Transcription
Uh, it's a pleasure to be here with you, uh, today to discuss an important topic at FI. The topic of, uh, dynasties of commerce or family businesses. Uh, during these 15 minutes, I'll talk about four important aspects. The first one is, what is a family business? I want to introduce you to the topic to start with. And then, uh, the succession planning in family businesses and how we can come about, uh, doing that in a good way and sustainable way. And then the role of policymakers that they can make so that they can shape the future of, uh, family businesses, uh, in in a positive way. And finally, why we should have some global, uh, collaboration, uh, between family businesses.
To start with, it's good perhaps to define family businesses. All sole proprietorships are family businesses because ideally, uh, we should see them prosper in the future and pass, uh, their businesses to their, uh, yeah, next, uh, gen in the future. Companies that are privately held with families owning more than 50% are family businesses because of the influence exerted by the family on the decision-making. And also for listed companies, 25% is sufficient enough for the family, uh, to control the business because of the ownership structure and the dispersion of ownership that allows 25% to be sufficient to control the, uh, business itself.
Based on that, 60 to 95% of businesses, uh, in the globe are, uh, family businesses. And this is obviously a substantial footprint for families within, uh, our economies. There are key features or characteristics for family businesses that we need to appreciate so that we better manage the risk associated with them and capture the opportunities that may arise from, uh, these, uh, this community.
The first one is longevity and resilience. Uh, even though that, uh, in the minds of many of us here, we believe that or we hear a lot that family businesses don't survive to the second or third, uh, generation, but when compared to non-family businesses, they actually outlive them and they tend to have, uh, more resilience and ability also to, uh, adapt with changes.
Ownership and management is also a critical feature for family businesses, especially when they are first, uh, in their early stages. Typically, ownership and management are the same, uh, which increases the sense of responsibility for, uh, the business itself. In many cases, if, if we are employees, there is a tendency for us to leave, uh, when, when the business is not doing well. But when you are in a family business, you cannot leave the boat because you are pretty much the boat.
The third feature is family values, where, uh, you, many families have their own values which are in many cases pronounced in their businesses. Continuity and succession planning. Many family businesses are preoccupied with the idea of continuity, not because of the business, but because of the future of their, uh, families, uh, as well, which gives them a better sense of why they should do that.
Community involvement. Families are part of the community. This is why they have a strong connection. Connections. These, uh, this connection with the community makes them more, uh, socially responsible, as well as, uh, having strong relationships with many of their, uh, employees, which tend to last for, uh, many years, and sometimes it goes beyond business, uh, to, uh, to something else.
The long-term focus of family businesses is also an important element. Family businesses do not have the quarterly pressure to meet or beat the expectations of analysts or the annual pressures. This is very important for, uh, critical investments such as R&D, for example. We know, for example, that the new accounting standards expense all of the R&D investments, which directly hurts your bottom line. But then the return on your R&D investment takes many years or long term to, uh, be materialized in the future. That long-term vision or that long-term perspective is more pronounced in family businesses, which is why we can bet on them more in the innovation, uh, of our economies and in our, uh, businesses.
I'll now also move to, uh, the idea of succession planning and how we should come about, uh, that in in, uh, in an orderly manner. In family businesses, we need to do two things. The first one, we need to make sure that our next generation are future-proof or future-ready. Whether we want them to work in our businesses or beyond, we need to prepare them to be successful in our, uh, family businesses, uh, and beyond as well.
To do that, uh, we need to make sure that we equip them with the necessary, uh, knowledge. These are the information, tools, and, and, uh, models that they need to understand. The skills to apply, uh, that, that, uh, knowledge, in addition to a set of, uh, of, uh, uh, soft skills such as negotiation, presentation, and so forth. And then also the personality necessary for someone to become successful in business. We are talking about positive attitude, uh, high level of business ethics, and so forth.
Other frameworks also consider other components such as social capital. Here, we discuss or we think about the, uh, uh, set of networks that you have, which are critical for the continuity of the business. How can we take these business networks and then pass them to the next generation, uh, in in an orderly way? Many businesses are now, or families are now taking a proactive approach to do that. We have, for example, an example here from the Kingdom, where a Saudi family is taking every single individual, uh, of that family, analyzing their, uh, uh, psychometric, doing psychometric analysis, understanding or supporting them to chart their future, and then develop or put together a development plan for every individual. That development plan includes coursework, includes rotation within the business, shadow board shadowing, and, uh, so forth.
The second component, once we have our, uh, next gen, uh, yeah, future-ready, is to have a robust governance, uh, that is, uh, uh, um, uh, in place to ensure that the interaction between the family and the business, uh, is is appropriate. Uh, we put together a policy, employment policy for family members to ensure that, uh, when, uh, we hire family members, we, we do that, uh, in an objective way, in a way that, uh, yeah, looks for the sustainability and continuity for, uh, the the family business. There is not one size fit. So, in terms of that policy, we observe many family businesses that that are successful with their next gen all over the place in the business, and some others are hands-off approach where they are just limiting themselves to board seats. And both models are successful. What matters is you design the model that that is aligned with the corporate culture, the family culture itself, and that it is documented and agreed upon before the event of succession or the engagement of, uh, the family members.
Policymakers, uh, they have a critical, uh, role for the continuity and prosperity for family businesses. Uh, I will just highlight a couple of, uh, of, uh, points, but there are much more, uh, roles that can be played by policymakers. The first one is, uh, reducing the uncertainty for, uh, family businesses. Here in the Kingdom, for example, with the launch of Vision 2030, family businesses were given a roadmap that spans 15 years ahead. For many businesses, they quickly took that plan, understood the new opportunities or industries that are going to, uh, rise in the future, and they started to participate on them. And they also picked up some signals for certain industries that may not, uh, continue to flourish in the future, and then they try to avoid them.
Additionally, uh, the, uh, uh, the other two points as well is establishing centers for, uh, family businesses, like the National Center for Family Business in the Kingdom, which is basically acting as an orchestrator within the ecosystem to communicate with the government to ensure that we have the required regulatory environment for the continuity of family, uh, businesses. Developing high-quality regulations. Today, in the Kingdom, for example, the new corporate law enables families to have their family constitution as part of their articles of association. Any family dispute is today not examined by the, uh, judiciary system or courts before exhausting, uh, alternative dispute resolution, uh, uh, mechanisms. Obviously, this requires setting up ADR centers. So now we have reconciliation centers and, uh, and, uh, uh, arbitration centers.
Family business, uh, is basically a social phenomenon that is influenced by religion, by culture, by the role of men and women in society, by the role of, uh, older siblings. This is why we need to understand it from our local context to have, uh, robust research that highlights the opportunities and the unique features of the family businesses within the community, uh, itself.
Public policy consultation. We are now also part of, uh, uh, many committees at the national level where we can, uh, use that presence to communicate the interests and the needs for family businesses to, uh, public officials.
I will, uh, uh, uh, conclude by discussing why it's important we should have global collaboration between, uh, family businesses, which I think is quite relevant to, to FI. We believe that having a, uh, from a global point of view, increasing that collaboration between family businesses increases the efficiency of capital allocation across countries. It enables us to realize cross-border synergies between family businesses, and it has the potential of producing beneficial economic benefits, uh, globally.
From a local point of view, it might be a good idea to introduce international families to the local market, which will lead to attracting strategic FDI, hopefully in the future. There is a gap in the global system to do that, which is basically we don't observe a strong, uh, network that links family businesses across the globe. And we think that there is a need for a network to do that, not just focusing on on the governance of family businesses, but also in promoting businesses and linking, uh, businesses, uh, together for landing new opportunities and investments.
The solution is quite simple. Let's do that, uh, uh, network, and hopefully this is one of the calls of action that, uh, we want to do, uh, through this, uh, this initiative. Thanks a lot, and, uh, I hope you benefit from what we [Applause] said.