The need for a family institution

Mishal Kanoo argues that there is little reason for big family run companies to go public. If we consider how many families there are in the Gulf and the degree they affect the economies they are in, not including governmental and quasi-governmental companies, the number is staggering.

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By  Mishal Kanoo Published  April 30, 2006

|~||~||~|Mishal Kanoo argues that there is little reason for big family run companies to go public. If we consider how many families there are in the Gulf and the degree they affect the economies they are in, not including governmental and quasi-governmental companies, the number is staggering. I recently read in a Kuwaiti publication that family businesses make up over 90% of the non-oil, non-governmental economy. If you take the rounded number of around US$500 billion (Saudi US$275b, UAE US $100b, Qatar US$30b, Kuwait US$56b, Bahrain around US$14b and Oman around US$25b) the GCC’s GDP and then removed half as oil or government related, that would mean that the GCC’s non-oil, non-governmental GDP would be around US$220b. Now consider that around 90% comes from family businesses, how can we not think the idea of having an institute where families learn what to do to keep the family business going as paramount? These family businesses are the backbone of our society, not only in the economical sense, but in the social one as well. As the main employers outside the government, people’s lives depend on their success and continuation. Not just that but it is their philanthropy that supports many social projects such as hospitals, mosques, specialized centres and community centres. This is why the governments of the area must seriously take action in supporting such a project. Such centres are there to help families understand what they need to do to continue and succeed from one generation to another. They teach them social responsibility and accountability. So you can see that for a healthy economical and social life, this is an institution that must be supported. Can we afford not to have one at least? Instead, all we hear of is turning family businesses into public companies. To date, no one has given me a solid reason why this should, rather than could, be the case. Why should families become public other than to capitalise on the abundance of money in the market? Yes, some might argue that is good enough a reason. I beg to differ; unless making money is the only reason families are in business and I know for a fact, most are not. The difference between family businesses and corporations, is that in a family business, there is a sense of belonging and social responsibility that must be protected and promoted not for PR’s sake but because it is part and parcel of the family’s identity. Thus making money, while a key factor in the company’s existence, is not the only factor why the business exists. This is why having a family institute is key to the promotion of good governance and, more importantly, succession. Any economy that relies so heavily on family business as a key anchor to its health must understand that without proper governance and succession planning, there will be chaos at the company when the head, usually the founder, passes away. It is also important that families recognise the difference between family succession and company succession. What is good for the family doesn’t necessarily mean that it is good for the business. Then there is the other chaos factor that we are seeing today—conflict management or should I say a lack of. Most of the family break ups that we hear of are usually due to this factor. The families have never been taught how to manage conflict within themselves. They have no knowledge of methods that could remedy their situation and without knowledge, so how are they ever expected to resolve their differences? Of course, all of these issues would be tackled by a family institute. It is quite clear to anyone looking at our GCC economy to see how important families are to business either through their own family business or through significant ownership of publicly traded companies. If nothing is done to help these families understand their problems and correct them before they spiral out of control, we will all suffer. This is one collective good that we must help to make happen. Mishal Kanoo is the Deputy Chairman of the Kanoo Group. ||**||

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