Free Paper Example: The Nature of Corporate Governance in the Family Business

Published: 2022-04-01 12:19:26
Free Paper Example: The Nature of Corporate Governance in the Family Business
Type of paper:  Dissertation chapter
Categories: Business Corporate governance
Pages: 7
Wordcount: 1776 words
15 min read
143 views

Family businesses are common across the Gulf Cooperation Council countries. Accounting for the majority of the companies in the region, the need for continuity and sustainability has become evident due to their level of economic implications. Apart from the numerous workers employed, the family businesses account for the highest GDP contribution in the region. Therefore, the prospect of direct investment and positive implications on the economy is an issue of positive concern. The prominence on incentives such as tax cuts, low interests on loans and access to bilateral trade ties should be effective at encouraging people to set up family businesses. As well, it is imperative to comprehend that family businesses can take up different forms such as partnerships, joint stock companies, sole proprietorships and limited liability companies. Therefore, the need to focus on corporate governance has become critical towards sustenance of continuity. Business governance, which denotes the systems of operations such as accounting, management structure, and financial statements, has the potential to streamline the family businesses. Nonetheless, the GCC does not have any policies in place to act as a mandatory requirement for the family businesses. With the evident shortcomings, the Malta legislation provides a potential solution that the GCC can follow in its regulatory process. Additionally, the focus on the family constitution has been evident with the need to develop a strict and effective approach in the inheritance process. The Rockefellers, Sun, and Carvajal are among the famous constitutions established. As a clear constitution, the Carvajal family has a constitution that sets out the issues such as vision, mission and the criteria adopted in the selection of business leaders, rights, and responsibilities. Further, the legislator can be significant towards shaping the operational dynamics of the family businesses through playing an oversight role via the regulations available. Hence, the qualitative research technique will be adopted to obtain the necessary information about family businesses. Through the use of questionnaires and interviews issued to employees in family business via the random sampling approach, the data collection process will be evident. Of utmost importance will be the case study theoretical approach towards research process that will entail focusing on companies in the GCC. Further, the research techniques adopted are geared towards obtaining findings of the need for regulations for family businesses to ensure continuity. The implications of the findings are the prospect that family businesses may be regulated by the government to focus on corporate governance as the most effective and sustainable way to maintain continuity in operations. Proposal: The Impact of Family Corporate Governance on Its Continuity, the Role of Legislator in the GCC Countries to Enacting Protective Legislation as in Malta Legislation (Comparative Study)

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Introduction

Family businesses across the Gulf Cooperation Council (GCC) have been facing challenges in the contemporary environment, especially in ensuring continuity and job security for the employees. Hence, the need to enact special legislation to ensure business governance is mandatory and critical towards safeguarding the welfare of the employees. Without the necessary measures and legislation, business failure is imminent. A case example of family businesses that have failed due to ineffective governance includes Saudi Binladin Group and Saudi Oger LTD. As such, concrete steps may entail the implementation of regulations that revisit the portfolio and management structure of the family businesses (Sobhy, Ehab & Hussain, 2017). The procedure in the policy formulation process can denote a new governance structure that is construed towards overseeing the family and activities undertaken by the organization. A policy statement that changes the management structure should ensure the recruitment of outside talent, together with accommodation of its development. The policy that changes the control systems of the family business should regulate the decision-making process and translate into its endurance past the third generation. In line with the need for policy change, it is noteworthy that the Maltese Family Act should provide insight and reference point for the GCC countries. Within the proposal, the emphasis on the Maltese Family Business Act should provide the blueprint for the GCC nations in their development of regulations since they are non-existent. Therefore, this proposal aims to advocate for the implementation of a policy that regulates the governance structure of the family businesses across the GCC.

The Need for the Dissertation Topic

This dissertation aims at comparing the nature of corporate governance in the family business in the Gulf Cooperation Council member countries and Malta. The comparison aims at assessing the corporate environment for the family-owned businesses in the two contexts. The absence of family business regulation in the GCC countries has significantly reduced the sustainability of family businesses in the long term. On the other hand, in Malta, legislation has improved corporate governance in Malta which has improved management stability and structure.

Research Questions

The man focus of the research is the comprehension of the need for corporate governance among the family businesses to ensure continuity. In line with the main focus are the main and sub-questions that will emerge in the research process. Consequently, the main research questions that will be critical towards the comprehension of the problem at hand include:

What are the major challenges facing the family businesses in the GCC?

How can the governance policy change the operational dynamics of the family businesses?

What should be the way forward towards the implementation of the policies across the family businesses?

How can the GCC adopt elements of Maltese Family Act in the regulatory process?

What are the roles of the regulators in handling the family businesses?

On the other hand, the sub-questions should generate further insight into the performance dynamics of GCC family businesses. As such the sub-questions should improve on the research process through provision of insight into minor details. Therefore, the main sub-questions should denote:

How effective is the Maltese Family Act?

What are the minor roles of the legislators?

Are the legislators emanating from both the private and public sector?

Background and Purpose

In the global marketplace, it has become clear that family businesses are facing a challenge in their aim to subsist past the third generation (Saddi, Karlsson, Youssef & Abdallah, 2009). That is why recent studies in the GCC have presented findings that over 80% of family businesses do not endure past the third generation. As well, ineffective regulation of the governance process has translated into over 40% of family businesses in the GCC grappling with credit issues (Rehman, 2010). Ineffective decision making has led to household businesses struggling with changes in their performance with losses being an issue of concern. Therefore, the prospect that family businesses across the GCC are built around the concept that the governance structure is autocratic and based on the family members has presented a challenging environment in changing the fate of numerous companies (Saddi et al., 2009). Accordingly, with the autocratic structure, it has led to an avenue where rigidity and resistance to change prevail, which negatively impact on the organizational survival. Hence, as an ongoing problem, the increasing rates of failure among family businesses require an in-depth analysis of the most effective approaches to handle the issue. A policy strategy is a noteworthy approach towards ensuring that coordination and sustenance of the personal businesses prevail for the long term. As such, enactment of policies that focus on defending the welfare of the family businesses is necessary for ensuring that a robust and continuing organization prevails past the third generation.

Problem Statement

Declining sustainably and success of the family companies is an issue across the GCC. With numerous household businesses failing, the proposal focuses on the comprehension of the problem and developing the way forward in regards to regulations that promote corporate governance among businesses. The emphasis on a way forward should be reliant on the involvement of the stakeholders to develop a sustained operational policy in the ownership structure, coupled with coordinated policies. Despite the challenges in the implementation of comprehensive policies, it is imperative to understand that the few organizations that are still successful in operations have been because of two main factors. First, the concentration of control among the families is a facet of concern. Since the GCC few firms are relatively in youthful stages, the main control is based on at least two members of the family. Organizations that are successful are controlled and managed by the founders. Second, the respect of traditional rules of succession has been an equally important issue for the success of the little family-owned organizations. The cultural heritage as per Sobhy et al. (2017) plays a role in the limitation of the destructive family feuds. As an obvious example, families that are less contentious in passing ownership from one generation to the next are bound to face minimum conflicts of interest. Nonetheless, despite culture and control playing a fundamental role in the definition of the success of the few family businesses, the survival rates are still low across the various generations (Khamis et al., 2010). Majority of the third generation organizations do not succeed, which poses the need for comprehensive analysis of the family business problem.

Aims

Analysts such as Saddi et al. (2009) emphasize that in the GCC, family businesses are significant and a driving force for the economic growth. As per research which was undertaken by Sobhy et al. (2017), the majority of the family businesses in the GCC are less than 60 years old. As well, a majority of the firms are trading and have been expanding into the various sectors. Nonetheless, with the imminent retirement of the founding family members, it has become evident that comprehension of the transition process is critical. The business transferred to the second or third generation presents a daunting environment regarding the understanding of the future of the organization. Therefore, in the research process, the main aims towards the conception of the GCC family businesses include:

To encourage the government in the GCC to adopt regulations to manage the family businesses

To develop insight into the implications of policy formation and its direct impact on the family business

To understand that business success should not be based on family failure

To examine why the family is a unique aspect of the business

To comprehend the need for management of the dynamics of a family business

Preliminary Literature Review

Family Corporate Governance and Continuity

Corporate governance has been growing importance of family businesses globally. As with the potential for scandals, corruption, and looming inefficiencies, the emphasis on business governance has become evident. As a topic that denotes how a business corporation is controlled and directed according to Rehman (2010), its impact has been positive on the family businesses. Through corporate governance, family businesses have the opportunity to distribute rights and...

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