Tharawat magazine Volume 10 - The Arabian Publication for Family Businesses

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

16 Profile: Pictet&Cie.

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

38 Interview with Moh’d A. Al Obaidly

Group Managing Director of the OITC GROUP, Qatar.

family business

Diversification The balancing act of managing the familiy business portfolio

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.

tharawat magazine

The ArAbiAn PublicATion for fAMily businesses

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

16 Profile: Pictet&Cie.

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

Publisher and founder Dr. Hischam El Agamy

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.

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.

www.tharawat-magazine.com

family business

Diversification The balancing act of managing the familiy business portfolio

VOL 10 | Apr - Jun 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.

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Disclaimer

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Volume 10 Tharawat Magazine

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contents

VOL 10 | ApriL - June 2011

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Contributors Ahmed Youssef Partner, Booz & Company

Anees R Sultan Head of Marketing Development at W.J. Towell L.L.C., Oman

Bader Al Mobty Business Development Manager, Al Mobty Construction Company, Saudi Arabia

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

Dr. Steffen Hertog Lecturer at at the London School of Economics and Academic Director of the International Institute for Family Enterprises

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

Etienne Eichenberger Co-founder, Wise – philanthropy advisors, Switzerland

Farouk Toukan Chairman, Toukan Enterprise, Palestine

Jacques de Saussure Senior Managing Partner, Pictet & Cie., Switzerland

Jessie Johnsson Key Client Manager, Wise – philanthropy advisors, Switzerland

Mohammed A. Al Obaidly Group Managing Director, OITC Group, Qatar

Musaab S. Al Muhaidib General Manager, Al Muhaidib Technical Supplies, KSA

Najla Al Suhaimi Executive Manager, Suhaimi Design,KSA

Samer Khoury President (Engineering & Construction), Consolidated Contractors Company

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Regulars 08 FamilyBusiness2FamilyBusiness A case study on the search for a magic formula in succession.

16 Profile: Pictet & Cie. and Interview with Jacques de Saussure

Over 200 years of history in a Swiss privat bank with all the traits of a family business

38 Interview with

Mohammed A. Al Obaidly

Insights of the Group Managing Director of the family business OITC in Qatar.

74 Reviews

Facts and Figures, Books and Websites.

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68

16 28

62

Features 26 The Social Responsibility of Family Businesses

An opinion piece on the need of dynamic societies the ways family businesses can contribute to them.

28 Yes! To Reinvening the Wheel

An article on why it is crucial to ask ‘Why’ in a family business.

34 Philanthropy-What it Provides to

SMEs 62 The Toukan Enterprise

The history of the family-owned soap factory in Nablus, and an interview with its Chairman, Farouk Toukan.

68 Small is Beautiful - or is it?

Challenges for Small and Medium Family Companies in the GCC An indepth analysis of GCC SMEs, their development and challenges.

Families in Business

How philanthropic activities can increase family cohesion and how ‘doing good’ makes economic sense for families in business.

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56

48

Special Features 48 CCC - A Diversified Family Business

An Arab construction giant, with thousands of employees, and present in dozens of countries. Q&A with Samer Khoury on leadership in a diversified family business.

52 Diversification Mini Cases

A selection of facts and figures about four family businesses with diversified global activities.

56 Focus Beats Diversity - Familly Business Must Identify their Core Capabilities

A self-assessment for diversified family businesses and recommendations on how to handle diversity and how to regain focus.

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Publisher’s Note

Dear readers,

M

any family businesses in the Middle East manage large and diversified business portfolios. Having various and often unrelated activities in the family portfolio can hedge risk and augment the probability of continuity and growth. Moreover, as the family grows the next generations will include family members with different talents; in order to capture these abilities and make sure that the business stays within family ownership, it makes sense to create different business units that give opportunities to family members from all educational backgrounds. There is, however, a pronounced critique to be heard amongst experts against such wide diversification. The dangers of loosing focus and of neglecting core businesses have to be considered.

In Tharawat magazine’s 10th Volume, we explore diversified family business cases and receive expert opinions and recommendations on how to manage a diversified family business portfolio.

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

We also turn our attention to those who by size often fail to command it, and yet, are essential to the survival of most economies in the world: the small and medium-sized enterprises (SMEs). We dedicate a whole new section to family-owned SMEs, their histories, challenges and achievements. In this first spread we include a profile of the Toukan family from Palestine that own one of the most renowned soap factories in Nablus; in an exclusive interview with Chairman Farouk Toukan we are taken on a journey and explore the traditional craft of soap production.

Further in this issue, we speak to Group Managing Director of the OITC group in Qatar, Mohammed Ahmed Al Obaidly, and discover how diversification leads to continuity and why the tradition of family gatherings should be kept alive. In a historical profile of Pictet & Cie. and an interview with Senior Managing Partner Jacques de Saussure, we find out about the workings of a Swiss private bank, founded in the 19th century that has all the traits of a family business.

Find more interesting contributions in our case study section where young family business members have given their solutions and recommendations to fictional CEO FbA. In our features a spread on the social responsibility of family businesses, Anees Sultan who argues the necessity of reinventing the wheel, and a contribution by family business philanthropy advisors Wise who expand on how ‘doing good’ can bring the family closer together.

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IntroductIon Family Business2Family Business

The most frequently mentioned problem in family businesses is that of succession. High percentages of family firms do not make it past the 3rd generation and it is often blamed on a lack of succession planning and governance structures. in this issue’s FamilyBusiness2FamilyBusiness case study, we narrate the story of Fba who as the CeO of the family firm faces succession planning. Three young family business members are providing analysis, approaches, and solutions for FbA to tackle these challenges.

succession in Family Business

Finding the magic formula over time

F

bA has just finished reading the outcomes

FbA took over the family business, NAS group, from his

of a report compiled by a consulting group

uncle in 1991, who was eldest of six brothers and sisters.

commenting a survey on succession planning

The transition was not well planned and was rushed due

in Middle Eastern and European family

to his uncle’s deteriorating health. The old man had been

businesses. The report states that even though

both the CEO and Chairman of the family business. The NAS

family businesses are influenced by different cultures and

group businesses were focused around the various sectors of

traditions, succession planning still remains an important

constructions residential and commercial buildings. Under

challenge for all of them. It furthermore highlights how not

the management of FbA’s uncle AbJ, the group got involved

only the family but also the national economy can get affected;

in big infrastructure projects benefitting from the investment

in certain countries in the Arab world family businesses are

boom in the Middle East.

important drivers for economic growth. The report concludes

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with a set of warnings about the risks of a lack of succession

AbJ had taken the business over from his father and

planning and the possibly disastrous consequences. FbA didn’t

transformed it into a professional and competitive holding

learn anything new from this, but he was still impressed by the

structure. He structured the company into various business

number of family businesses that did not prioritise succession

units and appointed a general manager for each one of them.

planning. FbA’s own family business is no exception.

Every business unit focused on a few core businesses and

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Family Business2Family Business IntroductIon

competed to be the best in its field. This structure was at

group made losses for the first time in its existence. During

the time very new for the group and required a change in

this period the tension among the family members increased

mindset.

and several of FbA’s cousins working in the family business left their positions to protest against the new structure. Even

The change was not easy and AbJ, faced a lot of resistance

FbA‘s father started questioning this new business strategy.

from the family. Some members of the family preferred to keep a portfolio of activities with a high degree of diversity to

Of the third generation only FbA and another cousin stayed

spread the risk. Also, a number of family members working in

with the business. AbJ remained firmly convinced of his

the group lost power due to the new structure. AbJ had a very

strategy despite the bad results. FbA was fascinated by the

clear vision and strongly believed that this structure would

determination and the creativity of his uncle. He saw him

reposition the business and open up new opportunities.

as a real leader who had the ability to listen carefully to his

He hoped that the family would align once they’d see the

team and take decisions fast.

benefits.

NAS group was the talk of the community and a lot of people Unfortunately, it took some time for these changes to bear

speculated that the six brothers and sisters would split. FbA’s

the fruits and AbJ faced a tough three years during which the

uncle, AbJ, remained focused on the market and developed a

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IntroductIon Family Business2Family Business

very aggressive marketing and PR campaign to highlight the

The family also changed its attitude towards AbJ. The six

strengths of the group and new level of services it could provide.

brothers and sisters started to meet regularly in a kind

NAS, under AbJ’s leadership, succeeded to deliver on time a

of informal family council sometimes inviting the third

series of small projects with high service quality very much

generation. But due to the tough time he went through and

praised by clients. AbJ did not stay in his office but was on sites

the considerable efforts he invested in the group AbJ became

talking to the clients and explaining his strategy to them. The

more wary and cautious. He became less open to new ideas

result was very positive; the local media started writing about

and wanted above all to consolidate the business success. He

the new style of customer services AbJ introduced to the region.

refused to reintegrate the third generation that left during the difficult times. In the meantime he welcomed the fourth

In the following six months NAS group won three projects

generation (men and women) who were fresh graduates

one of them the expansion of an airport, which was a

from university but they all had to go through an assessment

flagship project. This news started changing the business

process to evaluate their capabilities.

community’s perception of the NAS group. It became very

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quickly one of the successful players in the construction

AbJ moved to another level whereby he grouped the various

sector known for its top services.

business units under a holding company and gave each

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Family Business2Family Business IntroductIon

business unit a legal identity. FbA and his only cousin from

as Chairman and CEO of the NAS group was approved by

the third generation still working in the family were moved

the second and third generation.

from the operations to the holding level.

Ten years later FbA runs the group successfully. He has FbA was appointed responsible for finance and investment

applied a lot of his uncle’s vision and values for which he had

while his cousin took over business development. During

great admiration. Yet he always asked himself whether the

the ten years that followed the business grew faster and

succession process imposed by his uncle was the right one.

prospered. The old family conflicts were forgotten. FbA and his uncle were very close, however, AbJ never discussed

Today, twelve fourth generation family members are working

succession. As the family became bigger, FbA was asked by his

for the NAS group. Amongst them are the children of FbA’s

uncle to work on a more efficient and transparent dividends

cousins who were not admitted back into the group by AbJ

policy for the family. This of course allowed FbA to talk to

and who now seek to push their children into higher positions

all the family members and to gain a better understanding of their feelings about the family and the business and also how they would expect the business to grow.

Very suddenly AbJ’s health deteriorated and as a consequence FbA basically moved the CEO & Chairman office to his uncle’s house to spare him from the efforts of coming to the office. The informal family council gatherings were also taking place at the Chairman’s house. More and more the third generation was invited to the family council by the

Succession planning is now a top priority for Fba; he wants to protect the family and the business from any confusion or conflicts.

Chairman. It was during one of these councils that the new dividends policy was discussed in the presence of the second and third generation. FbA had done most of the presentation and there were no surprises as he had carefully discussed the expectations and explained the structure of the new

in the company. FbA himself has two children working in the

policy to each member of the family from the second and

group at the operations level.

third generations.

Succession planning is now a top priority for FbA; he wants With everybody showing satisfaction, the Chairman stood up

to protect the family and the business from any confusion

and announced that he was retiring and wished to appoint

or conflicts. NAS group is now even bigger than ten years

FbA as his successor. In his opinion FbA had succeeded to

ago, the group relations to the external world have become

manage the business and gain great respect from the non-

more complex due to the increasing number of important

family management. The chairman asked his brothers and

projects it is involved in. Moreover, the fourth generation is

sisters to vote on this and if there were no agreement they

much more competitive, encouraged by the group’s success,

would have to start a process to identify a successor. FbA’s

and is now very motivated to take on more responsibilities.

father expressed his happiness others were surprised. The Chairman asked the question if the family members present

FbA wonders what lessons he can learn from his own

would need more time but none of them requested it for fear

succession story and how he had best make a fair choice for

of upsetting the organisation. And so the nomination of FbA

the next generation.

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IntroductIon Family Business2Family Business

Solution 1 Talking To: Bader al MoBty, Business DevelopmenT manager al moBTy ConsTruCTion Company, sauDi araBia, 3rD generaTion

B

efore going into analysis it is worth mentioning that

FbA has definitely gained a great amount of experience and

most of conflicts and disagreements between differ-

lessons from his own success story with his uncle. I believe

ent generations are caused by the different goals each one

a key lesson he learnt is the importance of committing to

of them has. For example, FbA’s goal is to maintain the

the succession plan once in place, keeping in mind possible

company’s image and performance throughout the coming

tension and the resistance against change. At the same time,

years. On the other hand, the new generation might not

I believe it is very important for FbA to continue the assess-

necessarily share the same vision. Another point to men-

ment process, which new family members have to go through

tion here is that some family members do not seek a future

before being assigned a position in the family business.

in the family business, and sometimes personal power and higher positions are considered a priority over what is best

Goals and responsibilities should be set for new generation

for the business. Family members from the new generation

once assigned a position. Since it is always difficult to give

might not share the same feeling of responsibility towards

each member of the new generation an equal opportunity,

the family business. In my experience, most of them prefer

it is best to design a fair, rewarding system for all, which

to work independently and to have their own business. At

shall eliminate or reduce tension among family members.

the same time, they still believe that they have the right to be part of the family business. I would make the following

NAS has transformed into a professional and competitive

recommendations to FbA:

holding company, which consist of various business units.

It is, therefore, important for FbA to take advantage of the

I suggest developing a family charter written and agreed

existence of such diversity and to distribute the new gen-

upon by the top family members. This charter will support

eration in such a way that each would work in a separate

each transition process of any family member’s position from

business unit from another. This will eliminate or reduce

the next generation.

conflicts among them.

I would also recommend to create a family fund box with a

I have noticed in many family businesses that the younger

defined role stated in the family charter. The role of this fund

generation often has little knowledge of the business history.

box is strictly to support family members with any separate

It would be beneficial for the next generation to be aware of

business ideas they might have. Having the family charter

the business’ past success and challenges.

and the family fund box in place can reduce the conflicts among family members, and give a better chance for each of them to succeed.

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Family Business2Family Business IntroductIon

Solution 2 Talking To: Najla al SuhaiMi, exeCuTive manager suhaimi Design, sauDi araBia, 2nD generaTion

A

n integral part of a family business is to ensure

Finally, family business should not feel threatened by seeking

the continued growth and success of the business

professional advice. Lawyers, accountants, financial advisors

throughout the years. All family businesses should have

can help in putting together a successful succession plan.

a succession plan to ensure a smoother transition from one generation to another. If we look up the definition of

In this case study, in terms of succession planning, the grand-

Succession; “it is the right, act, or process, by which one

father who started NAS Group didn’t need a succession plan.

person succeeds to the office, rank, estate, or the like, of

It was easy for him, since the idea of succession planning at

another”, which can only be achieved through starting the

that time meant that the eldest son takes over. Luckily AbJ

succession planning process at least five years in advance.

had a clear vision, capability and commitment of how he

Many business advisors tell budding entrepreneurs to build

wanted the company to succeed.

an exit strategy into their business plan. The point is that the longer you get to spend on succession planning, the

Throughout AbJ’s leadership, he focused on the growth of

smoother the transition process is likely to be. The follow-

the company and neglected to prioritise succession planning.

ing aspects need to be mentioned:

Because of the hurdles he faced, most of the third generation deserted the company, except for FbA and his cousin, which

A vital step in succession planning is to get everyone in the

made it easier for him to name his successor.

family business involved in the process. “Opening a dialogue among family members is the best way to begin the process

FbA believed in his uncle’s vision and climbed the corporate

of a successful succession plan” (Grant Thornton, LLP).

ladder through his hard work and commitment until he became the leader of the company. Succession planning won’t

A close and realistic look should be taken at the family and

be easy for FbA but should be considered a priority. He has

succession should be planned accordingly. Strengths of all

twelve fourth generation family members working in the

possible successors should be examined as objectively as

business, all of which are well educated and competitive.

possible and thought about in terms of what’s best for the

Choosing his successor doesn’t mean choosing someone like

business.

him or even someone he likes. It entails choosing someone who is not only ready for the job but has the respect of the

Training all possible successors and working closely with them

key team members and the ability to guide the company

is very important as well. The family business succession plan

into the future.

will have a much better chance of success if the leader works closely with successors before handing over the reins.

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IntroductIon Family Business2Family Business

Solution 3 Talking To: MuSaab S. al Muhaidib, general manager al muhaiDiB TeChniCal supplies, sauDi araBia, 3rD generaTion

T

his is quite an interesting case touching upon an impor-

while also having a proper shareholder council that elects

tant topic; succession. I am sure most family businesses

the board of directors. In addition, this procedure will help

in the Gulf know it very well, but in my humble experience,

by bringing independent (non-family) directors in that can

few really take it as an important objective and exercise to

play a bigger role in the succession as they often have an

agree on and have their next leader in place to be groomed

unbiased view/opinion of family members.

for the challenges ahead.

Therefore, I would recommend that FbA… Succession is key for any business continuity and growth and

(1) Creates a nomination committee that does not include

we, as family business owners, know that challenge and the

any family members; instead, it should include two to

success rate of continuity of the third and fourth generation.

three independent board members. FbA might also bring

I always think that it is best to look at our family business as

one HR consultant from outside the company to provide

a professional work place where we wear our professional

new views and ways to tackle this issue,

hat and never think of it as our own place and/or home –

(2) Instills a fair process communication channel where every

maybe the question that really needs to be asked is whether

family owner can voice their views and recommendation

the family or the business comes first!

on the selection process and help define it.

(3) Creates a company culture where only competent

In my opinion, it is always good to have a business policy

professionals and individuals may be the next leaders.

where employment is based on a “competitive base” rather

This method helps preventing glass ceiling perception

than a “family comes first” principle. This should be the

and will help retain talented employees and managers.

objective for those who want their business to succeed over many generations to come. In other words, I should let my

My last recommendation is that it is always good to listen

family member run the business only if he/she is the most

twice as much as we speak, this is why, after all, we all have

competent member in the organisation considering both

two ears and one mouth.

family members and professional associates.

Another way of tackling this situation this is to implement a “fair process”, where you have a forum (a sort of structure) where most family owners can communicate their views and recommendations on what they want their successful succession methodology to be based on. This of course only

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Profiles

Pictet & cie

Swiss private bank, Pictet & cie was established over 200 years ago in 1805 in the heart of Geneva’s old town. today, it is one of the largest private banks in Switzerland and one of europe’s leading independent asset management specialists. Pictet & cie, the name by which the Bank is known today, was chosen in 1926. the bank is owned and managed by eight general partners.

Due to its clear governance structure, the Bank can by no means call itself a ‘family-owned’ business. On closer inspection, however, Pictet &cie has, from its inception, had all the traits of a family business.

Pictet & Cie A Swiss private bank with all the traits of a family business

W

hen it was founded in the beginning of

family members have followed in each other’s footsteps into

the 19th century, the Bank was named

the world of finance, thus fostering quite an extraordinary

Banque de Candolle Mallet & Cie after

sense of loyalty and shared vision of the Bank’s future.

its two young managing partners and

Indeed the Bank’s story, past and present, is linked to the

founders, Jacob-Michel-François de

achievements of a few distinguished individuals who often,

Candolle and Jacques-Henry Mallet. The Bank’s initial vision

but not exclusively, share the same name:

was “to trade in goods and articles of all types, collect annuities and undertake speculation in commodities”. Soon, however,

After it was founded in 1805, the first Pictet family member

it started to focus on assisting clients in their financial and

to enter the business was Edouard Pictet, the nephew of

commercial affairs, as well as on wealth management. To this

founder Jacob-Michel-François de Candolle’s wife. His

day, these activities form the core of the Bank’s business.

career with the Bank lasted more than 37 years until 1878.

By then, the Bank had been changed to Edouard Pictet &

16

Even though Pictet & Cie does not consider itself to be a family-

Cie Between 1890 and the First World War, the bank grew

owned business, a brief look at its history soon reveals that

substantially and employed over 80 members of staff. The

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Pictet & cie

Profiles

ABOVE: Former Offices in Rue Diday, Geneva، LEFT: Former Pictet Partners at work BELOW: Geneva around 1900

Partner at that time was Ernest Pictet, who was succeeded

also during this dramatic period that Alexandre van Berchem

by his second son Guillaume following his sudden death in

was made Partner. He has since gone down in the Bank’s

1909. Guillaume Pictet was a traveller at heart and added

history as the man who symbolised the transition to the post-

much value by setting up the Bank’s network in the United

War boom. He was the first member of the Bank to promote

States and Latin America. He was in turn succeeded by his

the its international presence and to set up offices abroad.

eldest son, Aymon Pictet, who later entered the world of

Until 1945, most of Pictet & Cie’s clients had been from

politics. In 1926, the Bank was given its current name: Pictet

Europe and Switzerland. After the war, the Bank increasingly

& Cie Aymon was succeeded at the Bank by his cousin, Albert

started to offer its services to clients from all over the world.

Pictet, in 1928 against the backdrop of the market turmoil,

A significant upturn followed, bringing with it many years of

which followed the First World War and in the midst of the

growth and prosperity. Much as it had been in the late 19th

Great Depression. Pierre Lombard, who had been appointed

century and to the advantage of the banking sector, during

a Partner one year previously, shared the task of addressing

the Cold War Geneva became a diplomatic and financial

the disastrous consequences of years of recession and

centre. Pictet & Cie grew substantially between 1980 and

another World War, which shook Europe to its core. It was

2005 and the number of staff it employs has increased from

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Profiles

Pictet & cie

Pictet & cie grew substantially between 1980 and 2005 and the number of staff it employs has increased from 300 to over 2000 employees. in 2010, Ivan Pictet, one of a long line of family members to have worked at the Bank, retired from his position as a Senior Managing Partner of Pictet & Cie and was succeeded by Jacques de Saussure.

Today, Pictet & Cie. stands for over 200 years of family and industry history. To this day, the Bank’s headquarters are in Geneva but it has expanded its global presence to include Present Pictet & Cie. Headquarter, Acacias, Geneva, Switzerland

offices in Barcelona, Basel, Dubai, Florence, Frankfurt, Hong Kong, Lausanne, London, Luxembourg, Madrid, Milan,

300 to over 2000 employees. In 2010, Ivan Pictet, one of a

Montreal, Nassau, Paris, Rome, Singapore, Turin, Tokyo and

long line of family members to have worked at the Bank,

Zurich. Staying true to its values and core business activities,

retired from his position as a Senior Managing Partner of

Pictet & Cie negotiated its way through two centuries of

Pictet & Cie and was succeeded by Jacques de Saussure, who

economic and political changes, and shows every sign of

has been with the Bank since 1980.

continuing to do so, always steering a steady course.

1805 1890 1926 1945 2010 the Swiss private bank, Pictet & cie. was established over 200 years ago in 1805 in the heart of old town Geneva, Switzerland.

18

Between 1890 and the First World War, the bank grew substantially and employed over 80 members of staff.

Tharawat Magazine Volume 10

the Bank’s name, as we know it today, was appointed to it in 1926 and is owned and managed by eight general partners.

Until 1945, most of the Bank’s clients had been from europe and Switzerland. After the war, the Bank internationalised its client base.

in 2010, ivan Pictet, one of a long line of family members to have worked at the Bank, retired from his position as a Senior Managing Partner of Pictet & cie.

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Pictet & cie

Profiles

Interview with...

Jacques de Saussure Senior Managing Partner, Pictet & Cie In 2010, you were appointed to the Senior Managing Partner position in Pictet & Cie.. Can you tell us more about the path that led you to join this centuries-old bank?

To do so, I will need to tell you something about my own family history. Ours is a very old Geneva family and one that it is best known for the many scientists it has produced over the years.

Geneva has always been a place that favours exchanges between representatives of the worlds of science, the arts and business.

My own father was the first member of the de Saussure family to be a banker, and he became a partner of Pictet in 1960. As you can imagine, this was a decisive factor in my own decisions.

I studied science because I thought it was the most interesting

Moreover, my grandfather on my mother’s side had a private

way to look at the world and also because the scientists in the

bank in a small town in the mountains, which had in turn been

family were a lot more famous than any bankers had ever

founded by his father. And added to all of that, I now live in

become. You know, bankers are often entirely forgotten after

our family house, which was built three centuries ago by an

one or two generations, whereas artists and scientists are more

ancestor who was a banker as well. That was the time when

often remembered! I therefore studied science at the Federal

France was the great power and the bankers in Geneva were

Institute of Technology and Engineering. After a while the

its financiers. This meant that the 18th century was a great one

other side of me came to the fore, the financial side, if you

for Geneva; the city was at the height of its power because of

will; and I decided that the best way to connect the two things

the prosperity of its economy, which was composed essentially

was to study business but in a scientific setting; I went to MIT.

of the watchmaking and banking sectors. At the same time,

This was just a fantastic experience because the professors

Geneva also played a key role in the arts and sciences. Much like

were outstanding. They were brilliant and fascinating people.

in my own family, there was always a strong mutual relationship

Having this unusual background is useful in my work at the

between the two professional orientations, because if there

bank, first and foremost because it is a differentiating factor.

was a trader or banker in a family, that meant other members

In business you always try to differentiate yourself.

could dedicate themselves more freely to the arts and sciences.

I think it is important to strike that balance within a family and

What was your first position when you started with

to have not only business people but also others who contribute

the bank?

to society in a different way.

For many years I worked as a portfolio manager in the My own personal development was naturally influenced by

asset management department. Maybe here my scientific

this rich historical background and by my own family history.

background was more important, because IT has become a

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Volume 10 Tharawat Magazine

19

Profiles

Pictet & cie

key tool in banking today, and the way markets and trade are

we have in place, we have managed to avoid this situation.

run and analysed is highly technical and scientific.

As the owners and at the same time the executive team, we have introduced an operational convention whereby we meet

If I could do something differently then it would be to spend

every morning. Being both owners and managers accelerates

more years working for other organisations outside the family

the decision-making process. Rather than having to pass

business. After my graduation I worked in a small research and

information up and down the hierarchy, our employees share

consulting firm in New York for about two years, after which I

their thoughts and questions with us directly and we can react

was offered a job at Goldman Sachs. However, I thought that

quickly. We are responsible, we are accountable, we know

it was maybe time to go back into the family firm. Today, we

what we are doing, we know what risks we want to take, and

urge the younger generation to develop outside of the firm

when we want to take them! We have nobody else to report to.

as much as possible. Staying outside until the age of 33 or

It is a great model although one that places a lot of weight

35 is perfect, because the more you learn outside, the more

on individuals. It does confer privileges on the partners but

experience you can bring to the family firm when you come

above all duties and responsibilities. Moreover, even though

back to it later.

the partners buy into the firm at book value, they also retire

i think it is important to strike that balance within a family and to have not only business people but also others who contribute to society in a different way.

at book value, which many executives would not want to do.

Non-family members may become partners as well, which would probably be one of the main aspects that differentiates us from most family businesses. However, we believe that in the services industry, the human being is the essential element.

You just mentioned the partners’ daily meetings. Can you take us behind the scenes and tell us what the core purpose of these gatherings is?

The Pictet leadership model is one of great interest

It ensures the flow of information between the partners.

and repute. What particularly characterises it and why

Every time something happens or a special situation arises,

do you believe that this is the recipe for the future?

it is important that you are aware of the key decisions to be taken - particularly so in our case where we share unlimited

20

What makes us different is that, since the beginning, we have

liability for the bank›s balance sheets. For one thing, you want

combined ownership and management in the same hands.

to make sure that nobody works in isolation and does things

The advantage of having this combination of management

that he should not do or feels that he cannot talk to someone

and ownership is that we reduce conflicts and diverging

else about it. It also has another interesting side effect, namely

interests; the usual conflicts that you may have between

the promotion of a smooth inter-generational transmission

owners and managers and the conflicts that you have between

of the firm. For 25 years I have seen senior partners take

employees and managers are avoided because the interests

decisions day after day, which helped me in assuming my

are all aligned. We see our employees daily and we develop

current position. We have two younger partners who were

long-term relationships with them and also with our clients.

elected following Ivan Pictet’s retirement last year and who

The clients› interests have to come first, but we see many other

now attend these meetings and can see the decisions being

organisations where there is a lack of connection between the

taken day after day. So when managers have a problem in

owners, the management and the clients. Thanks to the system

their specific field of competence, they can discuss it every

Tharawat Magazine Volume 10

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Pictet & cie

Profiles

day. This helps to create a commonality of views, a corporate culture and a vision for the firm. Moreover, we do not need to get outside consultation for our strategy: indeed, we build it gradually every day, in small steps. It is an ongoing process that we are engaged in. Finally, one more advantage of this system is that as the senior partner, one does not experience the loneliness that such a position often entails - as in the case of CEOs - or feel the rivalry from others that can ensue from different structures.

Do you think that this is also helping you to adapt quicker to a required change?

Yes, absolutely. Decision-making goes through a careful process, though. I remember having to correct presentations in our meetings over and over again until everyone was satisfied.

In the end the final decision is almost always better than the initial proposal because it has gone through that process. We believe very much in our culture of teamwork. This is what we practise at the head of the firm: a lot of teamwork, a lot of team decisions and full endorsement of the decisions made.

Considering how many family members are working within the firm can you still consider Pictet & Cie. a family business?

The way the partners are elected is purely by cooptation. Only existing partners have voting rights, not the families. This helps us avoid nepotism. For instance, we have a rule that if one of the new potential candidates for election happens to be a close relative of one of the existing partners, then that partner has to withdraw from both the discussions and the voting. Interestingly, we still prefer to have people with a strong family tie to the firm working with us. This is

What makes us different is that, since the beginning, we have combined ownership and management in the same hands. the advantage of this is that we reduce conflicts and diverging interests.

for a number of reasons: There is, of course, the financial side. However, most important to us is the fact that this is a wonderful firm and, because of that, we want to see it in the hands of someone close to us. Pictet›s combination of long-

belonging and identification with the company. I also believe

term tradition and vision is its backbone, and when you have

that this is important for employees. This identification with

someone whose uncle or grandfather worked in the firm and

families, tribes, and communities must be deeply rooted in

whose name has been there for several generations, it gives a

the DNA of human beings.

sense of accountability for what is inherited. This is particularly the case for people who bear the name of the company. Our

Back in the 40’s Francois de Candolle and Guillaume

clients very much like to see this as it reinforces their sense of

Pictet witnessed a financial crisis that led them to

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Volume 10 Tharawat Magazine

21

Profiles

Pictet & cie

take cautious actions regarding the services offered

to provide them with security, be it for their pensions or

by the bank. Today, again, we are confronted with a

enabling them to pass their wealth on to their children. If

post-crisis world. How does Pictet position itself in

I look at certain countries, the misallocation of capital is

this new economic context?

striking, and it is frustrating to see the amount of senseless spending that has been going on. From Pictet’s perspective,

We have to remember that most of the banks in Geneva were

one improvement that could be made would be to suggest

founded somewhere between 1798 and 1815. This was because

to some of the governments currently in power that they

all the previous banks had collapsed with the breakdown of the

shift their allocation of resources towards a better use. This

French assignat currency (originally conceived as bonds, they

could bring considerable economic advantage. In the end,

developed into a paper currency, the excessive printing of which

however, the allocation of resources is just one element; we

led to hyperinflation) in 1796. I believe that the crisis we have

firmly believe that only education can ultimately bring wealth

witnessed now is not only a sovereign crisis in the usual sense of

and prosperity to a country.

the word but also an adjustment to a new economic paradigm.

We are seeing the shift of power away from the US and Europe

Pictet has set up successful operations in Asia and

to Asia and also countries like Brazil. We have not seen the

the Middle East. How do you feel your global footprint

i believe that the crisis we have witnessed now is not only a sovereign crisis in the usual sense of the word but also an adjustment to a new economic paradigm.

is going to evolve in the future?

I have to mention here that having our base in Switzerland is certainly a very valuable asset for us, not just because of the country’s political stability but also its financial governance.

At the same time, we also operate on a global scale and invest all over the world, including the Middle East. It is marvellous that we can offer our services here in particular, as many of the successful entrepreneurs in the region are our clients, and it is amazing to see the potential and creativity that they demonstrate. We should not forget that the Arab world led

end of It because it is happening as part a major structural

the rest of the world in the Middle Ages and was the link

secular change in the world. As far as Pictet is concerned, it

between Europe and India. Indeed, it still has a central role

is true that we do constantly adapt our business model to the

today. When you look at the energy of this emerging young

changing climate; however, it should be emphasised that the

Arab generation, you can see that there is a lot of hope and

core of what we do has always remained the same. The nature

potential.

of our clients has changed enormously, not only over the span of 200 years but even within my own lifetime. For instance,

***

when I started, asset management (for institutions) was just

Worldwide, we see that family firms play a strong part in the

at an embryonic stage, whereas today it makes up half of our

development of good governance and responsible behaviour;

business. So although we have changed and expanded, our

when you have your name associated with a company, you

core business and our principles have remained the same. In

are committed to its continuity and you need to see to your

that sense, we are well prepared for the future.

children enjoying a good life. That is the most important thing.

The Arab world is particularly strong in this regard, because

22

The usefulness of what we do can be seen in good allocation

family ties are very strong and this is definitely something we

of assets and wise investment of our clients› wealth so as

can learn from.

Tharawat Magazine Volume 10

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Family Business ConferenceInnovation ontinuity Sustainability Innovation Continuity Sustainability Innovation Continuity Sustainability Innovation 2011 will be an exclusive gathering ofInnovation ontinuity Sustainability Innovation Continuity Sustainability Innovation Continuity Sustainability family business leaders Sustainability from the MiddleInnovation ontinuity Sustainability Innovation Continuity Sustainability Innovation Continuity ontinuity Sustainability Innovation Continuity Sustainability Innovation East and Continuity Europe. 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July 6th-8th 2011

Coming this Summer

On Family Business

Internationalisation...

Tharawat magazine Volume 11

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FEATURE

FEATURES 26

28

34

The Social Responsibility of Family Businesses

Yes! To Reinvening the Wheel

Philanthropy-What it Provides to Families in Business

An opinion piece on the need of dynamic societies the ways family businesses can contribute to them.

www.tharawat-magazine.com

An article on why it is crucial to ask ‘Why’ in a family business and how reviewing processes can be benefitical.

How philanthropic activities can increase family cohesion and how ‘doing good’ makes economic sense for families in business.

Volume 10 Tharawat Magazine

25

FEATURE

Social ReSponSibility

The Social Responsibility of Family Businesses in the Arab World

Increasing Competitiveness through Social Impact Sudden changes in social structures and shifts in economic systems are inextricably linked with each other and naturally have a direct impact on the competitiveness of a business community. next to governments seeking to improve business standards through regulations and creating new incentives, the business community itself can be a great engine to improve the creation of business opportunities and raising the level of commercial interaction.

Dynamic societies and their needs

need for education and employment. The way

Over the last months, the Arab world has been

corporations, family-owned or not, decide to tackle

facing many new challenges and there is little

these two issues will have a great influence on

doubt that the business environment for family-

improving the competiveness of the business and its

owned companies of all sizes has been most

environment and may well become a decisive factor

importantly impacted. Since family businesses in

in the further development of the Middle East.

the Middle East have always been very close to their stakeholders and deeply embedded in their direct

What can be done for education?

social environment, the challenges facing the rapidly

When it comes to education there are several ways

evolving communities can be an opportunity for

in which family businesses can and have contributed

them to set an example on how businesses can deal

and see the immediate benefits this will yield for their

with change. The importance of business families, as

own competitiveness and that of their environment:

well as their vast influence in their local communities makes their role in shaping the future of the region

Creating education funds: Many families have

a fundamental one. Many families have dedicated

created a fund to sponsor education for family

large amounts to the welfare of their communities

members but also for people in their community.

and the environment. Even though little is known in

Often this addresses post-graduate degrees,

facts and figures it is yet commonly understood that

however, there are only few initiatives that support

they are benefactors to the community.

vocational training. Increasing support in vocational training and technical education could expand the

However, in order for businesses to have a real

qualified work force for family businesses to hire

impact, to contribute to overall prosperity and

from and at the same time help communities to

thus increase of competitiveness, they have to

become self-sufficient.

look at the main need of their immediate economic

26

environment. In Arab economies, the two main

Contributing to universities and schools: Another

aspects that lie at the core are undoubtedly the

way to contribute to education often undertaken

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Social ReSponSibility

by families is by adding to or building schools and universities. This increases the value of the family portfolio and the branding of the family business.

Education of family business employees: Another immediate way of tackling the issue is by emphasising the education of employees working within the family business. It can be only advantageous for family businesses to further develop the skills of their employees, whether they belong to the family or not. This can ensure a smooth running of the firm in case of transition periods and foster in-house innovation and development.

FEATURE

Since family businesses in the Middle east have always been close to their stakeholders and are very deeply embedded in their direct social environment, the challenges facing the rapidly evolving communities can be an opportunity for them to set an example on how businesses best can deal with change.

What can be done for employment?

According to the International Monetary Fund the region needs to create 18 million new jobs within the

Create in-house vocational training systems:

next decade. But how businesses can contribute to

Combining the need for employment and for

the creation of employment is not a question with a

education, companies in manufacturing sectors,

straightforward answer. Looking beyond that rather

companies can accept non-skilled workforce at low

classical approach to job creation, businesses could

wages and let them develop through an vocational

consider the following options:

training course within the company over a period of time. This would allow the companies to lower their

Supporting SMEs and start-ups: family businesses

employee costs in the beginning and at the same time

can support the development of new business

gain well-educated workforce.

ventures by either investing in start-up ideas to be added to the company’s portfolio or by setting up

Social responsibility for better competitiveness

a family venture fund, which seeks and supports

The outcomes of individual or even coordinated

young entrepreneurs. Whilst creating employment

efforts by family businesses to boost education and

opportunities, the return on investment for the

employment in the Middle East can only be beneficial.

family business, may be monetary, but will mainly

The more energy is bestowed on raising the general

be access to new and upcoming business ideas and

standards of education and thus the possibilities

first access to potential business opportunities.

for employment, the more competitive the markets will become on a regional, as well as a global stage.

many

They will generate more and increasingly interesting

governments in the Middle East have developed

business opportunities. After all, creating a better

projects for short- and long-term job creation.

future for their next generations is at the heart of

Businesses can advise as to market requirements

the mission of family businesses.

Supporting

government

projects:

and offer internship opportunities. Potential talents for future employment can be thus found by the family business.

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Author Staff Writer, Tharawat magazine

Volume 10 Tharawat Magazine

27

REINVENTING THE WHEEL

FEATURE

Once procedures and habits are established in an organisation, it is often difficult to make people believe that re-evaluating whole work processes can be beneficial. Anees Redha Q. Sultan, Head of Marketing Development at W.J. Towell L.L.C. in Oman, shares his experience of when he insisted on to reinvent the wheel in his family company.

Yes! to Reinventing the Wheel - Why it is important to ask ‘Why’

C

ivilisation is not imperishable.

resentment at the idea that I might try and improve

It must be relearned by every

something or, God forbid, find a gap. Under my

generation.’ By William Durant. A

fervent assurances that my job was to create

year into my experience with the

something parallel to the existing structures and

family business I was assigned the

not to overhaul everything, I started.

task of working with the financial division to create

28

an owner-friendly MIS. Ours is a business of many

My direct boss was the one posing the biggest

divisions and, as we now call them, clusters. As a

challenge; he dismissively called my efforts

result, the accounting and the financial reporting

‘reinventing the wheel’. In one of these rare defining

are well established and, one may expect, robust.

moments that you later often recognise as being

It was therefore no surprise to me that my task was

moments of truth, I challenged him back saying,

met with some resistance if not even a feeling of

‘Yes, I want to reinvent the wheel, if for nothing

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REINVENTING THE WHEEL

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FEATURE

Volume 10 Tharawat Magazine

29

FEATURE

REINVENTING THE WHEEL

else, than to learn how it was made in the first

skills – never a bad thing to do- and set to work. My

place’. No one can openly deny family members

findings were not mind-boggling, nor unexpected. I

the wish to learn in their business, and so it was

guess after a few years in the business, I see my job as

a cool and clear win. A handy trick, I guess, for all

that of a middleman for information. Traditionally,

ambitious family business members.

in many of our Gulf businesses, accounting has always been done by outsiders, and it is not a bad

30

As a result of that confrontation, I got the information

idea and never too late to have firsthand knowledge

I needed, I started to polish my slightly rusty financial

of numbers. In fact, I would even go as far as to

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REINVENTING THE WHEEL

suggest an immersion into it in order for the owners of the capital to be able to decipher financial symbols as well as their accountants.

The whole process got me thinking of my former work experiences. Many years ago I worked with a CEO who professed that asking one simple question was the crucial factor in order for anyone

FEATURE

People with conflicting sets of values or interests, will always use derisive statements such as “too theoretical” or “reinventing the wheel”.

to understand any business: Why? Why to the nth degree? ‘Why’ to everything until you get to the bottom of things. In asking ‘why’ you force the other party to question and defend his assumption;

such as geometry, physics, chemistry, metallurgy,

in essence, it is a form of reinventing the wheel.

and production. Now tell me that’s not worth

Asking ‘why’ is non-threatening and it runs in the

learning!

spirit of learning – and so it is a defensible strategy.

He never told us, however, that asking ‘why’ many

At any rate, as I pondered upon the untamed data

times over would make you increasingly unpopular.

in front of me, I managed to draw some conclusions

However, as a CEO, I imagine, he didn’t really care

that I knew would be hugely unpopular within

about that sort of thing.

our finance division. I wondered if I should show them to the chairman first and ‘score a point’. I

Related to the issue of whether going back to basics

further imagined challenging him that if he were

is the right thing to do, is the all too easy dismissal

to ask the division for a similar report, he would

of college education by some business leaders.

get a watered-down version. I then dismissed

Many reason that this is because ‘college teaches

such superfluous, yet tempting, heroics, knowing

you theory’. Well, theory is only impractical if you

very well that other than creating a stout enemy

confine it to books. Once you actually practice

in an already testy relationship, I am still at the

it, your work becomes all the more powerful.

mercy of what’s given to me; what if I was missing

In business it means that the use of financial

other parts of the puzzle. Sure enough, as I called

theory coupled with practical knowledge makes

the first meeting with more participants, major

you understand what ratio or what analysis to

shortcomings became evident. The group realised

use rather than just to accept what’s randomly

that is the gaps were serious and needed to be

thrown at you. People of conflicting sets of values

rectified. If all this sounds like a challenge, then

or interests, will always use derisive statements

the next step is even more daunting. How do you

such as ‘too theoretical’ or ‘reinventing the wheel’.

bring about major change in the way and format

I believe that you need to reinvent the wheel if you

of reporting managerial numbers? Well, I guess I

are coming from a low knowledge base.

need a few more years in the family business to be able to write about that.

By the way, if you were to produce a simple bicycle wheel – note even a wheel for cars, airplanes or high-end technology uses but a simple bicycle wheel- you would still have to master disciplines

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Authors Anees R Sultan, Head of Marketing Development at W.J. Towell L.L.C., Oman

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FEATURE

FAMILY BUSINESS PhILANthroPY

Philanthropy - What it provides to families in business Family business philanthropy, though widely practiced all over the world, is an area that is still unexplored and little commented on. The field is, however, fast evolving and has witnessed much innovation. Etienne Eichenberger, Co-founder of Wise - Philanthropy advisor, and Jessie Johnsson, Key Client Manager at Wise, discuss what makes a successful engagement and the benefits for families that get involved in philanthropy. Two case studies are presented that illustrate the successful implementation of philanthropy for families in business.

Philanthropy: Are we observing a momentum?

is that an increasing number of family businesses

Philanthropy is an evolving sector. The 2010 World

are reaching a moment in which the questions of

Wealth Report by Merryll Lynch and Capgemini,

transition and family governance are essential.

found that the allocation of High-Net-Worth-

This long-term vision of family businesses, striving

Individuals in philanthropic activities grew in every

to insure that the future generations will benefit

regions except North America. The same report

from the successful enterprise, can benefit from

reveals that 35% of HNWI in the Middle East said

the platform, which philanthropy offers to them.

they planned to increase their level of philanthropic In parallel, family businesses are increasingly

engagement this year. Every region and country has its own philanthropic culture. There currently seems to be an interesting momentum for family businesses in the Middle East. Two observations draw our attention.

While family businesses are playing an important role in the economy and studies have regularly shown that on the long-term they outperform other businesses, there is a continuous challenge of succession to the next generation. Our observation

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35

becoming global actors in their sector and, thus,

of HNWI in the Middle East said they planned to increase their level of philanthropic engagement this year.

continuing their charity to their communities.

percent

developing a more global commitment. These businesses are likely to seek a more international approach to the act of giving in addition to

Family giving: how it mirrors the family business In our experience, we often observe that the impulse to engage in philanthropy often comes from one family member before it turns into a family project.

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FAMILY BUSINESS PhILANthroPY

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FEATURE

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FEATURE

FAMILY BUSINESS PhILANthroPY

Philanthropy is plural and the reasons to involve the family are as varied as families themselves. Here are some of the common impetuses: Nurturing family legacy Family entrepreneurs’ long-term vision for their

FIG. 1: Drivers for Family Business Philanthropy

Our Family Philanthropy Family driven (legacy, platform, NextGen)

business is anchored in the ambition to create

Impact driven

value and wealth for their descendants and for

(good giving principles)

society. The business development is often aspired by sustainability and these entrepreneurs want the future generation as well as the community to benefit from their success. Hence, philanthropy becomes a natural expression of personal and

Meet with peers

Work with advisors

Learning by doing

Leverage your Resources

spiritual values. It can translate the desire to ‘give back to the community’ and help the development of action promoting general interest to leave a

Guide them in finding their modus operandi that

strong family legacy.

will help shape their personalities, Learn how to defend one’s point of view within

Strengthen the bond between and among

the family,

generations

Make them understand the value of money and

Philanthropy can become a common ground, or a sort

teach them to work together,

of neutral ground that can include parents, children,

Explain the importance of wealth management

partners, and grandchildren in a project that is not

In this sense, it can help the younger generation

the family business. In other words, it becomes a place

to acquire practical skills and develop the

for encounters, dialogues, or exchanges of shared

entrepreneurial attitude that will be important

altruistic interests. It is a wonderful opportunity to

in life as well as in the business world. One of

bring together, and even to unite family members.

the approaches to involve the younger family

It also provides a space to create new conversation

members is to have a separate next generation fund

topics, especially around intangible values. As such,

allowing them to allocate smaller grants to their

it also offers opportunity for personal growth. In an

individual choices. This experience helps them to

increasingly rapidly changing cultural, economic and

take responsibility and to develop confidence by

social context, sharing a common family project can

recognising their preferences.

bridge geographic distances as well as generational gaps. In this sense philanthropy is a channel between

Some Good Giving Principles?

and among generations.

Donors want generosity to go hand in hand with real opportunities. However, in the words of a donor

34

Involving the next generation

“the hardest part is to find a balance between heart

Philanthropy can also be a learning tool giving

and reason- it is a perpetual challenge”. Maintaining

parents the possibility to...

professional standards is, nevertheless, essential to

Accustom their children to share their resources

families who have built their business successfully.

and to give them the opportunity to do so,

In other words, being good at doing good.

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FAMILY BUSINESS PhILANthroPY

FIG. 2: Trends in Philanthropy

FEATURE

accountability are called for, having the right tools

Emerging new style in philanthropy

for project management has become essential.

Project management is a complex process that

Former paradigm

New paradigm

requires multiple stages including the planning

Doing on your own Responding to solicitations Non-for-profit as a recipient Giving to general cause

Learn from others, get advised, involve children Pro-active on issues of interest Donors & social enterprises as partners Specific objectives to create impact

the predictability and sustainability of a project.

of objectives and results, taking into account Defining a specific project within the chosen organisation will enable the donor to get to know the partner organization better and to build trust for greater impact.

Exit strategy The sustainability of the organisation is assured once it can provide its activities autonomously

Philanthropy becomes a natural expression of personal and spiritual values. It can translate the desire to ‘give back to the community’ and help the development of action promoting general interest to leave a strong.

or with a variety of support. Predictability lets an organisation anticipate the end of a support cycle. An exit strategy combines these two perspectives. At the same time an exit strategy allows for a project planning phase (3 to 5 years).

When finalising this phase, an analysis of the challenges, failures and successes of the project serves as lessons for future improvements. At the end of a project cycle you will be able to choose between renewing your support for a new phase or project, or retract from the organisation with the feeling of having contributed to a significant and lasting impact.

Pro-active engagement

Leveraging your engagement

“Giving” is about making choices and taking a

It is important for donors to ensure that their

position on what you consider to be the right

family dynamic as well as their available resources

course of action. “Giving” is also about selecting

converge to fulfil social impact. For many families

trustworthy actors on issues close to your heart in

time is a constraint and financial resources are

order to optimise the impact of a donation and to

limited. We draw from our experience working

be part of a rewarding and challenging experience.

with families to put forward hereunder ways of

Such an engagement calls for a rigorous definition

leveraging philanthropic engagement:

of interests to ensure that the best suited partners and the most appropriate mechanisms are found.

Meet with peers Inspiration

through

peers

is

important.

Project approach

Gatherings that are exclusively for families

At a time when greater transparency and

engaged in philanthropy allows donors to learn

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FEATURE

FAMILY BUSINESS PhILANthroPY

about other families’ modus operandi or discuss

Work with advisors

pertinent issues ranging from strategic choices

Giving involves choosing. In a dynamic sector where

of funding approaches to family dynamic. This

choosing organisations you trust in areas you are

opportunity to share practical experiences among

drawn to or making common family decisions can

peers allows donors to enrich their philanthropic

be overwhelming, getting the support of professional

engagement.

advisors can be key. “They help us figure out what we can expect from the various projects that are

An exclusive donors’ network such as ‘Families

presented to us and more importantly, they share their

in Philanthropy’ provides a platform to discover

experiences at a time when we could get carried away

and share ideas with families represented across

by excessive idealism” says a member of a family who

different generations involved in philanthropy.

relies on philanthropy advisors for their engagement.

CASE STUDIES 1:“I wanted to include philanthropy in the family governance” Laure, her brothers and sister are involved in the company

business, because of strict family rules that pertain to them.

that their father Matteo founded twenty years ago. As a

However, they are strongly encouraged to play a role in the

young immigrant from Italy who arrived in France in the

family’s philanthropic projects, which helps to strengthen

1960s, he studied in Alsace before starting to work in the

the family’s values.

conversion of old buildings owned by the steel industry.

Laure believes that this strictly family approach to

Matteo and his wife wanted to express their gratitude

philanthropy was actually an excellent choice. Keeping

for the opportunity that was given to them by personally

family philanthropy separate from the company policy

engaging, with their family, in a philanthropic project. “When

on philanthropy allows each structure to play its role

we started reflecting on family governance five years ago,

efficiently, according to guidelines, without succumbing

we wanted philanthropy to be included and we decided it

to the constraints of the other, even if they have very similar

was the right moment to start our family engagement. We

values and motivations. The reputation of the family or

wanted to include our children and our grand-children in

of the business is not at stake, should either of them be

the project” says Matteo. The family agreed immediately.

subject to criticism.

They started by putting down in writing the first values and principles that mattered to them. This became the first “family charter.” As Laure explains, “We and our spouses thought about the strengths of our family, what kept us together, and what was meaningful to us all”. The charter inspired the founding document of the foundation that they established a year later.

Since then, they have supported about ten projects in France and abroad. All family members are involved in the decision-making process, which gives meaning to philanthropy, and unites the family. It is particularly important for the spouses who are not involved in the

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FAMILY BUSINESS PhILANthroPY

FEATURE

Learning by doing

the learning phase in which you take the time to

Learning from experiences is an important part

review your experiences and learn from them.

of philanthropy. A philanthropic engagement has

Philanthropy is multi-faceted and it is important

several stages: the initial phase, based on a few

that the initial vision be allowed to evolve.

issues that speak to us, where the donor can test his assumptions by making preliminary commitments; the evaluation phase where you highlight what you liked, what worked and what you learned from exchanges with other philanthropists; the

AUThorS Etienne Eichenberger, Co-founder, Wise – philanthropy advisors, Switzerland etienne@wise.net

expansion phase where the initial pilot is scaled

Jessie Johnsson, Key Client Manager, Wise – philanthropy advisors, Switzerland

up while refining the principles of action; and

jessie@wise.net

CASE STUDIES 2: Creating a legacy Ahmad inherited the financial business from his father

Three years into the project, the parents are thrilled to

and made it even more profitable. Ahmad and his wife

see that their children have become more proactive, make

are very attached to the values of simplicity and respect

group decisions, and also like to give individually to smaller

that were nurtured in their family; they raised their four

projects. “They do not feel that they are giving, but rather

children modestly. When the older children left, the family

sharing with others, which is very enriching and motivating”

dynamics changed; it turned out to be the right time to

says Ahmad. Looking ahead, they are now thinking of

unite all children around a project that embodied these

establishing a foundation, hoping it will encourage the

values.

children to give themselves when they will make a living.

Ahmad and his wife were already giving to different organisations in their community. “For us it is important to share with our children the values that our parents transmitted to us”, explains the father. By involving them actively in this project, it was also encouraging them to spend more time together, so that they could get to know each other better, in spite of the geographic distance imposed by their studies. Finally this project was also an opportunity to give the children a notion about asset management.

After understanding their parents’ perspectives, Jasmine and her three brothers accepted the challenge.

In the first months, the children defined their first project – providing assistance to troubled youth. They started with projects close to them, in Lebanon. After learning a lot from culturally familiar cases, they decided to expand their horizons and extend their action to other areas.

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IN TERVIEW MohaMMed ahMed al obaidly

OITC GROUP was founded by Mr. Ahmed Bin Mohammed Al Obaidly in 1978 in Qatar and is today a largely diversified family business with 25 subsidiaries to the Group’s name. Famous for its full range of products and services, the Group is just as well-known for its alliances and partnerships with world renowned brands as well as other regional family businesses in properties and investments, joint ventures, business development, EPC contracts, commercial businesses, bulk materials, heavy industries, agriculture, farm management, production & beautification and environmental related works, travel management, hospitality services, transportation, and retail businesses. Mr. Mohammed Bin Ahmed Al Obaidly, Group Managing Director of OITC GROUP speaks about the diversity of the family business, the importance of family gatherings, and the future family generations.

Mohammed Bin Ahmed Al Obaidly Group Managing Director, OITC GROUP, (Al Obaidly) Doha, Qatar

At the time of the establishment of the OITC

the formal establishment of OITC, our Group of

GROUP by Mr. Ahmed Bin Mohammed Al

Companies. In the 50s and 60s Mr. Ahmed Bin

Obaidly in 1978, the country was in quite

Mohammed Al Obaidly started in properties, and

a different stage and has lived through

it was only in the early 70s that the family business

considerable changes ever since. Could

became more organised. The family established

you tell us about the main milestones in the

the company as a contracting and trading business

development of your family business over the

at the time. Our company was the first one to

last 30 years?

include fabrication. In that period, it was more usual for people to be in real estate and property

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I believe it is very important to differentiate between

management. While the construction of houses and

the time that my father Mr. Ahmed Bin Mohammed

buildings was quite established by then, my father

Al Obaidly started doing business in the region and

and my uncles brought something new to Qatar by

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INTERVIEW

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IN TERVIEW MohaMMed ahMed al obaidly

introducing fabrication in the electro-mechanical

legal, financial, and technical aspects of running

sector. The family started the company with a

the affairs of the companies. All these learning

very hands-on management philosophy. While we

experiences added up to the managing expertise

children were studying abroad, the family started

that I have built through the years, thus, making

another company in 1978, which was named Green

the mission of the Group and my vision more solid

Tree Agricultural Materials Company, the focus of

and strong within the family business.

which lay on landscaping irrigation and agriculture and included some commercial activities in Qatar.

I was highly motivated and wanted more

It was run by my father and uncles and some

experience; to me the sky was the limit, and in

expatriates, who got involved in the marketing

fact, it still is. In the years that followed I failed in

sector. By this time our Group of Companies was

some things and succeeded in others. I am happy

starting to be more professional and organised in

to state that I was able to diversify our company

the diversified sectors of the businesses.

from the agricultural sector all the way to more

Under your leadership, the family business has

Over the years that followed i failed in some things and succeeded in others. i am happy to state that i was able to diversify our company from the agricultural sector all the way to more modern and sophisticated engineering products.

expanded in many other industries and has been very successful in them. What was your primary motivation for these moves and why these specific industries?

During the 70s until 1984 business boomed, however, the recession came and more difficult years followed. I completed my studies in the United States and France. Throughout those years I always knew that I would join the family business, and therefore, I spent some time in contacting companies related to the businesses. When I

modern and sophisticated engineering products. I

came back after my graduation I had the ambition

remember how we had to work hard for it and how

to create a group of activities across different

we would actually send around 400 to 500 letters to

sectors. I felt that while we successfully focused

companies every month to introduce ourselves. This

on agriculture and properties, it was not the right

was very important in order to build up our network

field to be in Qatar. Moreover, I believed that other

and to find partners for the projects, and the right

business units could considerably contribute to

know-how. Out of the hundreds we would send out

an even better and more visible image. As a fresh

we’d get back maybe ten or twelve positive replies.

graduate, however, it was not easy to push through

I remember one particular tender from Australia,

these new ideas and to give advice within the family

which we got from the Ministry of Electricity and

business. No one would accept such input at such

Water. There were electrical regulators as required

a young age.

by the Ministry of Electricity and Water and several challenges were there but we pulled through them

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The initial business experience was not an easy

and made money on two levels: from the tender

path as we learnt more about the commercial,

and on the currency exchange. Before the delivery

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MohaMMed ahMed al obaidly

INTERVIEW

our history. Part of the motivation in diversifying the business was for the sustainability of the family business and for it to withstand the fluctuation of business trends, for the encouragement in the region, for business experience and networking of family members, and for the coming generation to be able to cover all the sectors through high standard of management and know-how in family partnerships.

The sectors OITC works in today are various: The contracting and engineering sectors are in the field of Power and Desalination, Marine, Onshore and Offshore civil works; Infrastructures such as Roads, Bridges, Tunnels, Interchanges, Piling and Foundations, Ports and Harbors, Airports, Railways, High-end technology products such as Steam and Gas Turbine blades, vanes, hot gas path; heavy equipments; the commercial sector, which cater for Electrical engineered products and services, also for the Mechanical engineered products and services, and the services sector complementing the projects under the Group. The Group also caters to the travel and tourism sector as well as the medical and educational sector.

The part that we are developing now is the retail Mr. Mohammed Ahmed Al Obaidly, addressing the audience in a conference in Qatar.

of the project, I had bought some Australian

business. Our activities till now mostly referred

dollars, which appreciated shortly afterwards and

to engineering items, construction, and power

yielded considerable benefits. Through the profits

industries. Essentially, we want to tackle four new

of that tender we were able to almost cover all

sectors: Education, Healthcare, High technology,

our company’s losses. That was a shifting point

Manufacturing and Retail.

in my career where I gained more control in the family business. I had to win this respect through

We are always looking for the right partners to

achievements.

undertake these new activities and are very careful in the selection process. The retail business is of

I continued to pursue my aim of diversifying the

particular importance to us as it will enable more

family business into the right sectors. At the time in

visibility for our brand and will create awareness

Qatar this meant expansion into power generation,

with all types of consumer segments. Healthcare

oil and gas, and other heavy industries. We still

and education as well are core objectives for

maintained the agricultural business. It does yield

us and we are collaborating with other family

very much and it is a symbol of tradition and of

businesses on this towards social responsibilities.

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IN TERVIEW MohaMMed ahMed al obaidly

We have this diversification because it means that all the talent in our family can later be captured. The incoming generation will have a wide choice of how and where they want to add to the family business and develop the family entrepreneurship.

The diversification of family business sectors opens new market possibilities, new technologies and state-of-the art manufacturing of engineered products. This creates capital expansion of the family business partnerships in the GCC, regional and international arena.

The reason why I decided to diversify into these sectors was not because it was really needed. It was

region for much longer than the existence of

always my own vision to cover a wide spectrum

the family business OITC Group (Al Obaidly).

of sectors: Why? The main reason is that we have

Could you tell us what the family history is

noticed that it is good for family businesses to have

and what the family trades were before the

different activities in one basked because of the

establishment of the company?

Mr. Mohammed Ahmed Al Obaidly in his office.

next generation. I am not expecting the whole coming generation to be the of the same category.

Of course there is a big difference between the

We have this diversification because it means that

tribal history, the family, and the family business

all the talent in our family can later be captured.

history. Our tribe has always been situated within

The incoming generation will have a wide choice

the Al Audaid area belonging to the AL ABADLAH

of how and where they want to add to the family

tribe. We trace back our family tribe to 999 Hijri.

business and develop the family entrepreneurship.

We stand for 433 years of tribal history. If we go

Diversification becomes a way to ensure the

further back, thousands of years, the AL ABADLAH

sustainability and continuity of the family business.

tribe originates in the Arabian Peninsula. Now the Al Obaidly family are all over the GCC region in

The Al Obaidly tribe and family has been in the

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general and in Qatar in particular. At the time of

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MohaMMed ahMed al obaidly

Mr. Ahmed Mohammed Al Obaidly with his sons and Grandsons in a family gathering.

INTERVIEW

my own grandfather we undertook the rather usual

stipulates transparency to a certain extent.

activities, which were ‘pearl diving’ and general

However, as a family business why would you

trading in the GCC. At the time there were also

worry yourself about this? Transparency amongst

many that were active in the food trade through

the family members is important and an obligation.

the connections to India and Turkey. Then in the

However, it remains a family business and not a

50s we started in real estate.

listed company. If a company is listed then, yes, information should be accessible to the public.

Much criticism is applied to family businesses

Of course, sometimes a family business is partly

in the region for what is called a lack of

listed, which changes the situation. Also when a

transparency. Do you believe that there are

family business enters a partnership, naturally,

aspects and issues that family businesses

information needs to be made available.

need to be more open about?

You have played an important role in the I think a difference needs to be made between

development and expansion programs of

transparency to the family and the transparency

the Government of Qatar in different fields.

to the business community. Of course the law

Moreover, you are now the Secretary General

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IN TERVIEW MohaMMed ahMed al obaidly

in Business Council as well as a Board Member in the Qatar Chamber of Commerce.

What do you think is the role family businesses should play to contribute to or stimulate the growth of the national economy?

Whichever the country or context, family businesses always seem to face the same issues.

The mindset is the same. During the financial crisis this mindset was the reason why most family businesses were much less affected than other corporations. Families may have a lack of governance according to the new sense of the term, which includes all aspects related to ownership structures, organisation charts, transparency and so forth. I believe, however, that there may be a

sustainability and continuity of the family business.

lack of governance but that it has in some form or other always existed in family businesses. Of

Within the Chamber of Commerce we are looking

course the more formal definition gives us a good

for ways to support family businesses as well by

idea of how to organise ourselves. We have seen

creating platforms for exchange knowledge and

some other families that were well organised

by encouraging that family businesses set up

and have fostered close relations between family

ventures together and form business as well as

members. These families have grown and they

personal alliances. Another goal that is a priority

have succeeded and are now market leaders.

is to establish a better understanding between the

Others have failed due to the clashes amongst

public and the private sector businesses. We focus

family members. Personally, I believe that it is not

here particularly on SMEs as most economies are

enough to just look at the governance structure

depending on them. We are working on developing

and problems cannot always be solved by just

a stock of listed SMEs with a special focus on the

simply listing a company; the family unity is what

manufacturing sector.

Mr. Mohammed Ahmed Al Obaidly and Mr. Ali A. Al Obaidly with other directors of a J.V company visiting one of the ongoing project.

has to be maintained under all circumstances.

Similarly, I am also putting an emphasis on the

44

I think that one of the main reasons why families

development of rules and regulations in the

struggle to maintain unity in the region is that they

private and public sector, as in the Public Private

have let go of the tradition of family gatherings. A

Partnership (PPP). I am trying to formulate

Majlis or Grand House setting gives the opportunity

definitions of what the differences are between

to all family members to meet each other. Different

public and private companies. Another distinction

generations can communicate and create a sense of

we are now trying to make is the one between small

unity that nothing can take away from them. I think

and middle-sized enterprises (SMEs) as well as

that families nowadays have lost this connection

between the various industries. This is for the

and that is why we see so many family conflicts and

time being my role. I am a Board Member of the

clashes. The Majlis culture can help to support the

Chamber of Commerce as well as the Secretary

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INTERVIEW

Mr. Mohammed Ahmed Al Obaidly Chairing the meeting of Agricultural & Environment committee.

General of the Business Council, also I am the

family business name and that failure in any area can

Chairman of the Agricultural and Environmental

weaken it and damage the whole family.

Committee as well as the Deputy Chairman of Arbitration Committee and as Member of Arab

How would you advise the young generation

Business Council. My main activity still remains

to work with the generation that is in charge

in the family business as the Group Managing

of the business? Is there a magic formula?

Director of OITC GROUP (Al Obaidly).

As I mentioned, we should not forget our own What advice can you give to the young

traditions. Being modern in management practices

generation that will face the challenge of

is very well but it is our tradition that we have to

ensuring family business continuity?

go back to in order to become closer to our families again. Governance structures and all these things

They have to work hard, they have to live up to the

are right solutions, the most important thing is

challenge, and they have to look after their family

to gather the family and to create the bonds of

business. I believe that they should choose the family

solidarity. When the family gathers, its members

business over other jobs that may pay more initially.

can learn from each other; parents and children

They may make less in the family firm in the beginning

are sitting together and knowledge is passed from

but in the long run the returns are much higher than

one generation to another. I believe that you can

if they go elsewhere. Of course, they should go for

tell the difference between people who have been

training but it would be advisable to go for businesses

raised with this tradition of a Majlis or Grand

that are useful to the family business itself. Once part

House culture and those that haven’t. They are

of the family business, they have to be creative and

usually creative, polite, interactive, friendly and

to retain entrepreneurial spirit for the company to

sincere and they know how to respect others. And

expand and to create the long-term vision of how to

I think these are exactly the characteristics that

develop the family business. It is important for them to

should be displayed always by family business

understand how much effort it takes to keep a strong

members.

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SPECIAL FEATURES

Family Business

Diversification The balancing act of managing the family business portfolio Many family businesses in the Middle East, especially those of larger size, started out as experts in one core business, however, over time diversified into many different directions. The argumentations for such diversification in family businesses varies: Having various and often unrelated activities in the family portfolio can hedge risk and augment the probability of continuity and growth. Others state that as time goes on, the family grows, whereby the next generations will include family members with different talents; in order to capture these abilities and make sure that the business stays within family ownership it makes sense to create different business units that give opportunities to family members from all educational backgrounds.

There is, on the other hand, a pronounced critique to be heard amongst experts against such wide diversification.

The dangers of loosing focus and of neglecting core businesses have to be considered.

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Tharawat Magazine Volume 10

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SPECIAL FEATURES

48 CCC-A Diversified Family Business One of the biggest and first Arab construction companies, employing thousands, present in dozens of countries and heavily diversified in its activities.

52 Diversification Mini Cases A selection of facts and figures about four family businesses with diversified global activities.

56 Focus Beats Diversity A guide to selfassessment for diversified family businesses and recommendations on how to handle diversity and how to regain focus.

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ccc SPECIAL FEATURES

The ConsolidaTed ConTraCTors Company

The Consolidated Contractors Company

A Diversified Family Business

The Consolidated Contractors Company (CCC) was founded in 1952. CCC is a heavily globally diversified company and it employs over 110,000 people (2010) encompassing over 60 nationalities in over 27 offices around the world. CCC manages an annual revenue of over US$4 billion. Samer Khoury, President of Engingeering and Construction in CCC and son of one of the founding member Said Khoury, talks to Tharawat magazine about managing a diversified family business.

C

CC was formally established in 1952 in Beirut,

head quarters in Athens, Greece. Said Khoury is the President

Lebanon by Hassib Sabbagh, his brother-in-

and Chairman of the group and two of his sons are members

law Said Khoury, and their friend Kamel

of the board of directors. CCC is now a highly diversified

Abdulrahman. At the time it was one of the

company carrying out construction, engineering, procurement,

very first Arab construction companies and

development, and investment activities around the world with

today is undoubtedly one of the largest. CCC has its current

emphasis on the MENA region.

Wood Group - CCC JV wins US$800m contract with Petroleum development oman.

Tethys oil provides oman with an operations update (CCCcontractor).

CCC ranked 17th in the world and 1st in the Middle East in the annual ‘ ENR Top 225 International Construction Survey’, with a turnover of U.S. Dollars 5,000 millions and new sales of U.S. Dollars 4,500 millions, employment throughout 2005 was more than 75,000 employees of 60 different nationalities based on projects worldwide and a headquarters in Athens, Greece.

48

Tharawat Magazine Volume 10

2010 www.tharawat-magazine.com

The ConsolidaTed ConTraCTors Company

1952

CCC obtained a major contract for a Bechtel-Wimpey joint venture, this time in Aden, to build a refinery and a camp for workers.

1953

various projects in the UAE, Bahrain and Qatar were undertaken and led to considerable interationalisatoin.

SPECIAL FEATURES

1960

CCC secured a contract related to oil pipe storage facilities for the Iraq Petroleum Company, which entailed working with the Bechtel Group, the world’s largest construction company, which was to define the scale of operations across the world. as a consequence of this prestigious alliance the group started to expand massively and find other significant partners.

1973 CCC set up the national petroleum Construction Company in abu dhabi to provide offshore services to the oil and gas industries in the Gulf countries. pipelines were built in yemen connecting various oil fields to ports on the red sea.

CCC undertook a successful partnership with Canadian OXY, and won a bid to explore for oil in Masila, South Yemen. Shares in the project were sold to shell and american oXy with CCC retaining a 10 percent share. Oil exports from Masila peaked at 170,000 barrels per day.

1980

CCC bought Underwater Engineering, a British firm specialised in underwater oil projects, and ACWA, an environmental company.

1988

The family business also bought SICON, an italian mechanical engineering company specialised in petroleum-related projects.

morganti Group in palestine was acquired by CCC.

2007 Wood Group - CCC, a joint venture set up to provide operations and maintenance services for the oil & gas and petrochemical industries in Oman, Bahrain, Kuwait, Qatar, Saudi Arabia, UAE and Yemen.

1990

Brought diversification into yemen and egypt where infrastructure such as roads, sewage systems, and electrical grids were built.

Tethys oil awards 3d seismic survey Contract to BGp (CCC-contractor).

2009

Borouge Awards $1.075 Billion Contract to build Ethane Cracker In Ruwais, Abu Dhabi (CCC-contractor).

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2005

CCC undertook expansion of the business into Pakistan and China

2004 Completion of Gaza energy Generating station Gulf egypt for hotels and Tourism awarded a construction contract for the expansion of the heliopolis hotel in Cairo to CCC.

CCC was awarded the construction contract of oman moTC - sohar to Buraimi road dualisation.

Volume 10 Tharawat Magazine

49

The ConsolidaTed ConTraCTors Company

SPECIAL FEATURES

FIG. 1: Major ongoing projects 2Q 2010

Morocco

Al Houara Costal Resort, Tnagiers

Libya

Tripoli Airport Tripoli Towers

Ibn Hani Bay, Lattakia

Jordan Algeria

Sonatrach Tennis Club

Sudan

Kuwait

Kazakastan

Syria

Palladium Project, Abdali

Kashagan Field Dev. AgiKCO Kashagan

KSA

Princess Noura Bint Abdurrahman University for Women, Riyadh

Musheireb Project, Khartoum

Tank Maintenance Mina Al Ahmadi Refinery Diverse Road Projects Supply & Installation of 400KV UPC & Accessories Kuwait City

UAE

The Landmark Building Habshan Gas Complex Expansion, Abu Dhabi SAS Fields Dev.Project Package 8 Borouge 3 EPC Ethzlene Cracker 3, Abu Dhabi Habshan 5 Process Plant Project Habshan Flare Gas Recovery Bab Thamama G & Habshan 2 Dev. Qusahwira Field Dev.

Grenada

Agricultural Feeder Roads

Yemen

Equatorial Guinea

Al Rayyan Hills Dev., Sanaa

Long Term MSC Maintenance Service

Egypt

Oman

Saudi Embassy in Cairo Nile Corniche (St. Regis Hotel), Cairo Sharm El Sheikh Project Ain El Sokhna Supercritical Thermal Power Plant

Guinea

Sangaredi Alumina Refinery

Namibia

Tsumeb-Katwitwi Road Link Project

New Port at Al Duqm Muascat Airport Runway A’Seeb Collection and Conveyance System Third Laining of road from Mawaleh to Bait Al Boraka

Madagascar

Ambatovy Pipeline Project

Ethiopia

Gore Gambela Road

Nigeria

Dualisation Onitsha Dualisation of Ughelli Enugu bound Carriageway Rehabilitation of Oba

Australia

APLNG Early Works Contract

Botswana

Gaborone, Molepolole Road Mahalapye, Kudumatse Road

Qatar

Doha Int’l Airport-Midfield Area -Access System & Air Traffic Control Pearl GTL Project, Ras Laffan Common Cooling Water, Ras Laffan EPIC of Ras Laffan Porst Expansion Barwa Commercial Avenue

New Guinea

PNG LNG EPC5B, Komo Airfield & Infrastructure

Diversity of services Heavy Civil Construction: power plants, bridges and highway

works for light industry and heavy mechanical works

interchanges, harbour and docks, and civil work for process

(refineries, petrochemical plants, gas oil separation plants,

plants and the petrochemical industry.

oil loading and off loading terminals).

Highways, roads and airports.

Pipelines for water, gas and oil,

Water and sewage treatment plants, pumping stations and

High Quality Buildings.

all related networks.

50

Mechanical Construction: fabrication and installation of

CCC was awarded quality certification by BVQI to ISO 9001,

piping, erection of equipment and vessels, structural steel

ISO 14001 and OHSAS 18001.

Tharawat Magazine Volume 10

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The ConsolidaTed ConTraCTors Company

SPECIAL FEATURES

Q&A

Samer Khoury Designation: President (Engineering & Construction) Leadership in a Diversified Family Business Consolidated Contractors Company Family Generation: 2nd Country: Lebanon Successfully running a diversified business portfolio depends on a variety of factors; where would you see the biggest challenges facing business leaders running highly diversified businesses?

I believe that in the leadership of a diversified company there are two main aspects to consider. Firstly, we have to be close to the market and anticipate any and all changes in order to be able to react ahead of others. Secondly, we must think and act long-term as short-term goals can sometimes hurt a long-term strategy and, as a family business, we must always look ahead of about 5 to 10 years.

How can a manager make sure attention is evenly distributed across all diversified units?

mission of the parent company is implemented throughout the portfolio?

We have to have enough trust in the people we assign to the various units. They have to be able to call the shots and

Family companies have a specific family culture and this

determine when they need us, as higher management or

culture encompasses, in many cases, the values of the family

family members, to interfere.

company founder. The job of the second and third generation owners is to identify these values and make sure they are

Do you believe that family businesses are better

communicated across the entire company and are adhered to.

equipped to diversify than other businesses?

This can easily be done by frequent meetings and by counter action initiated by top management re-affirming these values.

Family businesses can take decisions faster than other companies and, therefore, when we see an opportunity we

Do you believe that a strategy of diversification is able

can jump into it. In several cases this is how we leverage on

to stimulate growth in the current, rapidly changing

our entrepreneurial skills towards investing in new businesses.

economic landscape?

In an organisation with diversified businesses each

I believe diversification is important, but only if the opportunity

business faces its own, specific challenges; in such

arises. Sticking to the company core business is the best advice

complexity, how do you ensure that the vision and

I would give any firm.

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Volume 10 Tharawat Magazine

51

SPECIAL FEATURES

Mini cases

Diversification

Mini cases Four family businesses with diversified global activities

100

The group started as a trading company more than 100 years ago, and has since expanded and diversified its activities.

2008

MaK group has been certified as conforming to international Quality Standards – ISO9001:2008 for its quality commitment.

Kuwait

Mohammed Al Kharafi Group

M

ohammed Abdulmohsin Al-Kharafi

It has construction contracts in more than 30 countries

& sons Company (MAK Group) is

worldwide. MAK group has been certified as conforming

a Kuwait based group with diverse

to International Quality Standards – ISO9001:2008 for its

activities worldwide. The group started

quality commitment. Besides construction, the group also

as a trading company more than 100

owns Americana; the largest food company in the Middle

years ago, and has since expanded and diversified its activities

East introducing U.S fast food brands such as KFC, Pizza

into construction, manufacturing, commerce, marketing

Hut, TGI Fridays to the Gulf. The Kharafi family is a major

and hospitality throughout the Mideast, Africa and Eastern

player in the Kuwaiti news paper industry

Europe. The Kharafi family’s wide investment portfolio includes shares in Krispy Kreme, U.K. construction firm Costain, Mobile

Nasser Al Kharafi, today, is the Chairman of the conglomerate.

Telecommunications Co., and the National Bank of Kuwait.

His estimated fortune is of several billions as of 2008 and he is considered amongst the 50 richest men in the world. M.

52

The group’s main activity has been general contracting and

A. Kharafi Group operates in more than 25 countries with

civil construction, which made the company a leader in the

an annual turnover of US$ 5 Billion and more than 120,000

construction boom in the Gulf during the fifties and after.

employees.

Tharawat Magazine Volume 10

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Mini cases

Cheung Kong (Holdings) Limited; a group that –in Hong Kong alone- includes eight listed companies with a combined market capitalisation of approximately HK$898 billion (2011).

1950

SPECIAL FEATURES

The company was established in 1950 by Li Ka Shing and was called then ‘Cheung Kong Industries’.

52

The group operates in 52 countries and employs approximately 250,000 staff worldwide.

1991

In 1991 the company acquired the UK’s busiest port, Felixstowe.

Hong Kong

Cheung Kong Holdings Limited

B

ased in Hong Kong, Cheung Kong (Holdings)

3G mobile video and multimedia services in the UK, Italy,

Limited

Austria, Sweden, Ireland, Australia, and Hong Kong

is

a

leading

multi-national

conglomerate. The company was established

Over the years Li Ka Shing’s company became Cheung Kong

in 1950 by Li Ka Shing and was called then

(Holdings) Limited; a group that –in Hong Kong alone-

‘Cheung Kong Industries’. The company

includes eight listed companies with a combined market

obtained its name from the Yangtze River that flows through

capitalisation of approximately HK$898 billion (28 February,

China and aggregates many streams. The core business of the

2011). The group operates in 52 countries and employs

company was plastic, however, in 1958 the company ventured

approximately 250,000 staff worldwide.

into the real estate business with great success and repeated its expansion into many other industries. In the 80s Li Ka

Today, the diversified portfolio of the Cheung Kong group

Shing pursued his philanthropic activities by establishing the

includes business activities in many areas such as property

Li Ka Shing Foundation to improve life conditions in China as

development and investment, real estate agency and estate

well as the Shantou University in his hometown. In the years

management, hotels, telecommunications and e-commerce,

to follow many acquisitions followed in the electronics and

finance and investments, retail, ports and related services,

energy sector. In 1991 the company acquired the UK’s busiest

energy, infrastructure projects and materials, media, and

port, Felixstowe.

biotechnology. Li Ka Shing is now the Chairman of his company that came from modest beginnings. He was named

Hutchison Whampoa Limited, a Fortune 500 company that

Entrepreneur of the Millennium at the turn of the century

had been acquired by Cheung Kong in 1979, introduced its

by The Times and Ernst & Young, UK.

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Volume 10 Tharawat Magazine

53

SPECIAL FEATURES

Mini cases

Tata Steel became the tenth-largest steel maker in the world after it acquired Corus Group in the UK in 2007. Tata produces steel at the lowest cost in the world.

90

11.2 80

Today, the Tata group is one of India›s largest private-owned conglomerates with over 90 operating companies in seven industrial sectors.

Recently the Tata brand was valued at $11.22 billion and ranked it 65th among the world›s Top 100 brands.

The group is based in Bombay and employs around 395,000 people worldwide with operations in and exports to more than 80 countries across six continents.

India

Tata Group

T

his world-renowned company was established

in the world after it acquired Corus Group in the UK in 2007,

in 1868 in Bombay by a man called Jamshedji

later renamed Tata Steel Europe. Tata produces steel at the

Tata; he started working in his father›s

lowest cost in the world. Tata Motors is among the top five

trading company before starting his own

commercial vehicle manufacturers in the world and has recently

business.

acquired Jaguar and Land Rover. It made India’s first developed car in 1998 and recently launched the world’s lowest-cost car,

Today, the Tata group is one of India›s largest private-owned

the Tata Nano. TCS is a leading global software company, with

conglomerates with over 90 operating companies in seven

delivery centers in the US, UK, Hungary, Brazil, Uruguay and

industrial sectors. The group is based in Bombay and employs

China, besides India. Tata Global Beverages is the second-largest

around 395,000 people worldwide with operations in and

player in tea in the world. Tata Chemicals is the world’s second

exports to more than 80 countries across six continents. The

largest manufacturer of soda ash and Tata Communications is

total revenue of Tata companies was $67.4 billion in 2009-10,

one of the world’s largest wholesale voice carriers.

with 57% from business outside India.

Brand Finance, UK, recently valued the Tata brand at $11.22 The present chairman of the group is Ratan Tata who took

billion and ranked it 65th among the world’s Top 100 brands.

over from his uncle J.R.D. Tata in 1991. Mr. Ratan is a

BusinessWeek magazine ranked Tata 17th among the “50

distinguished industrialist with years of business experience.

Most Innovative Companies” and the Reputation Institute, USA, in 2009 rated it 11th on its list of world’s most reputable

Tata Steel started in 1912 became the tenth-largest steel maker

54

Tharawat Magazine Volume 10

companies.

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Mini cases

Today, the Ghabbour Group employs over 6000 employees, operates 3 factories, runs 20 retail outlets, and 8 service centers.

1946

1.2 1

SPECIAL FEATURES

1946, the Ghabbour Brothers company was established; a family-run business, which grew to become the largest private sector automotive group in Egypt.

GB Auto completed an initial public offering and shares began trading on the Cairo and Alexandria Stock Exchange (now the Egyptian Exchange). The IPO raised EGP 1.2 billion in 2007.

The Group generates a turnover of about 1 billion US dollars, which makes it undoubtedly the leader of the Egyptian automotive sector.

Egypt

The Ghabbour Group

I

n 1946, the brothers Kamal and Saddek Ghabbour

centres for their auto-representations, which was the initial

established the Ghabbour Brothers company; a

approach to the industry. By 1986, they proceeded to setup

family-run business, which grew to become the

operations in the manufacturing of bus-bodies.

largest private sector automotive group in Egypt. The core business of the group has always been vehicles;

In 1991, Dr Raouf Ghabbour -second generation family

GB Auto is a leading diversified automotive company in

member- ventured into the field of agriculture and the

North Africa and the Middle East and a part of GB’s capital

cultivation of fruits and vegetables. While developing export

is engaged in a complete automotive product range from

markets in Europe and the Middle Eastern countries, the

manufacturing, assembling, importing and distributing in

company started retailing crops domestically through its

addition to dealing in automotive related products such as

own retail chain.

tires and spare parts.

In 1995 the Ghabbours got involved into the assembly of cars The company started to diversify in the late forties when GB

and light commercial vehicles. In short, the family developed

Auto expanded into trading and all car related activities. In

into every industry that fed into auto manufacturing. GB

addition, in 1972, Sakkar travel group was establishes by

Auto completed an initial public offering and shares began

Baher Munir Ghabbour. The group gained a reputation of

trading on the Cairo and Alexandria Stock Exchange (now the

being a leading company in the tourism sector not only in

Egyptian Exchange). The IPO raised EGP 1.2 billion in 2007.

Egypt but all over the world. Today, it has branches in France, the UK, India, and the United States.

Today, the Ghabbour Group employs over 6000 employees, operates 3 factories, and runs 20 retail outlets and 8 service

After 1973’s new trading policies in Egypt, the company

centers. The Group generates a turnover of about 1 billion

started to represent different international manufacturers

US dollars, which makes it undoubtedly the leader of the

such as Bosch and others. They then established service

Egyptian automotive sector.

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Volume 10 Tharawat Magazine

55

SPECIAL FEATURES

Focus Beats Diversity

Widely diversified family businesses are common in the GCC, often including units in more than ten unrelated industries under one holding structure. Although this may have been a viable growth strategy at one time, GCC family businesses now potentially face the task of divestment and consolidation. Ahmed Youssef, Partner at Booz & Company, elaborates on the relevant points of self-assessment for families in business and makes recommendations on how to handle diversity and regain focus.

Focus Beats

Diversity Family Businesses Must identify their core capabilities

H

istorically, wealthy families in the GCC

from domestic and international rivals that now have access

have developed diversified portfolios of

to capital, talent, and local markets. Meanwhile, retail

businesses for a variety of reasons: Access

and business customers are ever more sophisticated and

to capital and management talent made

demanding, which means family businesses need greater

diversification possible, and the closed

expertise and responsiveness to serve and retain their

nature of local markets—which limited competition and

customers. Finally, financiers expect greater transparency

capped the growth potential of existing businesses—made it

and analysis of a family’s holdings before extending growth

necessary to enter new fields, often unrelated to the original

capital or credit--a tough adjustment for those families that

family business, in order to keep growing and accumulating

used to keeping their books closed to outsiders.

wealth. Diversity for the sake of diversification was a sound business strategy. Indeed, a 2009 Booz & Company survey

Put simply: the old way of running a diversified portfolio

of 25 family-owned firms in the GCC showed just how

of businesses in the GCC is not sustainable. Families need

widespread this strategy is: Nearly half of the families were

to evolve their business strategies. To choose the right path

involved in five or more sectors, with nearly as many (40%)

forward, they need to address three major issues:

engaged in three or four sectors, and only 12% active in two sectors or fewer (See Figure 1).

Understanding the financials. Over the years, families have cobbled together so many companies that it can be difficult

56

But the GCC business environment that favoured this

to ascertain exactly which businesses are thriving, which

diversification strategy is changing rapidly, forcing families

are treading water and which are failing. But unwrapping

to rethink how they manage their businesses to bring more

the financials of each business unit is vital. When capital

focus to extensive operations. Competition is more intense

and management time are abundant, an organisation can

Tharawat Magazine Volume 10

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Focus Beats Diversity

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SPECIAL FEATURES

Volume 10 Tharawat Magazine

57

SPECIAL FEATURES

Focus Beats Diversity

FIG. 1: Booz & Company Survey, 2009

12% 38% 2 or fewer 3 or 4 sectors

sectors

50%

survey of family-owned firms in the GCC

5

or more sectors

enter into any business as long as the return exceeds its cost

low working capital. Once these capabilities are identified,

of capital—or if management even believes that it will do

a family has a blueprint for how to grow the business; in

so. However, when capital costs increase and management

other words, which businesses to focus its resources and

capacity is stretched thin, family conglomerates must focus

which businesses to exit. Over time, this process creates

on the best possible use of both capital and time. This will

what’s known as “coherence”--an alignment of capabilities,

often mean divesting some of their traditional businesses or

products and services, and methods to capturing value in

giving them less investment—which can be a difficult process

each market.

if, for instance, the founder is sentimentally attached to an underperforming “original” business. Nevertheless, a frank

Understanding the family. Finally, a family must do some

financial and strategic assessment of each unit is critical to

soul searching about its aspirations and philosophy. How

putting the family business on sound footing.

is the family evolving as the third and fourth generations grow up? How do these younger family members want to

58

Understanding the capabilities. Once families have a

be involved? Does the family business create cohesion or is

clear picture of the business’s financials, they can see where

it a source of friction and arguments? Some families worry

their strengths are. To succeed, families need to identify

that their collective identity is so tied to the business that any

what they do exceptionally well and focus on leveraging

changes could jeopardise the family’s unity. But this is not

those distinctive capabilities. In brief, capabilities are the

necessarily the case. Even if a family’s business holdings are

interconnected people, knowledge, systems, tools and

split into more autonomous parts among family members,

processes that form systems to create differentiated value to

each branch could retain shares and board seats in one

customers. For instance, a family may realise it is very good at

another’s businesses to maintain ties as well as a sense of

providing retail services, or running businesses that require

shared purpose and benefit.

Tharawat Magazine Volume 10

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Focus Beats Diversity

Now What?

After tackling these three broad issues, a family should have obtained the requisite data, as well as essential insights into their strengths and aspirations, to intelligently choose a strategic path forward. There are three primary options.

Divest and focus. If there are businesses that clearly enjoy a “right to win” --i.e., the ability to engage in any competitive market with a better-than-even chance of success--based on the capabilities that the family has identified, the prudent choice is to focus on those businesses, build those capabilities, and divest

SPECIAL FEATURES

even if a family’s business holdings are split into more autonomous parts among family members, each branch could retain shares and board seats in one another’s businesses to maintain ties as well as a sense of shared purpose and benefit.

the rest. But divestitures are often difficult in a family business.

Some family members may have sentimental attachments to certain businesses. Others might have practical attachments if those businesses employ them. Here the rigorous analysis

unrelated companies might make sense. It is important to

supporting a capabilities-driven strategy is especially helpful. It

note, however, that even the conglomerate model is actually

gives the divestitures context as a strategy to benefit the family

driven by a capability-driven strategy--one that’s just not

as a whole, not an attack on a particular branch.

obvious to the casual observer. In an age of increasingly narrow specialisation, these families will need to introduce

Create autonomy. Another option is to break the family

best practices to understand their portfolios better (with

business into smaller, more autonomous units run by

more transparent financials), manage them more effectively

different branches of the family. This strategy aligns family

(guided by capabilities and coherence), and formalise family

member expertise with business units and frees them to

governance to ensure effective delegation and separation of

pursue higher returns without being held back by other units

activities (both business and non-business related) and to

with different priorities. However, this approach raises tough

prepare for succession.

questions, such as: how to divide and value the business units, how to promote ownership among the different branches of

In the end, there is no wrong answer for how families

the family, and how to create accountability. If the family

should design their strategy, but success depends on

chooses to create these autonomous units, it could maintain

rigorous self-examination and a willingness to evolve.

cohesion by divvying up minority shareholdings among

A family may even choose to continue its conglomerate

family members no longer directly involved in the business,

structure--as long as a clear set of capabilities underpins

or to require that family members sit on one another’s boards

this strategy. But the important point to understand is that

of directors. These are all legitimate strategies as long as

diversity for the sake of diversification is no

each branch of the family is unambiguously accountable for

longer a sound business strategy in the GCC.

its unit’s performance.

Focus and expertise is how family businesses will win in the new business environment.

Keep the conglomerate. In the end, a family might decide that given its capabilities and aspirations it should retain the conglomerate structure. If, for instance, its distinguishing capability is an ability to manage businesses that need low working capital, then maintaining a collection of seemingly

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Author Ahmed Youssef, Partner, Booz & Company

Volume 10 Tharawat Magazine

59

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1-Year Subscription 16 Profile: Pictet&Cie.

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

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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.

I am also interested in the newsletter: Yes No I got to know about Tharawat magazine through: A friend the website (www.tharawat-magazine.com)

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Diversification The balancing act of managing the familiy business portfolio

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SMEs

Family Business

SMEs The importance of small and medium sized enterprises in the Middle East cannot be overestimated. Their impact on job creation and regional innovation has been shown to be paramount in the further development of emerging economies. The majority of SMEs in the region are family-owned and Tharawat magazine dedicates this new section especially to their challenges and achievements. In this first set of articles we explore the history of the Palestinian Toukan family that has been managing its soap factory in Nablus for nearly a century, as well as featuring an insightful article by Dr. Hertog on the state of SMEs in the GCC.

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62 The Toukan Family business

The history of the familyowned soap factory in Nablus, and an interview with its Chairman, Farouk Toukan.

68 Small is beautiful - or is it?

An indepth analysis of GCC SMEs, their development and challenges.

Volume 10 Tharawat Magazine

61

SMEs

The Toukan enTerprise

The palestinian city of nablus has been known for a long time as a historical center of the soap industry. In this beautiful city, soap makers find the right environment and conditions to prosper, as it is renowned for its abundance of olive trees and the production of olive oil, which is the key component of soap. For over a century the Toukan family has been one of the champions of the nabulsi soap makers and is till today maintaining the traditional craft in its original form. Tharawat magazine speaks to Farouk Toukan, Chairman of the Toukan enterprise about the history of the trade, the family legacy, and the making of soap.

The Toukan Enterprise

The Business of soap

T

he soap industry in Nablus has been

logo was registered as a trademark. In order to avoid

associated with the names of a few

the falsification of the Two Keys logo, the Board of

well-known Palestinian families,

Directors decided in 1940s to register other similar

such as the Shak’a, the Al-Masri,

trademarks, such as Two Swords, Two Scissors, and

and the Toukan family. The Toukan

Two Axes, and they are all still registered to the

factory is one of the most famous and oldest factories

present day. When the West Bank became a part of

in Nablus. It was built around 1910 on the outskirts

Jordan in 1950, the Board registered at the Jordanian

of the old city, which is now its heart. The factory

Ministry of Economy under the number 49; making it

was established by the two brothers Hafiz and Abdul

one of the leading companies in the region.

Fattah Toukan who belonged to the sixth generation after Ibrahim Aagha Al Shawrbaji, the grandfather of

What has not changed in the Toukan family business

all the Tuqan family branches.

is the traditional craft. The soap is made from pure olive oil, Caustic Soda, water and salt. The

62

In 1929, the soap factory became a limited liability

manufacturing process of the Nabulsi soap is divided

company under the name “Hafez & Abdel Fattah

into four phases. There is a team for cooking the soap,

Tuqan Ltd. Co.” and the Two Keys “Al Muftaheen”

another for spreading it, a third for cutting it, and a

Tharawat Magazine Volume 10

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The Toukan enTerprise

LEFT: Stacks of soap drying at the Toukan factory ABOVE: Toukan soap in wrapping BELOW: A factory employee cutting the soap.

SMEs

fourth for wrapping it in paper. Currently, the total

on a monthly basis. The company has continued

number of workers in the Tuqan soap factory is 17

in this organisational structure while training the

and all belonging to Palestinian families that have

management to cope with day-to-day business.

expertise at the respective phase of manufacturing.

Now, the Board of Directors are considering the The Toukan family retains ownership of this factory

possibility of making soap in small bars for use in

and manages its family legacy. The company is

hotels , and exports to East Asian countries. The

managed by a board of directors, and one of its

possibility of mechanising the production to meet

members or shareholders is appointed as the CEO to

the demand in the new markets also exsists.

handle daily activities. This arrangement remained in force until the year 2007 when a non-family member

Because of the unique site of the soap factory in

has been appointed as the CEO. Members of the board

the heart of Nablus, it has been visited by many

of directors are Farouk Khalil Toukan, President;

dignitaries such as the historian Mr. Shakib Arslan,

Gaafer Ibrahim Toukan, Vice President; Wael Daoud

historian Mr. Arnold Toynbee, Mr. Balewa former

Toukan, Director. The Board meets regularly, but

Nigerian Prime Minister and recently former British

the Chairman continues to supervise all operations

Prime Minister Mr. Tony Blair.

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SMEs

The Toukan enTerprise

Interview

Farouk Toukan Chairman of the Toukan Enterprise

The production of soap is an old tradition in the Middle East. The city of Nablus in particular gained a reputation for the high quality of its soap and became an important center of regional manufacturing ever since the time of the Crusaders’ occupation. How did the Toukan business evolve over its long history in the region? fermentation our suppliers would bring it to us.

I know of two places that are known for the

I still remember when Mithqal Pasha Al-Fayez,

manufacturing of soap made of olive oil; Nablus

a prominent tribal leader of trans-jordan, used

in Palestine and Tripoli in Lebanon. I think that

to come to our soap factory as he was the main

the main reason behind making soap in these two

supplier of “Qeli” during WWII. At the time there

cities is the quality of olive trees they have. Nablus

was no more caustic soda (sodium hydroxide) to be

is a city surrounded by olive trees. You can see them

gotten from England, which we used to buy from

everywhere and they are beautiful and old.

ICI (Imperial Chemical Industries) through the late Abdul Hadi Hammoudeh, who was the founder

Founders of our business were Hafez, my

of the largest dairy producing company in Jordan

grandfather, and his brother, Abdulfattah, followed

Alban Hamooda.

by my uncle, Daoud, my father, Khalil, my uncle, Qadri, and then my cousins, Hafez and Amin. God

Before this I also remember that we used to have

bless their souls. We are originally from Syria from

the olive oil coming from the villages on camels

the Arab Al Mawali.

and the camels used to sleep in the sabaneh. They used to put the olive oil in a “Daref” (a container

My forefather Ibrahim Agha Al-Shourbaji came to

made of the skin of goats) and then we put it in “Al

Palestine in the 16th century but our old house was

haleh”, which is the big pan that we used to cook

built around 1725. The Toukans and the Abu Risheh

the soap in. Underneath it, as a fuel, we used Al-

family of Syria came from the same tribe and I still

Jifet (Remainder of the olives after getting the oil

have a very old book about “Tel Toukan” (Toukan

out). The burnt Jifet was called “Dugg”, which we

Hill) a place in Syria.

used in winters for heating our houses and which we gave as gifts to family friends. I remember on

64

In the past, we made soap using a substance called

the winter nights, when I was still a student, we

“Qeli”; we used to bring it from the desert. After

used to gather around the “Manqal” or “Kanoun”

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The Toukan enTerprise

Our Sabbana produces one ton of soap every day, which amounts to about 360 tons every year. We work at full capacity.

SMEs

brother went to study in Istanbul in 1910 and 1911.

Because of this background they wanted things to be professional and transparent. They didn’t want it to be just a shop that sells soap; they wanted to run a professional business. That is why my father transformed the firm into a limited liability company in 1929; we were the first company in Nablus to be a LLC unlike other establishments and “Masaben” (soap factories) who undertook this

LEFT: An old image of the Toukan factory in the heart of Nablus, Palestine.

RIGHT: Factory employee holding soap stamps with the two keys logo of the Toukan Enterprise.

and we used to heat the Nabulsi cheese, bread and

transformation only many years later. We started

teapots on the fire.

out this business with two shareholders and now there are 35.

What remained after using the “Dugg” we used to clean the cooking pans and brassware. We had no

We were not involved in making the soap for a

detergents then. So as you can see, the olives were

simple reason; we had other small families involved

part of our daily lives in every respect.

in each stage of making the soap. The first stage is the cooking, which takes five days, and then the

How much were you involved in the soap

spreading. The workers that attend to this first stage

business? And were any of the Toukan family

are called “Al Tabbeekha” - the cooks. The second

members involved in the making of soap?

stage workers are “Al Bassita” - the spreaders; this is actually a very delicate job: The workers spread the

I personally was not involved. My grandfather’s

liquid soap and to maintain the thickness have to

brother Abdulfattah, who is also the father of

use very primitive tools that they still utilise today.

the poets Ibrahim and Fadwa Toukan, was the

After that the soap takes two or three days to dry

businessman in the family. My father and his

depending on the weather; in the winter it takes

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Volume 10 Tharawat Magazine

65

SMEs

The Toukan enTerprise

longer. Then you have the cutters, they smoothen the surface and then they cut it into small bars using a rope called “Al Bikar”. Following the cutters, come the stampers – “Al Khatimeh”- to stamp each soap bar with our company’s logo (Al Muftaheen).

Finally, come the wrappers (Al Lafeefah) to wrap the soap bars.

Each stage has tended to by different families who are known to be experts in their respective field.

For example, we had the Tubaily family working in spreading the soap, the Al Asy family cooking the soap and some of Al-Jawhary family working in wrapping. Till now we have people of those families working in different stages of production.

Our Sabbana produces one ton of soap every day, which amounts to about 360 tons every year. We

The Ostrich) had its main market in Jordan and

work at full capacity.

remained there after 1948. The Shakaa brand (Al-Jamal-the Camel) got the south of Palestine

When the West Bank became part of Jordan in

and now is recognised in Hebron. Of course, we

1950, we were amongst the first 50 companies to

have small customers in Amman. We have started

register with the Ministry of Commerce. We also

recently to export to America. There are shops in

have other brands for soap; our main brand is the

San Diego that sell our soaps; we also send small

Muftahain (two keys) but we also have three other

amounts to Italy.

LEFT: 4th Generation Toukan family member on a visit to the old factory.

RIGHT: Factory employees wrapping the soap.

brands. We use those stamps every 5 or 6 years just to keep them alive.

There was always a gentlemen’s agreement between the soap factories’ owners. The three factories I just

Has the numbers of the workers in each

mentioned have exactly the same practices; when

stage of the soap production increased or

we buy oil we all get it from the same origin and the

decreased over the years?

same counts for the caustic soda. If we run short of anything we borrow from each other. No one would

I think it has decreased, because we have wells now

increase the price of soap unless the three factories’

and we put the olive oil in them and then we pump

owners agree on it, so the price has always been

it into the pan. We don’t need workers for that stage

fixed like the price of stamps.

anymore. So it has decreased marginally.

What is the biggest market for the Toukan soap?

The old Toukan workshop is still active

The markets were distributed as follows according

and working, what are the challenges and

to the three most famous soap brands in Palestine

opportunities that the business faces today?

then: Al Muftahain started out in North Palestine

66

and then brand recognition moved to Irbid and

You know, since the beginning the soap sales have

the surroundings. The Masri brand (Naameh –

always been consistent; we don’t sell more or less.

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The Toukan enTerprise

SMEs

Toukan Soap factory?

In Palestine, I think there is a chance but expansion and growth possibilities are limited. However, there are very successful examples of small family businesses like Al Hijjawi Prints, they print cartoon boards and papers, and there are the businesses in the Taheena industry (sesame paste) like the Aloul and Ayesh Families.

What do you see in the near and long-term future of the Toukan business?

The soap business is very dear to my heart and I can’t see it die! It is not a matter of money. I go every month to Nablus just because it means a lot to me Today, the big demand on European soaps and

personally and to all my cousins. I am thinking to

sanitizers can be a challenge for us.

use the brand of the two keys in creating a logo for

We have two distributors; one in Amman and one in

my library. The two crossed Libras with my name

Irbid. We have been working with the same people

underneath and the two words Faith and Reason

since the beginning. In Amman, we have worked

written too.

with the same family business from the generation of their great-grandfather, then the grandfather,

We are thinking of merging with another soap

and now his sons. However, the grandsons are not

factory and to start making soap in smaller sizes

interested in the business. They went to the States

in order to export to Far East countries. We will

and they don’t want to carry on with the family

keep the traditional aspect of the industry but we

business. So the challenge for us, if we can call it a

will improve the soap bars to be a little smaller.

challenge, is to find someone else who we can trust

We might mechanise the production processes and

and work with again.

produce soaps outside Nablus. This will really make life easier for us because sometimes it is difficult to

We are very confident at keeping aloft of challenges,

export from Nablus.

for example, we have computerised our accounting system. We were the first ones to do that. It is very

Is there another Toukan family member who

detailed now and we keep a strict overview. I visit

is showing interest in the soap business?

Nablus once a month to meet with the manager in charge and I receive bi-monthly reports. The

No, not that I know of, but if necessity arises they

current GM is not a family member, he used to be

might join. We are thinking of involving some

the CFO and we promoted him later.

women from the family in the board of directors. At the present time my other cousins live abroad and

Do you see a future for SMEs in the Arab

the young generation unfortunately knows nothing

world? Can SMEs be role models like the

about the business of soap.

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Volume 10 Tharawat Magazine

67

SMEs

SMALL IS BEAUTIFUL - OR IS IT?

Challenges for small and medium family companies in the GCC

Small is Beautiful or is it?

It is common wisdom that small and medium enterprises are an important driver of growth, development and diversification for countries in all stages of development. Despite the GCC region’s strong entrepreneurial traditions and the large size of the Gulf SME sectors, however, there is still a great potential of sustainable diversification and job creation to be fulfilled. Dr. Steffen Hertog, lecturer at the London School of Economics and academic director of the International Institute for Family Enterprises elaborates on challenges and trends in GCC SMEs.

A

major study I have conducted

Gulf SME: what we know and what we don’t

from 2008-2010 in cooperation

Data on SMEs in the GCC are often limited to their

with the European Chambers

total number, sectoral distribution and aggregate

of Commerce, the German

contribution

Chamber of Commerce in the

contained in SME surveys in OECD countries,

UAE and the Federation of GCC Chambers shows

such as profitability, survival rate, or turnover, are

that Gulf SMEs often focus on low-margin activities

generally not yet available in the Gulf.

to

employment.

Information

and employ an even higher share of expatriate

68

labour than other private companies. To overcome

Yet, the broad outlines of the Gulf SME sectors are

the current limitations of the sector, state support

clear: SMEs constitute at least 90% of all businesses

policies as well as companies’ approaches to human

in every country of the region. A large share of

resources and corporate governance may need to

SMEs is active in the trade sector; other important

be rethought.

sectors include small-scale workshops, hotels and

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SMALL IS BEAUTIFUL - OR IS IT?

90 percent

Yet, the broad outlines of the Gulf SME sectors are clear: SMEs constitute at least 90% of all businesses in every country of the region

SMEs

restaurants as well as contracting. They are less

it is clear that despite their numerical dominance,

important in industry and other capital-intensive

the contribution of micro-enterprises with up to

sectors.

10 employees to formal employment is rather modest, providing between 10 and 30% of total

Gulf SMEs tend towards lower-margin, small-scale

formal employment in different GCC countries.

service activities. The distribution across sectors in

European micro-enterprises by comparison account

mature markets is more even and diversified.

for almost one third of all private sector jobs across the continent.

Companies with up to 100 employees employ between 40 and 63% of the formal private labour

The GCC track record is particularly weak when it

force in different GCC countries, which compares to

comes to employment of nationals: 98% of SME

about 60% in the EU. In the GCC cases where we can

employees in Saudi Arabia are estimated to be

distinguish micro, small and medium enterprises,

foreigners, while the share of foreigners in the

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69

SMEs

SMALL IS BEAUTIFUL - OR IS IT?

FIG. 2: Sectoral breakdown of SMEs

KSA

SMEs

SMEs

Commercial and hotel 47% Construction 27% Industrial 12% Other 8% Social Services 6%

Source: Standard Chartered

Europe

UAE

SMEs

Trading 60% Services 35% Manufacturing 5%

Source: Standard Chartered

Manufacturing 11.6% Construction 14.3% Trade & repair services 31.8% Hotel and restaurants 8.5% Transport 6.1% Realty business activities 27.6% Source: EIM/European Commission

Saudi private sector at large is closer to 90%.

Challenges

There is very limited data about Gulf SMEs’

Many SME development issues in the Gulf

contribution to the national economy. But as SMEs

resemble those of the developing and developed

on average pay lower wages and run less capital-

world more generally; others are more particular

intensive and lower-margin operations than larger

to the Gulf.

companies, their share in private economic activity is lower than their share in private employment,

One well-known generic problem is getting

possibly as low as 30% – considerably less than in

financed: According to a study by Dun and

the EU, where the share is closer to 50%.

Bradstreet, banks in the UAE in 2008 rejected 5070% of credit applications from SMEs due to the

70

There are many impressive individual stories

higher risk and due to applicants’ failure to meet

of innovation and growth among Gulf SMEs.

loan conditions. 55% of SMEs were unable to get

Yet, a large share of the great mass of SMEs

the credit they required. In the EU, by contrast,

still contributes fairly little to diversification

despite the recent economic crisis, over 70% of

and national employment. What are the factors

companies got all or part of the bank loan they

that hold back Gulf SMEs’ role in economic

wanted, and only about 15% were fully rejected

modernisation?

according to a 2009 EU-wide survey.

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SMALL IS BEAUTIFUL - OR IS IT?

SMEs

There are many impressive individual stories of innovation and growth among Gulf SMEs. Yet, a large share of the great mass of SMEs still contributes fairly little to diversification and national employment.

What are the factors that hold back Gulf SMEs’ role in economic modernisation?

Business behaviour in the Gulf also tends to be fairly individualistic, with limited cooperation on purchasing, supply chains and marketing by SMEs of all sizes. A lack of business planning and low margins One of the reasons why local banks may avoid SME

can also mean that access to talented manpower is

exposure is the relatively larger administrative

limited. SMEs tend to offer low wages and no career

effort. More often, however, loan requests are

plans and long-term prospects for their employees.

rejected for good reasons: Accounting skills of

70 percent

In the EU, by contrast, despite the recent economic crisis, over 70% of companies got all or part of the bank loan they wanted

many SME managers are rudimentary; business

SME management also continues to spend much

and feasibility plans are frequently lacking. The

energy on dealing with local bureaucracies: While

enforcement of collateral in local courts, moreover,

the investment environment in the GCC has become

can be slow.

smoother for larger investors, it often remains cumbersome for smaller players. This makes

The delegation of daily operations to expatriate

business less predictable and hence works against

managers – especially in the smaller and richer

long-term investment. A study by the Riyadh

Gulf countries – tends to limit innovation and the

Chamber of Commerce shows bureaucracy as the

acquisition of skills among SME owners. As long as

most important obstacle to SME development in

a regular stream of income can be created with low-

Saudi Arabia:

margin activities and low effort from the owner’s side, reluctance to innovate and take risks will

Governments have taken up the challenge of SME

remain widespread among small companies.

development. Numerous support programs have

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71

SMEs

SMALL IS BEAUTIFUL - OR IS IT?

FIG. 2: Most important obstacles to SME development according to RCCI survey

70% 60%

65%

50%

53%

40% 30% 20%

41% 32%

59%

44%

33%

10% 0% Information- managerial related

technical

workforce- marketing financing related

bureaucracy

Soure: Riyadh Chamber of Commerce and Industry

been rolled out during the last decade. They remain fragmented, however, and few follow-up studies and systematic evaluation of policy outcomes are undertaken. The innovative models of incubation and business services developed in some regional institutions, could be done better justice by creating

Almost all SMEs in the GCC are also family companies; SME challenges, hence, are family business challenges.

such reports.

One could criticise that too many support programs

management, building succession plans, separating

still provide direct subsidies financing viable and

family from company finance and many more.

non-viable ventures without discrimination; some of them also offer services that would be more easily

Family dominance can make it hard to attract qualified

provided by private business service companies.

non-family managers. The centralisation of power in many family businesses can also push talented family

SMEs as family companies

members to leave the company, further complicating

Almost all SMEs in the GCC are also family

SMEs’ human resource quandaries.

companies; SME challenges, hence, are family

72

business challenges. The converse is also true:

Fluid, low-margin company structures mean that

SMEs face the typical family business issues of

often there is little to hand over to the next generation.

sorting out the distinction between ownership and

Family links provide trust, but when they are supposed

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SMALL IS BEAUTIFUL - OR IS IT?

FIG. 3: External Financing of SMEs

SMEs

overcome in order to achieve this goal.

Some of this change has to come from within businesses; but on some levels, governments could help, for example by: Designating national lead agencies to coordinate and

70%

50-70%

Approved

benchmark

SME

support

policies,

consolidate available information, and make it

Rejected

publicly available.

Focusing support policies exclusively on sub-

EU 2009 In the EU, by contrast, despite the recent economic crisis, over 70% of companies got all or part of the bank loan they wanted, and only about 15% were fully rejected according to a 2009 EU-wide survey.

UAE 2008 2008 rejected 50-70% of credit applications from SMEs due to the higher risk and due to applicants’ failure to meet loan conditions. 55% of SMEs were unable to get the credit they required.

sectors with higher value-added that can provide national employment.

Orienting SME support programs towards the provision of an enabling environment for SME growth rather than subsidised credit and free business support services.

Fostering cooperative structures among SMEs in marketing, procurement and the sharing of infrastructure and business services.

Measuring the performance of existing support

to substitute for formal governance structures, the

programs, notably through controlled trials, and

result is often the demise of the company as soon

publishing the results.

as family circumstances change. The average age of

Establishing dedicated SME support windows in

Saudi SMEs is 7 years, reflecting a low survival rate.

government agencies.

Governance reforms in Gulf SMEs are recommended not only to move them towards higher value-added

Under the right circumstances, small Gulf business

production, but also to preserve family wealth.

families can become the main drivers of diffuse diversification and national employment. In Europe,

85 percent

In Europe, companies with up to 250 workers contributed a full 85% to employment growth from 2002-07

The need for higher value-added

companies with up to 250 workers contributed a

The challenge for Gulf SME sectors is not aggregate,

full 85% to employment growth from 2002-07. An

quantitative growth – that has been achieved with

enlightened SME policy is a crucial ingredient for

ever-growing imports of foreign labour, with

stemming the socio-economic challenges the young

relatively small long-term benefit for the local

and underemployed populations of the

population. The challenge rather is qualitative

GCC will face in coming years.

growth into technologically and managerially more sophisticated sectors that allow for product differentiation, higher returns and salaries that are sufficient for national employees. The current paradigm of SMEs that are all providing the same low-margin services and products should be

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AUThorS Dr. Steffen Hertog, Lecturer at the London School of Economics and Academic Director of the International Institute for Family Enterprises

Volume 10 Tharawat Magazine

73

reviews

Facts and Figures

Facts and Figures

Science in the Arab World UNESCO Science Report 2010

t

he Arab world, once the cradle of the world’s scientific innovation, today sees itself at the bottom of the list, when it comes to Research and Development, according to the UNESCO Science report 2010.

The report covers the years 2005-

2010, with most statistics coming from before the financial crisis and covering several relevant areas, such as the overall investment of countries in R&D as a percentage of their GDP, Science and Technology policies, the number of researchers and their support systems, as well as R&D output such as the number of

patents reached or scientific papers published.

The main indicator in the report is “GERD”, the Gross Domestic Expenditure on Research and Development, which is calculated as a fraction of the Gross Domestic Product (GDP).

Key indicators on world GDP, population and GERD 2002 and 2007

1.7%

1.7%

2.2%

2.3%

2002

0.8%

World 46 272.6

66 293.7

Developed Countries 29 341.1

38 557.1

1.0% 0.2%

Developing countries 16 364.4

2007

26 810.1

0.2%

Least developed countries 567.1

926.4

0.2%

0.2%

All Arab States 1 557.9

2 386.8

GDP (PPP$Billions)

Main research areas of relevance to the Arab world The report finds that the main areas of focus for Arab research are:

Water security

74

Energy security

Tharawat Magazine Volume 10

Arab countries have seen a low GERD as a percentage of GDP spanning over the last four decades. It varies from 0.1 to 1.0% of the GDP, whereas academically leading countries spend over 2.5% of their GDP on R&D.

Nanotechnology

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Facts and Figures

reviews

How many scientific publications did the Arab world produce?

Libya

147.2

152.2

Kuwait Bahrain

Egypt

Qatar

5.1 4.0

uae

Oman

1.3 2.4

2.5 3.5

1.6 2.4

Ksa

Sudan

Yemen

Djibouti

Number of Publications/Mio population

2008

1.8 4.7

100%

95.4 113.1

Jordan

Mauritania

2002

68.7

63.2

Iraq

Lebanon

91.1

126.4

191.9 222.5

157.1 2.4 6.0

5.8 9.6 101.4

80.0

76.4

Tunisia 7.5 15.9

Algeria

61.6 70.8

Morocco

Syria 35.2 48.6

36.3 36.9

15.4 37.5

140.9

196.2

The report analysed the number of scientific publications per million population in the Arab world in 2002 and 2008:

Comoros

The next steps Whilst globally the situation has certainly further worsened by the recent financial crisis, several Arab states are still working towards improving the situation at governmental level, with new science and technology strategies. National, regional and pan-Arab initiatives are being launched to define research priority areas and for example Saudi Arabia already adopted a national plan for S&T back in 2003 and 2006, whilst Qatar implemented a fiveyear plan to increase GERD to 2.8% (from 0.33%).

Bahrain, Morocco, Qatar, Saudi Arabia, Tunisia, the United Arab Emirates, followed more recently

by Jordan and Egypt, are tackling this issue by setting up science parks.

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The private sector contribution

Tunisia 36 Qatar, UAE 42

Jordan 96 Egypt 99 Syria 108 Bahrain 119

However, despite all these efforts to improve the current situation, due to missing links between public and private sector R&D, innovation still tends to be scarce.

Private sector spending on R&D is minimal and the UNESCO finds that out of 131 countries studied, Tunisia ranked 36th in terms of private companies’ expenditure on R&D. Qatar and the United Arab Emirates both ranked 42nd, Jordan 96th, Egypt 99th, Syria 108th and Bahrain 119th.

Volume 10 Tharawat Magazine

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reviews

Book Review

Jamie Oliver and Tony Goodwin

How they blew it

S

hould you wonder what a cookery book might be doing here – do not be alarmed. The Jamie oliver who wrote this book is a renowned British business journalist, who together with his co-author and entrepreneur Tony Goodwin set out to collect the stories behind some of the most prominent entrepreneurial failures of recent history.

The book promises an insight into the lives of famous businessmen, who took incredible risks, won - and then lost it all. A book about men, who were entrepreneurs to the core, not only because of the money and the fame but because entrepreneurship determined, who they were.

The authors recount the stories of sixteen entrepreneurs of international repute. It follows them from their often modest beginnings to the height of their success and to the depths of their fall.

As varied as their backgrounds, professions and motivations might have been, one of the common traits of all of the portrayed businessmen was that they all had their “eureka” moment at the right time and were able to seize it. Equally common was

76

Tharawat Magazine Volume 10

reader would wish for a slightly more in-depth analysis of some of the business decisions and their ramifications. Certainly impressive is, however, the depiction of the dazzling steps these entrepreneurs took. The authors succeed to show how decisions that look rather mind-blowing from the outside might actually seem quite plausible to the decision maker.

J. Oliver and T. Goodwin Jamie Oliver is a renowned and controversial British journalist and author.

Tony Goodwin runs the international recruitment business Antal and has over 25 years of experience.

their subsequent tendency to going into overdrive: From the former head of Lehman Brothers, Dick Fuld, to German Industrialist Adolf Merckle, Ken Lay of enron, all the way to Zhou Zhengyi, the Chinese tycoon – they all overestimated themselves and underestimated others.

The stories that sometimes read more like a thriller or a James Bond novel than a journalistic piece are entertaining, yet at times a little superficial. The savvy

Concluding the book are several recommendations by the authors of “how not to blow it” and advise entrepreneurs to stay humble and not overestimate their own strengths.

These maybe obvious suggestions but according to the biographies of the portrayed businessmen not always taken on board. Overall, the authors’ style is agreeable and easy to read and the book certainly makes for a light, entertaining and informative read. in the end, even though one might be left with a certain admiration for the shrewdness of some of the main characters and for their drive for more, bigger and faster, one is at the same time experiencing a bitter aftertaste, thinking of the many lives that were gravely impacted by the drive of only few, who famously went from rags to riches – to rags.

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