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.
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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!
6
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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
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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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13
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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Understanding Family Business Innovation
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
Volume 12 Tharawat Magazine
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
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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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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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Tharawat Magazine Volume 12
Author Mustafa Hussain, Solicitor, Wealth Group, Taylor Wessing, UK
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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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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
Volume 12 Tharawat Magazine
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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
Volume 12 Tharawat Magazine
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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
Volume 12 Tharawat Magazine
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
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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
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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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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
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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.
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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
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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
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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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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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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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