Family businesses are the backbone of the Saudi Arabian economy. Given their significance, it is essential to ensure the sustainability of these businesses for future generations. Studies have shown that most family businesses do not survive beyond the first or second generation, primarily due to the absence of governance systems that ensure business continuity and transparency. This underscores the need for establishing strong governance frameworks for family businesses.
Corporate governance is defined as a set of procedures and policies that ensure clear communication between partners, boards of directors, and management, guaranteeing transparency, business continuity, and effective risk management. Proper governance benefits family members by enhancing profitability and ensuring the long-term survival of the business. One of the first steps in implementing governance in family businesses is establishing a family charter or constitution. This document regulates the relationships between family members and outlines clear guidelines for decision-making and other critical processes.
Key points that often cause disagreements during the creation of a family constitution include:
* Decisions should prioritize the interests of the business over the family.
* Not all family members have an inherent right to be appointed to company positions.
* Family members should be treated the same as other employees.
* There should always be transparency about the salaries of family members working in the business.
* Senior leadership roles do not necessarily have to be filled by family members.
Another common source of conflict is the issue of exit strategies. Therefore, policies and procedures governing the exit of family members from the business should be clearly defined.
In summary, family business governance is critical to ensuring the longevity and success of these companies, benefiting both the business and the family by establishing clear, transparent rules and managing potential conflicts proactively.