Family companies

Tuesday May 11th, 2021

Family businesses began with the emergence of the Kingdom of Saudi Arabia during the reign of King Abdulaziz bin Abdulrahman Al Saud (may God rest his soul) and did not exist before that, as the stability of governance and the emergence of state institutions helped to encourage merchants to establish their companies, and family businesses played a very important role in the economy The kingdom.

Family businesses in numbers:

98% of Gulf companies are family businesses.
250 billion riyals is the size of family business investments in Saudi Arabia alone.
22% – 30% share of family firms in the GDP.
45 family businesses are among the top 100 companies in Saudi Arabia, with revenues exceeding 120 billion riyals in 2013 and employing 200,000 people.
Definition of family business:

It is a sole proprietorship or a company that is wholly owned by one family, or the voting power in the Board of Directors is under the control of one family. Family businesses often start with a sole proprietorship and then evolve into various forms of companies.

Development:

The first generation (founder – family businesses start their life through an enterprising and ambitious person who establishes and manages the company and works on its expansion and spread, and his family may share his work with him in managing it)
The second generation (this stage begins when the founder dies or becomes incapacitated, or is forced to relinquish his administrative powers to the second person in the family, usually they are the children or the wife who replace the founder in the administration)
The third generation (manifestations of family disagreement over the management of the company start from the second generation, and these disputes develop into the third generation in which the severity of family problems increase the management of the company)
The fourth generation (few family businesses reach the fourth generation stage in managing the company, and often they lose their control over management dramatically in the fourth generation)
33% of all family businesses are managed by the second generation
15% of all family businesses are managed by the third generation
4% of the total family business is managed by the fourth generation
The problems:

The biggest dilemma facing family businesses is managing the company from the fourth generation period. It may be that the new manager is not competent in management and does not have the vision or strategy to properly plan for the company, as having money does not necessarily mean that you are skilled in management. In addition, the appointments made by members of the second and third generation to employ family members in the company greatly affect the low level of the company’s management and affect its commercial activities greatly. In addition, family disputes that reach the court in many of them may cause the company to liquidate and terminate.

Examples:

The National Commercial Bank Company, the largest bank in the Middle East, was a joint venture between the house of Ibn Mahfouz and the House of Al-Kaaki, and then it became owned by Sheikh Salem bin Mahfouz. When Sheikh Salem bin Mahfouz passed away, the sons shared the inheritance, so the National Commercial Bank was in the hands of the son Khaled bin Salem bin Mahfouz, and on that day the bank was exposed to stormy problems, then the government was forced to intervene to protect the national economy and formed a board of directors to manage the bank’s wheel.
Ahmed Hassan Fitaihi Company. Friend Ahmed Fitaihi wanted to escape from the defects of the family business by transforming his establishment into a closed joint stock company, but he made it centered between the family company by 80 percent, and the closed joint stock company by 20 percent.
As for the third type of examples, it is represented by the Zagzoog and Matbouli company, which is a company between two good friends, which expanded with the expansion of the area of ​​sons and daughters, so the sons began to compete for higher positions, then the authorities began to grow and tilt the scale in favor of the children of So and so at the expense of Allan’s children, and then took the differences that do not It got bigger and bigger, then it started to intensify and compete for power.