British expert charts way forward for Saudi family businesses, CMA
British expert charts way forward for Saudi family businesses, CMA
“Family-owned businesses are much more stable than listed companies,” he said in a conversation with Dr. Eihab H. Abou Rokba, chairman of the Family-Owned Business Forum, and with Asya Alshaikh, founder and CEO of Tamkeen Development and Management Consulting, in Jeddah on Saturday.
The 3rd Family-Owned Business Forum will be formally opened at the Jeddah Hilton on Monday and Goyder will deliver the keynote address on “Tomorrow’s Owners” in the morning.
Initiating the discussion, which was attended exclusively by Arab News, Alshaikh said: “Today we are discussing a very important issue for the private sector in Saudi Arabia. That issue pertains to family-owned businesses. Dr. Eihab deserves special praise for doing a great service in the Kingdom by holding a dialogue with leaders of family businesses. He has been engaged in finding solutions to their concerns and problems. I recently introduced Goyder to Dr. Eihab and he agreed to invite him as keynote speaker at the forum. I am very impressed with Goyder’s work and we, at Tamkeen, have partnered with him in the past on challenges facing Saudi companies and evolving a socially beneficial strategy.”
Goyder explained the reasoning behind the launching of Tomorrow’s Company 20 years ago. “I worked for nearly 15 years in the manufacturing industry. I did all kinds of jobs — production manager, personnel manager, quality manager. I gained experience in almost every job in the paper manufacturing industry. While I worked in those areas, I always wondered why people came to work. Why do you walk into some companies and feel, the minute you walk in, that this is a place where people are excited and energized about coming to work? Why do you find in other places that people come to work with their eyes on the floor, they don’t look at you and they complain about their bosses? I was always fascinated with the responses to these questions. I believe the answers are all about human beings. And this is what I learned: We have been slaves to the dogma of Wall Street which tells us that everything is about financial ratios and shareholder values. What Tomorrow’s Company stands for is that you can’t get shareholder values unless you start with human beings. The beautiful thing about family businesses is that humanity is in front of us. The boss and the family are all bound up in the relationship. We exist to inspire and enable companies to be a force for good in society. That is our mission and that is our goal. We do that through our work which is about three things — leadership, governance and stewardship.”
Elaborating on the concept of stewardship in the context of family businesses, Goyder said: “The founder of a family business says, ‘I want to hand over the business to the next generation in better condition than when I started it.’ The second generation says, ‘We have been entrusted with this asset. Our obligation is to hand the business on to the next generation. We are stewards of the business.’ They are essentially saying, ‘It is not all about us and it is not all about now, but rather what happens to this business long after we are gone.’ It is not just about the physical or financial concern. It is about values and relationships. It is about what makes the business different.”
According to Dr. Eihab, the most pressing matter for family businesses is how to maintain stability in the future. “When I heard about the study done by Goyder on the companies of tomorrow, I thought that Saudi leaders of family businesses would benefit from his expertise. We look forward to hearing him on Monday.”
According to Goyder, Saudi Arabia is at very crucial crossroads. “I am no expert and I go by what my partners here tell me. What is clear to me is that the economy obviously needs to move away from dependence on a single commodity. Secondly, the government and society seem committed to moving away from a very strong state ownership to a much more dispersed ownership. We, at Tomorrow’s Company, are very worried about what we describe as ‘short-termism’ in listed companies. By ‘short-termism,’ we mean the Wall Street obsession with quarterly reporting, judging the company by its current share price, placating the market, keeping the market happy, worrying and obsessing about the latest analyst report on listed companies. This undermines real wealth creation,” he said.
“On the one hand, you have family businesses which have the great advantage of a stable, concentrated ownership. If the principles of good stewardship are followed properly, then it can create the right conditions for sustaining wealth in the long term. And the wealth can then be used for building a reputation and a brand — for building social capital, contributing to education, bringing new talent to business, and being a force for good,” explained Goyder.
“On the other side, of course, there is a need for change. Businesses need to change. So, how do family businesses keep what is strong and discard the things that they need to leave behind? They cannot be wedded to the same product in the digital age. So how do they preserve the core while stimulating progress? That to me is why family business stewardship is so important,” he said.
Alshaikh, whose Tamkeen Development and Management Consulting has been working for more than a decade in Saudi Arabia to create a future for business which makes equal sense to staff, shareholders and society, said “the Wall Street mentality” that Goyder referred to also existed in Saudi Arabia. “The same mentality is seen here in Saudi Arabia in the Capital Market Authority (CMA). Heretofore, the focus has been on short-termism. The National Transformation Program, which is expected to be unveiled soon, has an increasing focus on, and expectations from, the private sector. The government wants many family businesses to become listed companies. Sometime ago, I attended a workshop with many leaders and owners of family businesses. The workshop was run by the Council of Saudi Chambers (CSC). The workshop discussed ways of encouraging family companies to become listed companies.”
According to Alshaikh, the things that Goyder talks about were echoed in the workshop as well. “The owners of family businesses said they had invested a great deal in their businesses and they did not want to follow the CMA rules which might jeopardize the work they have done. They have a genuine fear of losing their values if they open up to the public,” she said. “In other words, there is a rift between the family businesses and the CMA and this needs to be discussed. The concerns of the heads of the family businesses need to be addressed before the businesses are brought to the stock market.”
Taking a cue from Alshaikh, Goyder proffered a word of advice to the CMA.
“I think the CMA should start by recognizing that the Wall Street idea of very dispersed share holding is not necessarily a benefit. If anything, it is a risk,” he said. “There has been an Anglo-American prejudice against large blocs of shareholding. Actually, I would put the argument the other way round. I think we should have a prejudice which says that companies where there is a large bloc of shareholding are more likely to be stable. Yes, the CMA should protect the rights of minorities but things such as differential shareholding rights where people having a long-term commitment may have more voting rights is not necessarily a bad idea. The American dogma says one share, one vote. Actually if nobody has more than one percent, it is easy to sell and go away. Who is really stewarding the long-term business of the company? That is the key question. According to one study, family businesses which have retained a strong share have actually outperformed the stock market average.”
Dr. Eihab says the government is enacting new legislation. At the forum, a top official from the Ministry of Commerce and Industry (MCI) will talk about the impact of the new law on family businesses. “This new law is going to be implemented in the next three months. At the last two such forums, we discussed the reservations of family businesses about going public,” he said.
Goyder said he once spoke to the chairmen of two large British companies and asked them if they still wanted their companies to be listed. “Both of them said no. We are here and we can’t go back but the disadvantage of being listed is in the terms of regulatory reporting and compliance requirements.”
Goyder feels that if the CMA wants to create conditions for listed companies to flourish in the long term, they need to look very carefully at the way in which investment research is carried out. “The CMA should ensure that it (investment research) doesn’t become a tool of investment banks. They need to think very carefully about whether investment institutions are willing to be stewards and behave as family business owners about the long term. We don’t want listed companies which say, ‘Oh, we just opened. Anybody can come and do whatever he or she is told.’ We want companies to be leaders. We don’t want companies to be followers of the
Goyder told an interesting story to drive his point home. “Long, long ago, there was a company led by J.R. Simplot and it is thriving today. In the 1940s, the company spent seven years researching how to freeze potato chips so they could sell frozen potato chips. It took them another 13 years to find their first customer. It was McDonald’s. They are still selling frozen potato chips to them. This was a family business. If they had been a listed company, the shareholders would have lost patience. Thus patience is needed for good innovation. Saudi Arabia needs that kind of stewardship in order to be dynamic and respond to market change but it must also have patience which I think is very important. The danger is that when you say privatization is good, liberalizing the economy is good, then what you will end up with is the Wall Street model of shareholding and not the stewardship model of shareholder value.”