit

to a board is a greater understanding of how outsiders

greatly from looking to mainstream models, in order to

view the company. In most businesses, there is a strong

understand exactly how to increase perceptions of legitimacy in the eyes of the public, of shareholders (notably extended family) and other stakeholders (notably government and society). Of course, major changes to address these problems directly –such as changing a firm’s region, or overhauling the ownership structure of a company - are unrealistic. In fact, even if this were possible, these changes would be a big mistake.

Significant, and far less disruptive, changes can be made

In most businesses, there is a strong motivation to project a positive impression, yet inside board members may not have any idea of how to accomplish this feat.

through focusing on improving firm governance. One of the current hot topics in research involves the role of independent directors, within businesses from Norway

motivation to project a positive impression, yet inside board

to China. Some progressive firms work hard to empower

members may not have any idea of how to accomplish this

independent directors, even adjusting structural aspects

feat. This is especially true within family businesses, where

of governance to help enhance the impact non-executive

individual and company reputation are more closely linked.

directors can have on the performance, capability to innovate,

Here, independent board members can not only provide an

and risk management of a company. This could boost public

external view of the company, but also first-hand knowledge

confidence, sending a strong signal to the market through

of the innovative management and governance practices

revising board processes and composition.

needed to increase collective knowledge, and activate the board and the company’s true potential.

One of the primary roles an independent director is expected

50

to serve, within a widely held company, is to reassure

A second way independent directors represent a major asset,

stakeholders that an impartial, objective presence is sitting

is their heightened ability to influence how outsiders view the

in the ‘decision room’, possessing sufficient knowledge

firm. The mere presence of an independent person on a board

and expertise to intervene and question decisions that

of directors can build social trust and become a strong signal of

are excessively risky, overly focused on short-term gains,

legitimacy, with the independent director recognised as a public

or aimed at benefitting management, instead of the long-

representative and advocate, able to address a wide range of

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SPECIAL FEATUREs

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SPECIAL FEATUREs

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Independent Directors

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Independent Directors

public interests. Company boards with the right independent directors are perceived as more objective and fair both by society and stakeholders alike.

A third impact of highly effective independent directors is enabling a transformation of the business itself. Here, diversity is critical. A truly diverse board is comprised of people from different backgrounds, with a broad portfolio of views, enabling problems to be approached from multiple angles. Typically, independent directors can then be pooled from other regions,

SPECIAL FEATUREs

The right kind of contributions from an independent director can help a familyowned business progress toward a more advanced and far more effective form of corporate governance.

other industries, and other environments including practical academics. Most importantly of all, a diverse board should have a broad range of thinking styles, in order to be as flexible

risk that small stakeholders and major competitors will

and innovative as possible. Family businesses often reflect the

know something that the board has not yet recognised.

opposite of diversity, since a common culture surrounds most

However, while this stage is an important step, there can

members’ professional and personal lives. Here, independent

be growing pains. Sometimes boards at this stage become

directors can provide an interesting addition to the mixture,

dysfunctional, lacking common focus and the ability to

adding some spice to the soup.

engage in productive dialogue, which can hurt business development. It is not uncommon for this to be disruptive

How independent directors enhance board processes: a 3-stage model

at first, before the new power has been fully harnessed.

The right kind of contributions from an independent director can

Finally, after reaching the third stage, a board becomes

help a family-owned business progress toward a more advanced

more effective. It is at this stage that a board can

and far more effective form of corporate governance. This

look ahead, to become a co-creator of change with

evolution can be observed across three stages of development:

management, both inside the company and on an

In the first stage, boards are still dominated by their

industry-wide basis. Not only do boards at this stage

controlling families. The primary problem at this stage

typically include several highly active independent

is disconnection from the external world, which can lead

directors, these organisations also have board processes

to insufficient recognition of external threats. Another

to help empower these directors, and invite their positive

symptom is a lack of innovation, in terms of strategy,

influence to inspire innovative new ideas, improve access

internal management practices, or technology. Success

to new markets, and question activities to serve as an

will be limited within these firms, as creativity is stifled,

additional form of risk management. While the Middle

in favour of continuation along a predictable linear path.

East has seen substantial development in regulations as a driver of governance change, there are strong reasons

The next stage in the evolution of a company’s board is

why a business should proactively drive this change

contrarian in nature, with freedom of expression rising

internally, and many rewards awaiting the ones that do.

noticeably. Reactions improve, allowing better responses to external events including: broad markets trends, actions of major competitors, and changing consumer tastes. A key benefit independent directors provide at this stage is new information, which can reduce the

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Author Prof. Didier Cossin, Director of the Global Board Center at IMD, Switzerland

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SPOTLIGHT LATIN AMERICAN FAMILY BUSINESSES

SPOTLIGHT ON

LATIN AMERICA AND ITS FAMILY BUSINESSES PART 1

In our new section ‘Spotlight’ we at Tharawat magazine embark on a voyage to Latin America.

It is a region that up until little time ago was somewhat isolated from global activity, a situation not helped by poor communication and long distances. However, over the past decade, trends have changed: Latin American politics are more democratic, several dynamic economies have evolved (Brazil, Mexico, Chile and more recently Peru) creating strong foundations for future regional growth, opportunity is abundant, and social mobility is creating a new consumer class. As in most economies, family-owned businesses have been and will continue to be at the forefront of economic and social development. In this first part of our spotlight on Latin American family businesses, we discover the macroeconomics of the region and become familiar with some of its oldest and largest family businesses. Some of them many generations old, show remarkable similarities to their peers in the Arab world and, therefore, underline once more that the challenges and opportunities that family businesses face often transcend culture.

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SPOTLIGHT

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SPOTLIGHT LATIN AMERICA IN FACTS AND FIGURES

LATIN AMERICA IN FACTS AND FIGURES GDP (US$) POP’N (m) GDP Growth (%) MEXICO

GUATEMALA EL SALVADOR HONDURAS NICARAGUA

BELIZE

GUYANA

COSTA RICA PANAMA

VENEZUELA

USA

MEXICO

COLOMBIA CHINA

SURINAME

ECUADOR

BRAZIL

TAB. 1: LATIN AMERICAN FIGURES COUNTRY AREA GDP

GDP

Growth (%) (m)

(Sq km)

(US$)

POP’N

BRAZIL 8,511,965 2.09tr 7.5 203.4 MEXICO 1,972,545 1tr 5.5 113.7 ARGENTINA 2,766,889 370bn 7.5 41.8 VENEZUELA 912,050 314bn 27.6 COLOMBIA 1,141,748 286bn 4.3 44.7 CHILE 756,102 203bn 5.3 16.8 PERU 1,285,216 153bn 8.8 29.2 ECUADOR 283,561 58.9bn 3.2 15.00 GUATEMALA 108,889 41bn 2.6 13.8 URUGUAY 176,215 40.2bn 8.5 3.30 COSTA RICA 51,100 35.8bn 4.2 4.60 PANAMA 75,420 26.8bn 7.5 3.50 EL SALVADOR 21,041 21.7bn 0.7 6.00 BOLIVIA 1,098,581 19.4bn 4.2 10.10 PARAGUAY 406,752 18.5bn 15.3 6.50 HONDURAS 112,090 15.3bn 2.8 8.20 NICARAGUA 130,370 6.5bn 4.5 5.70 SURINAME 163,820 3.7bn 4.4 0.49 BELIZE 22,966 2.6bn 2.0 0.32 GUYANA 214,969 2.2bn 3.6 0.75

BOLIVIA PERU PARAGUAY

CHILE

BRAZIL URUGUAY

ARGENTINA

For comparison USA 9,826,675 14.66tr 2.8 313.2 CHINA 9,596,961 10.09tr 10.3 1336.3 Source: CIA World Factbook

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(thousand metric tones)

Copper

(thousand metric tons)

Zinc

(metric tons)

Gold

(million metric tons - usable)

Iron Ore

BOLIVIA

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BRAZIL

MEXICO

VENEZUELA

CHILE

1520 | 23000

170 | 2000

1285 | 90000

40 | 3400

5520 | 150000

16 | 2400

550 | 15000

60 | 1400

12 | 400

230 | 38000

65 | 2400

3rd largest global reserve

2nd largest global reserve

largest global reserve

largest global reserve

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RESERVES (million bbl) Worldwide%

264,600 0.19%

Saudi Arabia

Belize

Suriname

79 0.01% 6 0.00%

Guatemala

Chile

150 0.01% 83 0.01%

Bolivia

Peru

Colombia

Argentina

465 0.03%

470 0.03%

1,900 0.14%

2,386 0.17%

Ecuador

6,542 0.47%

PRODUCTION (bbl/day) Worldwide%

10,540,000 12.01

3,990 0.00%

15,190 0.02%

13,530 0.02%

10,850 0.01%

47,050 0.06%

148,000 0.18%

903,000 0.97%

796,300 0.93%

485,700 0.58%

2,572,000 3.05%

Brazil

123,000 8.83%

2,472,000 2.93% 3,001,000 3.56%

Venezuela Mexico

139,000 9.98%

513,000 36.84%

COUNTRY

370 | 16,000

430 | 6000

production | Reserves

LATIN AMERICA IN FACTS AND FIGURES SPOTLIGHT

FIG. 1: COMMODITIES - OIL

FIG. 2: COMMODITIES - MINERALS

PERU

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SPOTLIGHT latin america and its family businesses

DISCOVERING

LATIN AMERICA AND ITS FAMILY BUSINESSES

Latin America still remains relatively unknown to most people, a legacy of the years of military and authoritarian rule, hyper-inflation and the sovereign credit problems of the 1970’s and 1980’s. This was a time when the region was effectively isolated from mainstream world activity, a situation not helped by poor communication and long distances. Since then the change has been dramatic.

Politics are democratic, several dynamic economies have evolved (Brazil, Mexico, Chile and more recently Peru) creating strong foundations for future regional growth, opportunity is abundant, and social mobility is creating a new consumer class. Family-owned businesses have been and will continue to be at the forefront of this development. This article by Edward Nicholson, Managing Partner at Mercator Partnership Limited, and Consultant to Maitland Group, provides an introduction to the region, examines the importance of family businesses within the overall economic framework and concludes with a perspective on the future.

Historical Context

and the drive to build a new future. The presence of Arabic

Discovered and colonised initially by the Spanish and then the

names such as Haddad, Maluf, Mahfuz and Moffarej, serve as

Portuguese, more than 500 years ago, it is only since the turn of

a reminder of this, as does the more than one million second

the last century, that the Latin American region really began to

and third generation Japanese in Sao Paulo, Brazil.

evolve into what it is today. The societies we know today were from Western, Central and Eastern Europe, the Middle East,

The Relevance of Latin America in the Modern Global Economy

and Japan and by immigrants who brought essential skills

As a major provider of strategic commodities (iron ore,

formed in a process catalysed by successive waves of migration

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latin america and its family businesses

copper, zinc, beef, wheat and soya), an important market for manufactured and increasingly luxury goods, and with Brazil an aspiring permanent member of the UN Security Council, Latin

SPOTLIGHT

FIG. 1: Growth rates of Brazil, Mexico, and Peru

Mexico

Brazil

Peru

America has acquired a significance that seemed unlikely 30 years ago. Its location, establishes it as a natural trading partner with Asia and its economies are growing fast - GDP growth rates of 7.5% and 5.5 % in Brazil and Mexico and 8.8% in Peru (2009) (See Figure 1). The region has produced some major global companies in recent times including Vale, Petrobras, Gerdau and AB Inbev - a trend which looks likely to continue.

Natural Resources – A Core Competence Minerals and agriculture have long been dominant themes.

Recent discoveries of additional oil and gas reserves will greatly reduce dependence on traditional suppliers and provide a massive economic stimulus, particularly in Brazil.

The region has been a major beneficiary of the demand for

5.5 7.5 8.8 percent

percent

percent

GDP growth rates (2009)

copper and iron ore, of which it has some of the largest reserves in the world, from China, India and Korea and for beef and other agricultural products in part due to the “protein chase” from emerging economies.

The Impact of Changing Demographics on the Demand for Consumer Products Economic growth has led to the creation of a sizeable and

Manufacturing and Retailing Highly Relevant and Growing…

growing middle class with increasing levels of disposable

Latin America is a major manufacturing hub and has growing

products sectors. In the case of Brazil the A/B economic

importance in retail and is also increasingly a supplier of

groupings now represent nearly 50% of the population. Some

services. Ford, Toyota, VW, General Motors and Renault

years ago the CEO of a major multinational was asked why

amongst others manufacture cars in the region while Rio

he was so positive about being in Brazil. He replied “where

de Janeiro is the support centre for offshore oil exploration.

else can you go in the world to add 9 million new customers

The size and growth potential of the regional market has

for our products every year for the foreseeable future – that’s

encouraged global brands such as Nestle, Unilever and Kraft

the market size of Portugal...”.

income driving demand in the consumer, durable and food

to develop significant local production facilities encouraged by low labour costs. While not privately controlled, Embraer,

Marketing to the C, D, and E socio-economic groups requires

the maker of short/medium-haul aircraft now sells its aircraft

a different approach and manufacturers and retailers alike

worldwide and enjoys an excellent reputation for quality.

have become adept at producing products targeted to this

The region is also a leader in financial services having been

segment and at offering financing to consumers to enable

scarcely impacted by the credit crunch of 2008. Banks like

them to buy products, which they would otherwise be unable

Itau Unibanco and BTG Pactual, both privately controlled,

to afford. This is illustrative of the wealth of creativity that

have built strong franchises in retail/commercial and

exists to overcome challenges and consistent with the can-do

investment banking respectively.

attitude found in many Latin American markets.

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SPOTLIGHT latin america and its family businesses

FIG. 2: Map of Latin America and some of its most prominent family businesses Argentina Bridas Corporation Bulgheroni (now in J/V with CNOOC) 1948 Oil and Gas Worldwide Argentina Molinos Rio de la Plata Perez Companc” 1902 Food products LATAM Brazil Itau Unibanco Egydio de Souza Aranha Moreira Salles Banking Europe, Asia, Americas

country company family/ies founded activities sphere of operations

Mexico

Puerto Rico Honduras Guatemala El Salvador

Haiti Dominican

Nicaragua

Costa Rica

Venezuela

Panama

Colombia

Chile Quinenco/ Antofagasta Luksic 1950’s Mining, Fuel retailing, Banking, Shipping, Beverages LATAM

Ecuador

Peru Brazil

Bolivia Chile

60

Brazil Companhia Brasileira de Distribuicao Diniz Retail LATAM

Chile LAN Cueto 1926 Airline Worldwide

Chile Cencosud Paulmann 1960 Retail LATAM

Brazil Gerdau Gerdau 1901 Steel LATAM, US, Spain

Brazil Carmago Correa Carmargo 1939 Construction, Real Estate, Footwear LATAM, Portugal»

Chile Falabella Solari 1980 Retail LATAM

Brazil Grupo Votorantim Moraes 1918 Cement, Mining, Steel, Pulp & Paper Worldwide

Brazil EBX Group Batista 1980s Oil & Gas, Mining, Ship Building, Logistics, Medical LATAM

Colombia Santo Domingo Group Santo Domingo 1889 Media, Financial, Beverages Colombia, LATAM

Tharawat Magazine Volume 12

Paraguay

Argentina

Uruguay

Chile Compañía Manufacturera de Papeles y Cartones Matte Paper & Pulp LATAM

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latin america and its family businesses

Mexico Industrias Penoles Bailleres 1887 Mining Worldwide

Mexico Grupo Carso (Telmex/Amercia Movil) Carlos Slim 1960’s «Industrial, Media, Telecoms, Retail» LATAM Venezuela Grupo Cisneros Cisneros 1920 TV, Media, Telecoms LATAM Venezuela Empresas Polar 1941 Mendoza «Beverages, Food production» LATAM Peru Banco de Credito Romero 1889 Banking Peru, Bolivia Mexico Grupo Bimbo Servitje 1945 Food products, Bakery LATAM, US, China

SPOTLIGHT

Understanding the region is important but understanding the specifics of the country with which you are dealing is critical.

Avoid Generalisations on Latin America…

Understanding the region is important but understanding the specifics of the country with which you are dealing is critical because the key factors impacting decisions may be very individual and imply different risk profiles. Foreign investment has primarily focused on Brazil, Mexico, and Chile although Peru has also received considerable mining investment. For the new entrant to the region, Brazil, Chile, and Mexico have usually been the first markets with which people like to get acquainted.

Family Controlled Businesses – The Engine of Growth in Latin America Family controlled businesses have been the driver of growth and employment in Latin America. With the exception of a handful of state controlled champions such as Codelco in Chile, Petrobras in Brazil or PDVSA in Venezuela as well as the Pension Funds in Chile and Peru, the majority of economic activity is seeded and controlled by private family-owned companies or foreign multinationals, often in partnership with local companies. There are, however, few businesses, which can trace their family ownership back more than three generations with the majority of businesses still in the founder or second generation.

The map (See Figure 2)shows examples of entrepreneurial families, which have built sizeable enterprises. In Mexico these include, Carlos Slim, considered the world’s richest man, who controls a conglomerate including telecoms (Telmex and America Movil), retail (Sanborns), and industrial holdings. In Brazil, the Egydio de Souza Aranha and Morreira Salles families have a controlling position in Itau Unibanco, the region’s most successful bank, and the Emirio

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SPOTLIGHT latin america and its family businesses

FIG. 3: The evolution of the Gerdau and Bimbo Groups

Gerdau:

Bimbo:

5th generation Brazil

2nd generation Mexico

Gerdau: A 5th generation steel business from Brazil, which expanded regionally within Latin America, then to the US, Canada, Spain, and India through a series of acquisitions.

It is now the largest producer of long steel in the Americas with group revenues of more than US$ 22bn.

Bimbo: A 2nd generation baked goods business from Mexico, which expanded initially within the region and then to the USA and China through a combination of organic growth and acquisition. Bimbo is now the world’s largest baker having acquired Sara Lee’s US bakery activities in 2010 and has revenues of more than US$ 9.5bn.

de Moraes family control the Votorantim Group with interests

ability to raise additional equity to dilute below the normal

including basic materials, mining, pulp and paper. In Chile,

50% level, without losing control, provides added flexibility

the Luksic family has extensive interests including mining

to owners to maintain their competitive position in a rapidly

(Antofagasta) banking and shipping and in Peru, the Romero

growing market. Lack of capital can be a constraint for those

family control Banco de Credito, the county’s major bank. The

companies opting to remain fully private although the use

family names of Diniz, Cisneros, and Perez Companc are all

of strategic joint ventures can mitigate this where access to

readily identifiable with prominent businesses in their home

specialist capabilities is required.

countries, Brazil, Venezuela, and Argentina.

The introduction of external capital to Latin American

A Distinctive Growth Model for Family Businesses

family businesses has greatly improved “governance and transparency” with benefits for family and shareholders.

There are two characteristics that define family businesses consist of multi-business portfolios with investments in

Extra-regional Growth – The Development of an International Footprint

several activities, often with no synergies between them.

Only 10 years ago it was unusual for a Latin American company

The second is that the strategy adopted by many families

to have an international presence. Since then, a number of

consciously includes the introduction of external capital

regional champions have internationalised their businesses in

to accelerate growth historically because debt markets are

a series of well-planned opportunistic moves. The evolution

underdeveloped and interest rates can be prohibitively

of the Gerdau and Bimbo Groups illustrate this (see Figure 3).

in Latin America: The first is that the businesses typically

high. The risk of loss of control is less than in many other

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countries because different classes of shares can be used

Challenges Faced by Business Families

making it possible to retain control with a shareholding as

The challenges that business owners have to confront, is

low as 17%. In a region where debt markets are limited, the

influenced by the countries in which they operate but

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latin america and its family businesses

common to all are the following: • How to sustain growth to remain competitive in a rapidly changing environment and balance this with the financial needs of the family shareholders. The issues here being the retention of control, the debate over re-investment versus higher dividends, and the level of additional risk to be assumed.

• The role the family should have in the business whereby the main challenge is to recognise the need to professionalise management • How to attract and retain the best talent in a competitive labour market.

SPOTLIGHT

Within the “family” dimension, family governance is a constant topic of discussion including pressure to diversify portfolio risk and increase dividend levels.

Another subject widely debated concerns the treatment of share ownership in case of generational change or marriage.

For a small minority, how to mitigate the impact of political risk can also be of major concern. This may consist of excessively onerous taxes or constraints on the export of

is positive with forecast GDP growth rates in excess of 5%.

capital to the other extreme of expropriation. Fortunately,

The World Cup (2014) and the Olympic Games (2016), to

the latter is rare in Latin America but it does demonstrate

be held in Brazil, will undoubtedly create a legacy of major

the need for geographic diversification to lower risk.

infrastructure improvements including construction of major

Interestingly, families impacted by this often tend to believe

roads, airports and transport generally. While these aspects

that things will improve with time – a state of denial likely

have been neglected until now, there is the capability to do

to end up in destroying significant value.

projects on a major scale.

Within the “family” dimension, family governance is a

Inadequate infrastructure still remains a constraint in many

constant topic of discussion including pressure to diversify

Latin American countries and governments need to address

portfolio risk and increase dividend levels. Another subject

this urgently if they are to encourage the growth essential

widely debated concerns the treatment of share ownership

to facilitate much needed investment in the needs of society

in case of generational change or marriage. Families

and particularly education and health.

develop their own policies for this depending on the specific circumstances but there have been a few well-publicised

The growth in oil exploration and production provides

cases where rifts and conflicts have been exposed. This

a further cause for optimism, which could prove to be

usually originates in the failure to define the ground rules at

game changing in the case of Brazil. However, even

an earlier time, when this would have been less controversial,

discounting this, there are many positives to focus on as

or reliance on goodwill in the family, which may be absent in

well as opportunities for business families and investors from

the subsequent generation. Fortunately, advance planning

outside of the region to participate in the next chapter of

and harmony are the norm.

Latin American growth.

Looking to the Future With the expectation of continued strong demand for commodities and the further growth of the middle class with higher disposable income, the regional growth story

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Author Edward Nicholson, Managing Partner, Mercator Partnership Limited, Consultant to Maitland Group, edward@mercatorpartnership.com

Volume 12 Tharawat Magazine

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Committed to enhancing life Aluminium Foundation Readymix Masonry Marble

SMEs

Family Business

SMEs 66

70

he Sweet History of the T Al Bohsali Family

SME Branding

For over 200 years the Al Bohsali has been handing down the secrets of traditional sweets throughout its family generations.

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Q&A with Helen and Matthew Ranson detailing the importance of branding strategies for SMEs in the Middle East.

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SMEs

SME Profile: THE AL BOHSALI FAMILY

The story of the Al Bohsali family business started 200 years ago in a small shop in Beirut, Lebanon.

From its very beginnings the Al Bohsali brand has received international recognition due to its traditional methods in preparing Mediterranean sweets of the highest quality. Many decades and family generations later, the Al Bohsali business is at the forefront of its industry, still following one family’s vision.

The sweet history of the Al Bohsali family Saadeddine Bohsali & Sons

Baklava, Mamoul, and Knafeh. The good name of

This family business history starts in the late

Saadeddine’s sweets along with the prime location

1800’s with a young man named Salim Bohsali,

of the factory and retail outlet in Downtown Beirut,

who emigrated with his family from Damascus to

helped in attracting sweets’ enthusiasts from remote

Beirut. His son Saadeddine worked in a sweets’

cities and towns all over Lebanon. Saadeddine’s

shop, where he began to show a keen interest in

reputation extended so far that in the late 1800’s

learning the art of Mediterranean sweet. After some

and early 1900’s he catered to the Ottoman Emperor

years Saadeddine became a patissier and decided to

in Istanbul on several occasions.

start his own business. He chose the Union Square in Downtown Beirut -later known as Martyr’s

In 1926, and after building a reputation as one of

Square- to open his retail space under the name of

the finest Mediterranean sweets manufacturers

“Saadeddine Bohsali & Sons”.

in the world, Saadeddine Bohsali passed away leaving the business in the hands of his four sons,

Saadeddine was a true entrepreneur and a cultivated

Salim, Rafik, Mounir, and Shafik. Each of the four

man who led his business to success through his

brothers, endowed with different skills, continued

determination and hard work. He extended the

in their father’s footsteps for a long time.

range of products to over thirty different kinds

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of sweets, and excelled at preparing recipes by

Al Bohsali

adhering to the traditional methods of patisserie.

In 1966, the four brothers went their separate ways

As a result, the business gained a wide reputation

and decided to challenge themselves in different

for the quality of its pastries and deserts such as

businesses. Mounir Bohsali, assisted by his son

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SME Profile: THE AL BOHSALI FAMILY

RIGHT: The first Al Bohsali sweets shop in Beirut, Lebanon

SMEs

Youssef, established a sweets outlet and factory under the name “Al Bohsali” in the Riad El Solh Square in Downtown Beirut, which was, at the time, the new commercial and banking center of Beirut. Mounir’s commitment to his father’s legacy was the reason behind his distinction in producing the traditional sweets.

In 1973, after the passing of Mounir Bohsali, his

19

th

century

Saadeddine’s reputation extended so far that he catered to the Ottoman Emperor in Istanbul on several occasions.

son Youssef took over the family business. It was

establishing part-ownership franchises in Kuwait,

not long before he was joined by his youngest

Saudi Arabia, and Egypt.

brother Amer. They both had a vision to develop the family business further: They transformed

During the Civil War in Lebanon, the family

the distribution and sales part of the business

business underwent a dark time. The devastating

into franchises across Lebanon while keeping

effect on Lebanon’s economy led to the closure of all

all production under their own control at the

Al Bohsali franchises in the country except for the

Riad El Solh factory in order to preserve the

company-run factory and outlet in Beirut.

high standards of quality the family had set over decades. This led to the establishment of over 17 Al

Amer Bohsali took over the family company after

Bohsali outlets in Lebanon. The two brothers then

his brother Youssef passed away in 2007. He was

expanded the brand into various Arab countries by

teamed up with Youssef’s two sons, Mounir and

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SMEs

SME Profile: THE AL BOHSALI FAMILY

In 2010 and due to the increasing popularity of online shopping, Al Bohsali expanded the business to include a full e-commerce and export operating system.

68

Amro Bohsali and the three proceeded to running

system. The project took over a year of preparation;

the company together. They operated from the

the family developed a website, photography,

same outlet and factory that had been established

packaging designs, and many other logistical

by their family in 1966 in Riad El Solh Square.

details.

The Fourth Generation

In addition to catering to its Lebanese customers

The new generation of the Bohsali family brought

including restaurants and hotels, the Al Bohsali

in some innovative ideas. In 2010, due to the

family business, 200 years after its small beginnings,

increasing popularity and convenience of online

now sweetens people’s lives across North America,

shopping, Al Bohsali expanded the business to

Europe, Asia, South America, Africa, and South

include a full e-commerce and export operating

America.

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SME Profile: THE AL BOHSALI FAMILY

SMEs

Family Business Thoughts:

Amro Al Bohsali Partner in Operations, Al Bohsali Sweets

What are the three key ingredients in running a successful family business?

R

unning a family business is one of the most enjoyable and exciting things one can do;

yet, it is a very tricky thing. The family is the backbone of the business and ‘Family is always family’, members have trust in each other and are dedicated and passionate about the family tradition. This is a great advantage for the business, as involved members work tirelessly and passionately to prosper their business. However, ‘business is business’ and any business needs to be run professionally in order to be successful.

Taking these elements into consideration, the three main key ingredients in running a successful family business are dedication, good organisation of operations, and commitment of members to the continuity of the business. business and to preserving the tradition of the Dedication is very important as involved members

family is most important to ensure continuation

are mainly counted on to run the business. Good

and prosperity of the business. The combination

organisation of operations are essential so members

of these ingredients with the many advantages of

divide the responsibilities among themselves in a

family members working together creates a very

structured way in order to work efficiently. Last,

exciting and very efficient work environment

the commitment that each member makes to the

leading to success and prosperity.

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SMEs

SME Branding

SME Branding Having a proper brand image in place is a strategic priorities for any company no matter its size or industry. SMEs in the Arab world, however, have not as yet given brand strategy the attention it deserves and the notion is only in its developing stages in the region. Helen and Matthew Ranson, partners of RANSON, a branding consultancy firm, based in the UAE, explain why branding is so important for SMEs and how to go about it.

Q&A with Helen and Matthew Ranson Do SMEs experience particular challenges

relations, and advertising plans without ever having

when it comes to branding?

given thought to defining their brand strategy. Like a blueprint for a building, or a map for a journey,

Before we start, let us take a moment to determine the

this is the starting place for any company looking

parameters of an SME: Small to Medium Enterprises

to make the jump from business to brand. Such a

(SMEs) are companies whose turnover and/or head-

strategy is synonymous with a more traditional

count fall below certain parameters, which depend

business plan, and the two go together hand-in-

on who is defining them and can vary greatly. In

hand.

2009, the Dubai Government defined an SME as a Dubai registered company with a turnover of less

The particular challenges facing SMEs in the pursuit

than AED250m and up to 250 employees. This is a

of building a powerful brand are twofold: First

very wide definition, which also covers the lonely

and foremost is the organisations general lack of

entrepreneur, small consultancies or the slightly larger

understanding around the process and benefits of

and established family-run businesses with interests

branding. This is easily overcome through training

across a multitude of industries. We will, therefore,

and education, but does require trust and belief

base our advice on the definition mentioned.

in the process. The second challenge is financial; although brand consultants are now tailoring

70

SMEs face particular challenges when it comes

specific packages for the smaller enterprise, the

to branding: They often have marketing, public

process of branding is still a longer-term investment.

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SME Branding

SMEs

What are the 3 key ingredients needed to create a sustainable brand identity for SMEs? A brand identity, which encompasses the company’s logo and visual style, is just one output of a comprehensive and cohesive brand strategy. As we say, ‘A logo is just a logo’. Without strategy, it lacks the depth and meaning to really resonate with your employees and your consumers. Keeping this in mind, a brand strategy would be the first key ingredient.

Second, would be the company’s commitment to stay the course in developing and maintaining the brand. It does not happen overnight and takes even longer before a company is seen as a ‘brand’ in the eyes of the consumer – having immediate positive recall in the minds of its prospective market.

The third ingredient is investment: If you are an SME looking to create a brand that really resonates in the hearts and minds of your consumer, you will need to allocate sufficient time, human capital and money.

What most SMEs fail to see is that branding can bring in new business, exclusive clients, and an opportunity to eventually create higher revenues, which will ultimately ensure long-term profitability.

What would you say are the main flaws and what the main strengths of Arab SME brands?

From a branding perspective, the region is still in the process of development. Therefore we ask: ‘How many companies have really earned the right to call themselves a ‘brand’?’

A brand consists of many intangibles. Companies such as Think; Apple, DHL, Starbucks, Ferrari and Gucci have, by defining their brand strategy, achieved lofty greatness in the minds of their loyal

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SMEs

SME Branding

Certainly the main flaw in SME branding is the lack of understanding of and commitment to the branding process.

With the regions desire for immediate results, branding can be seen as frustratingly slow.

Helen Ranson, partner at RANSON

followers, huge bottom line profits and most

Do family-owned SMEs experience advantages

importantly significant brand equity, which is the

over non-family-owned companies when it

real signifier of a brand’s success.

comes to branding?

But where do Arab SME brands currently fit? This

There is no clear answer to this question. Of

is an interesting question for us all to ponder.

course, family owned SME’s have the drive and

Certainly the main flaw in SME branding is the lack

determination of mixed management and seek

of understanding and commitment to the branding

to build equity around their heritage, private

process. With the regions desire for immediate

ownership, and generational planning. These are

results, branding can be seen as frustratingly slow.

strong traits to ensure long-term sustainability.

SMEs need to stay the course and understand that

However, from a branding perspective, they need

branding is a long-term process for the business.

to be mindful that this can lead to complacency.

Like all good things, this takes time and patience.

What are the first steps towards re-branding The main strengths are by far the region’s passion

an SME?

and motivation for business, in particular the

72

ambition to be known and respected as both

Firstly, the SME needs to establish firm reasons why

regional and global players. With an ever-

they should re-brand. The reasons for re-branding are

increasing understanding of the intangibles that

numerous and could include a change in company

surround powerful brands, regional SMEs have the

structure or ownership, the growth or adaptation of

ability to create confidence, not only in their own

the brand’s architecture, the decisions to enter new

businesses, but also in the products and services

markets, or, the reason that is the most frequent in

they offer.

the region, the refreshing of a tired and dated logo.

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SME Branding

SMEs

The key to success is to ensure that you select a company that has the necessary knowledge and experience to advise and consult on the complex task of brand development.

Matthew Ranson, partner at RANSON

Secondly, the SME needs to ensure it has budgeted

interviews, brand strategy, brand identity and

accordingly for the task of re-branding. Companies

guidelines in order to govern the correct usage of

need to dedicate sufficient resources to research

the brand itself.

and understand the investment implications in terms of people, time, and money.

If, as an SME, you find yourself talking ‘logo’ with a company who is unable to provide the

Thirdly, the SME needs to have a thorough

consultative approach as above, walk away. You

understanding of its customers or target market,

are more than likely talking to the graphic design

and business offerings including the competition.

industry, who although adept at solving problems

After thorough research in this area, the SME

of a creative nature, has grown too accustomed

will be in a better position to identify how best to

to using the word ‘brand’ loosely without truly

position the brand for success.

understanding its implications. For an SME seeking brand advice, this can be frustrating and

Only once the SME has considered all of the above

damaging.

adequately, should it proceed with the fourth and final step: The researching, sourcing, and selecting

Despite branding being imperative for SMEs,

of a reputable brand consultant.

many still seem to be unaware of the advantages that corporate branding has to offer. Although

Here, the key to success is to ensure that you select

SMEs have been slow to really embrace the

a company that has the necessary knowledge and

brand-building process, we are seeing an increase

experience to advise and consult on the complex

in the number of organisations that perceive the

task of brand development. This will always at

benefits in transforming their businesses into

least include brand research, work sessions and

strong, clear and differentiated brands.

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reviews

Facts and Figures

The Status of Bank Lending to SME’s in the Middle East and North Africa Region

Banks Lending to SME’s The results of a joint survey of the Union of Arab Banks and the World Bank

In June 2010 the World Bank and the Union of Arab Banks issued a noteworthy report on the status of bank lending to SMEs in the Middle East and North Africa.

Authors: Roberto Rocha, Subika Farazi, Rania Khouri and Douglas Pearce

E

ven though SMEs are part of the foundations of national economies, their access to capital is not easy, especially in developing countries. This creates a great obstacle for growth and stabilisation, as well as for much needed job creation.

The reviewed survey was developed in joint collaboration between the World Bank and the Union of Arab Banks

(UAB). 139 banks in 16 countries participated in the survey. The responding banks together accounted for around 64% of the banking system loans in the MENA, which is why the survey grants a realistic insight into the lending behaviour throughout the whole region.

The report mainly differentiates between GCC and non-GCC Middle Eastern countries, as well as between stateowned and privately owned banks.

There is still a very low volume of SME lending in the GCC (See Figure 1).

The authors suggest that this fact reflects largely the characteristics of concentrated oil economies. A confirmation for this assumption can be found in that the share of SME lending in non-GCC countries is higher. Yet, overall the authors point out that SME lending in the MENA is still substantially below the banks’ own targets, as well as below international standards.

The six main findings of the report are:

1

MENA banks regard the SME segment as potentially profitable, and most banks are already engaged in SME lending to some degree.

The drivers that motivate banks to engage in SME lending include: • The potential profitability of the SME market.

• The saturation of the large corporate market.

• The need to enhance returns.

• The desire to diversify risks.

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Tharawat Magazine Volume 12

2

Despite the interest, the lending volume is not high.

SME share in total lending in • OECD: 26% • MENA: 8% • GCC countries: 2% • Non-GCC countries: 14%

3

According to the banks, the two main obstacles for further engagement in SME finance provision are: • Lack of SME transparency.

• Weak financial infrastructure (weak credit information, weak creditor rights and collateral infrastructure).

OECD MENA GCC Non-GCC

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Facts and Figures

4

State-owned banks are still very important in lending to SMEs. Private banks are mainly hesitant due to the weak financial infrastructure in the MENA, but an emerging trend points towards more aggressive expansion in the private SME lending sector.

5

State banks take greater risks in SME lending than private banks, are less selective and have a lower ratio of collaterised loans. On the other hand, state banks seem to have less sophistication in lending technology and risk management.

reviews

6

MENA governments’ special interventions to foster SME lending have proved popular and effective.

Measures include: • Use of state banks.

• Exemptions on reserve requirements.

• Credit subsidies.

• Partial credit guarantee schemes.

Figure 1: SME Loans/Total Loans (%)*: MENA Countries 15%

34%

Tunisisa

4%

16%

Syria

Lebanon

Morocco

6%

Palestine

2%

13%

KUWAIT

Jordan

0.5%

1%

4%

Qatar

Bahrain

UAE

2%

5%

KSA

Egypt

15%

2%

GCC

2%

Non- GCC

Oman

20%

Yemen

*Reported numbers are weighted averages and Non-GCC average includes Iraqi banks that were not reported in the graph as the coverage of Iraq is not more than 30%.

Average share of SME Loans in total Bank Loans Developed Countries

Developing Countries

Source

OECD (2010)1

World Bank (2008)2

World Bank (2008)3

Number of countries

5

7

38

Middle East countries

Non-GCC countries

SME Loans/ Total Loans (%)

26.8

22.1

16.2

8.29

14.56

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World Bank/UAB (2010)

18

9

Volume 12 Tharawat Magazine

75

reviews WEBSITE

Forum-Network.org – A Public Video Library

www.forum-network.org

W

ebsites provide us with incredible amounts of information on a daily basis. While quantity is one thing, quality is most assuredly another: it is now often difficult to find out the sources, authors, or publishing dates of the articles we are reading or the videos we are watching probably due to their being altered, replicated, and republished. Being unable to assess the relevance of the information provided makes research a weary task.

The website www.forum-network. org remedies exactly that: It is an open information platform and video library that seems to encompass every knowledge category imaginable.

The site features video lectures on topics in all categories giving it an interactive feel. The lectures vary from local to global topics and cover the interests of different age groups, cultural backgrounds, and academic levels. Topics such as art, architecture, education, economics, politics, philosophy, and history are talked by speakers with different backgrounds amongst whom we can find the names of famous researches, decision-makers, artists, professionals, community leaders, writers, and clerks.

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Tharawat Magazine Volume 12

The thing that stands out the most is the way the subjects are categorised; the structured access makes research and learning considerably easier.

By showing all related lectures and information on recommended books on the same page as the video we choose to watch, it is simple to deepen our knowledge on one particular topic.

There is, for instance, a series of 83 lectures covering the human rights; it covers the theme from its historical beginnings till its relevance today.

The site enables users to comment on all the featured lectures either in writing or even by video response.

The result is a growing collection of topical discussions around the available lectures, which gives it a virtual classroom atmosphere.

The site was conceived as an idea in the US and aims to be a public media service whereby PBS and NPR collaborate with public stations and community partners across the country. Whilst this seems to be a geographically restricted initiative, the basic idea of creating such an open media library has global potential and should be promoted internationally.

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14 Profile: van Bommel Nine generations of shoe-making excellence and three young brothers in charge.

46 Interview with Essa Al Ghurair

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30 Family Business Relationships

Solutions to toxic relationship patterns in family firms.

64 The Naji Family

Arabesque architecture and art preserved over generations by the Naji family based in the USA and Morocco.

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The ArAbiAn PublicATion for fAmily businesses Volume 10 Apr-Jun 2011

16 Profile: Pictet&Cie.

Centuries of history and an interview with Senior Managing Partner Jacques de Saussure.

38 Interview with Moh’d A. Al Obaidly

Group Managing Director of the OITC GROUP, Qatar.

32 Philanthropy in Family Businesses

Philanthropic activities that increase family cohesion.

62 Toukan Enterprise

A family-owned soap factory in Nablus, and an interview with Chairman Farouk Toukan.

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Tharawat magazine volumes published in a year...

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The ArAbiAn PublicATion for fAmily businesses

The ArAbiAn PublicATion for fAmily businesses

Volume 10 Apr-Jun 2011

Volume 11 Jul-Sep 2011

14 Profile: van Bommel Nine generations of shoe-making excellence and three young brothers in charge.

46 Interview with Essa Al Ghurair

30 Family Business Relationships

16 Profile: Pictet&Cie.

Centuries of history and an interview with Senior Managing Partner Jacques de Saussure.

Solutions to toxic relationship patterns in family firms.

64 The Naji Family

Vice Chairman of Al Ghurair Investments and Chairman of Al Ghurair Foods, UAE.

Arabesque architecture and art preserved over generations by the Naji family based in the USA and Morocco.

38 Interview with Moh’d A. Al Obaidly

Group Managing Director of the OITC GROUP, Qatar.

32 Philanthropy in Family Businesses

Philanthropic activities that increase family cohesion.

62 Toukan Enterprise

A family-owned soap factory in Nablus, and an interview with Chairman Farouk Toukan.

Special FeatureS

Family Business

Internationalisation Finding the key to successful internationalisation for family-owned firms

family business

Diversification The balancing act of managing the familiy business portfolio

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Coming soon‌ in January 2012 Tharawat magazine Volume 13

es s s e n i us B y l i Fam

n e e r G g n i Go d -owne y l i m a f ies of g e t a r st ental m anies n p o r i m v o n c the e

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