FOBs and their siblings and relatives, if not clarified, could break the backbone of FOBs and cause some of them to vanish. Most of FOBs vanish when they reach third generation and the most alarming cause is lack of proper governance system.
The FOBs have a common problem. This problem revolves around their inability to segregate and resolve family position from ownership and management. We try in this book to shed light on the challenges facing FOBs and the opportunities open to them to prosper and advance.
The book contains SEVEN chapters. Chapter ONE gives an introduction about family businesses and various definitions of FOBs.
Chapter TWO deals with facts, figures and characteristics of FOBs on worldwide basis, Middle East and GCC. The stated facts and figures in the chapter were derived from respected sources and good number of them represents studies and surveys conducted by professional institutions.
Chapter THREE deals with challenges and opportunities of FOBs and gives SWOT analysis of their businesses.
Chapter FOUR addresses the need for introducing Corporate Governance practices to be embraced by FOBs. Contents of CG practices as detailed, cover important areas such as role of Board of Directors, Board Committees, Succession Planning and internal & external control. In addition, the chapter discusses the need for a robust risk management system and compliance environment. To have a strong CG, you need to have in place number of policies and procedures. These are covered in this chapter as well.
Chapter FIVE explains why a family constitution is important for FOBs. The contents of such document are included. Role of family assembly, advisory board and committees are among many issues covered in the constitution.
Chapter SIX addresses the option for FOBs to go public. It explains the pros and cons of going public and the need to plan for an IPO. Examples of GCC family businesses that went public are given.
In Chapter SEVEN we talk about the role of FOBs and Corporate Social Responsibility. The support of CSR by FOBs has a number of rewards for them. The clarity of appreciation CSR by FOBs makes a win-win situation for the companies and the society.
We hope that contents of this book prove to be useful.
Chapter 1
Family Owned Business Defined
There is a need to define Family Owned business and there are difficulties to do that. The need to define is important to know in general terms, what it is we are talking about and what terminology we use and how people understand such terminology. Regulators too need to have a clear definition to ensure that relevant laws and regulations are directly linked to the right definition.
The difficulties revolving around the definition include whether the business owned by family members only or there are other owners from outside the family. Ownership and management perspective is another dimension to be considered in defining the FOBs. In western countries and USA other dimension relating to tax perspective is to be built into the definition.
Taking into account the above difficulties in coming up with the definition, we know that the Family Owned Business is defined in different ways in accordance with the way in which such business is looked at. Below are some definitions:
1.A business actively owned and/or managed by more than one member of the same family
2.An interaction between two separate but connected systems—the business and the family—with uncertain boundaries and different rules. Graphically, this concept can be presented as two intersecting circles. Family businesses may include numerous combinations of family members in various business roles, including husbands and wives, parents and children, extended families, and multiple generations playing the roles of stockholders, board members, working partners, advisors, and employees. Conflicts often arise due to the overlap of these roles. The ways in which individuals typically communicate within a family, for example, may be inappropriate in business situations. Likewise, personal concerns or rivalries may carry over into the work place to the detriment of the firm. In order to succeed, a family business must keep lines of communication open, make use of strategic planning tools, and engage the assistance of outside advisors as needed.
3.Family Firms are those in which multiple members of the same family are involved as major owners or managers, either contemporaneously or over time. (Miller, Le-Breton Miller, Lester, Canella, “Are Family Firms Really Superior Performers,” Journal of Corporate Finance, Vol. 13, Issue 5, 2007).
4.Family firms are those in which the family controls the business through involvement in ownership and management positions. Family involvement in ownership (FIO) and family involvement in management (FIM) is measured as the percentage of equity held by family members and the percentage of a firm’s managers who are also family members. (Sciascia and Mazzola, Family Business Review, Vol. 21, Issue 4, 2008).
5.A family enterprise is an economic venture (enterprise group) in which two or more members of a family (family group) have an interest in ownership (owners) and a commitment to the continuation of the enterprise.
6.The family business is a business governed and/or managed with the intention to shape and/or pursue the vision of the business held by a dominant coalition controlled by members of the same family or a small number of families in a manner that is potentially sustainable across generations of the family or families.
7.A firm of any size is a family business if:
i.The majority of decision-making rights are in the possession of the natural person(s) who established the firm, or in the possession of the natural person(s) who has/have acquired the share capital of the firm, or in the possession of their spouses, parents, child, or children’s direct heirs.
ii.The majority of decision-making rights are indirect or direct.
iii.At least one representative of the family or kin is formally involved in the governance of the firm.
iv.Listed companies meet the definition of family enterprise if the person who established or acquired the firm (share capital) or their families or descendants possess 25 percent of the decision-making rights mandated by their share of capital (European Union definition 2009).
8.A family business refers to a company where the voting majority is in the hands of the controlling family; including the founder(s) who intend to pass the business on to their descendants. The terms “family business”, “family firm”, “family company”, “family-owned business”, “family-owned company”, and “family-controlled company” will be used interchangeably throughout the Handbook to refer to family businesses. (Family Business Definition and Characteristics – Strengths and Weaknesses by: IFC Corporate Governance.)
9.The table below gives various types of FOBs based on ownership, management and family:
| No | Family | Ownership | Management | Comments |
| 1 | 1 family | 1 family | Same family | This type of family Business in most cases is a new or small company structure. |
| 2 | More than one family | 2 families and above | Owning Families | Two families or more get together and form a family business |
| 3 |
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