The economy in Gulf countries relies heavily on the shoulders of family businesses, which are companies owned by a single family or a group of families. Management of these companies is inherited across generations, just as ownership is passed down.
This type of company serves as a major engine for economies not only in the Gulf countries but also in America, Europe, and all countries around the world. Companies such as American Walmart, German Volkswagen, Korean Samsung, and Indian Tata are leading family businesses that invest alongside capital a long history of relationships, provide thousands of jobs to their communities, and deliver hundreds of successful services and products to the world. The contribution of family businesses to the GDP of countries such as Saudi Arabia and the UAE is estimated at about 70%.
Family businesses have many distinctive features, such as speed in decision-making and high flexibility in adapting to conditions, because decisions do not go through multiple administrative levels. The work environment in these companies is characterized by deep internal loyalty, and employees work for years. They also tend to think long-term.
As mentioned, these families who own these companies inherit management from generation to generation, meaning that this remarkable success of family businesses may turn into a significant burden and a difficult dilemma because there is no system governing leadership succession in case the person authorized to manage dies or loses the ability to work. In this situation, major shocks occur within family businesses, and it may even reach the point of collapse of these successful companies due to leadership disputes.
A Success Story Turning Into a Dilemma
The picture is therefore not rosy; the speed in decision-making may turn into dominance of opinion, loyalty may lead to appointments based on relationships rather than competence, and long-term thinking may lead to resistance to change and inflexibility toward market demands. Often we see a company successful in the first generation begin to decline in the second generation, not due to lack of opportunities, but due to the absence of a clear management system, defining roles and responsibilities.
How can governance save family businesses from collapse and help ensure business continuity?
Whenever we talk with owners of family businesses, the direct complaint is that the company, which was one of the most successful under the first generation's management, has started to deteriorate with the transition of leadership to subsequent generations. They complain about the inability to define responsibilities, the inability to identify who is at fault, and thus the absence of the ability to hold anyone accountable. Things have started to get out of control with the inability to identify areas of weakness.
This escapes them and many others—that the company’s initial success was greatly linked to the personality and capabilities of its founder, but this does not guarantee its continuation with the same success in successive generations. Continuity of success is related to systems, internal policies, and activating oversight bodies that monitor deviations and return the company to the right track—this is the role of governance.
Corporate governance goes beyond being committees or formal reports; it is a way of thinking. It means that decisions are not built on "what the company owner wants," but on "what the project needs." It means that a job candidate is evaluated not based on his relation or connection to the family, but based on precise professional criteria. Thus, governance is a system that protects the company from within before attempting to protect it from external competition.
Governance is what makes the family business a real institution based on standards of efficiency and transparency, adopting a system of accountability and responsibility. It sets a clear framework for authority, separating ownership from decision-making power, and governance defines who holds whom accountable. It establishes review committees, supports transparency in financial transactions, and ensures that every employee—even if part of the family—is evaluated based on performance, not on relationship.
One of the most important roles of governance is ensuring continuity through a clear succession plan. Governance imposes setting this plan and selecting the next generation of leaders based on competence, not just on birth order within the family tree. This does not mean excluding the family, but protecting it from disputes that could destroy the company.
In the end, governance is not the enemy of the family, but a tool in the family’s hand enabling them to transform a temporary success story into lasting, continuous success.
