The very foundations of Saudi Arabia’s economy are built on the family business model, with family members retaining complete control of the direction and the focus of the company. The concept that independent board members can outvote family members is a very contentious issue to many business founders, who may well feel they are handing over control of their family’s assets to outsiders.

With statistics showing that more than eight out of ten businesses in the Kingdom are either family owned or controlled, contributing as much as a quarter of its GDP, it is plain to see that family businesses will remain central to Saudi Arabia’s economy for many years to come.

By adopting a strategic, energetic and cohesive approach, there is no reason why the smallest family-owned businesses cannot have the potential to grow into major firms across the GCC, and even across the globe. However, it is essential to ensure the correct board structure is adopted in order to provide these businesses with the necessary momentum to achieve this.

How can family businesses propel themselves into these major, industry-leading companies? This is the central question many of the Kingdom’s companies must address, and now the time is right for them to do so.

Large proportions of such firms are first or second generation businesses, having been established around 50 years ago. However, many are facing a critical stage in their development, rapidly approaching a transition to the next generation of control.

In his mind, in an ideal world, the succession path will be clear, his successors will share exactly the same values and nothing will change in terms of the company’s day to day operations.

However, different generations may well have different values to the founder and, of course, the business landscape changes over time, leading to the need for companies to diversify and adapt. It is at this stage that companies need to look at the “bigger picture” of what is best for the long-term growth of a company.

If this involves bringing in outside board members, and redefining the responsibilities and structure of the management board and committees, then so be it. As family companies approach the next generation of control, the structure of the very engine room of any company, the board, grows in importance as being central to a smooth transition into the next stage of a company’s development.

Anees Ahmed Moumina, CEO of SEDCO Holding Group, agrees that a strong, well-formed board is at the heart of any strong corporate governance structure. “The main aim of any family business wishing to adopt best practice in corporate governance is to separate family from business interests,” he said. “It is vital that all board members are appointed for their individual skills and their ability to work together for the good of the company as a whole.”

Ensuring the right people are in place — especially if this involves appointing people on skills rather than family hierarchy —– can at first seem daunting for the founders of a business, who may well feel emotionally attached to it.

As a firm grows, and becomes more successful, the founder and his immediate family will justifiably feel proud of what they have achieved. The idea of handing over power and some of the day to day responsibilities and decision-making may well seem an alien concept, especially when wider operational and commercial concerns are seen as the most pressing areas for attention.

Indeed, if a business has been owned and controlled purely by family members, the founder may even feel he is losing control to “outsiders” if anyone outside the immediate family group is given the power that comes with being appointed to a company’s board.

There is also an issue of privacy that comes with family businesses, with an outside board member potentially exposed to a high degree of personal family information which can, quite rightly, be seen as hard to reveal by family members.

However, look at the advantages that usually come in with a stringent corporate governance structure. The very nature of how a company is governed usually takes on a new, much improved, dimension that will allow the company the potential to be secure for the long term.

In comes a long-term vision and strategy thanks to the combined specialisms of individual board members, in comes stringent risk mitigation systems and decision-making processes, and in comes clearly defined roles, so that everyone knows what they are responsible for.

Adopting suitable corporate governance processes, and hiring a board focused on the long-term success of a company on merit rather than on the family name, cannot happen overnight. It needs to be something that happens as a firm organically grows.

The right talent and the right processes need to be installed as early as possible to give the company the structure it needs to move forward free from family pressures or disagreements, yet allowing founding family members to remain firmly involved, formalizing their day-to-day decision-making powers.

Adopting a strong corporate governance structure and inviting non-family members to sit on the board should not fill family founders with worry. Instead, it should reassure them that their Company is being aligned to achieve ongoing success that will last for generations to come, removing the danger associated with potential misaligned family interests.

The role of committees is another potentially very important part of the board structure. Many family businesses have committees in place, even if not full board committees. Where family businesses do have this structure in place, the executive committee can often take an active role in the management of the business and will meet more regularly.

Audit committees and remuneration committees are also often present in family businesses that are adopting a strong corporate governance identity.

As a company grows, so does the risk of family conflict, which is often the catalyst for another major problem when it comes to addressing the longevity of a firm — succession planning.

In Saudi Arabia, many family businesses still have very few formal procedures in place. While this structure may work for the founders of the business, the potential for conflict will be more evident as the businesses gains momentum through the years, again underlining the need to adopt strong corporate governance systems right from the outset.

“Adopting a strong corporate governance model is the answer to future success,” said Anees Ahmed Moumina, CEO of SEDCO Holding Group.

“We strongly believe that adopting the correct corporate governance structure is critical for the long-term success of any company. It will allow them to achieve a much higher degree of success across key areas, such as accessing outside finance, attracting investors and also attracting the highest talented workforce, a core component of business success in its own right. While looking outward is essential for commercial success, the need for companies to look inward at themselves, and how their board is structured, is equally important in the long run.”