Tag Archives: family firms

Addressing the 98 Percent: Supporting Reform Among Family Firms in the Palestinian Territories

pgi-cgMore than 98 percent of commercial entities in Palestine are not covered by existing corporate governance codes, which apply to companies listed on the Palestine Stock Exchange and commercial banks. Most of these are structured as family firms — whether in ownership or management — which creates special difficulties for corporate governance.

To address the thousands of family firms that form the heart and soul of the Palestinian private sector, CIPE partner the Palestine Governance Institute (PGI) recently published a Corporate Governance Manual for Family Firms (available in Arabic and English) with the Federation of Palestinian Chambers of Commerce, Industry and Agriculture.

This seminal publication — the first of its kind in Palestine — was informed by extensive consultations with local experts, family firms themselves, and other stakeholders including lawyers and academics.

PGI engaged in extensive outreach to the business community in developing these guidelines, including conducting a baseline assessment through interviews with over 100 owners and managers of family firms across the West Bank and Gaza.

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Family businesses in Pakistan share corporate governance stories

Dr. Daud had a lifelong dream of building a hospital in Pakistan, which originated from a promise he made to his ailing father. He built Maryam Memorial Hospital with the vision of “providing the best health care service at the most economical cost possible, thus broadening the base of health facilities for the people of Pakistan.”

Professional measures have helped the hospital develop a reputation as an institution of quality healthcare rather than as an oversized family clinic. There is an established system to document decisions and procedures related to professional ethics and practices. All staff members, including the new hires, are required to adhere to all 35 policies and procedures. It has helped develop organizational norms and a culture of accountability that can withstand staff turnover and external pressures.

Such professionalism was part of a deliberate effort to institutionalize the entity and downplay its connection to the family. As Dr. Daud’s son and partner in running Maryam Dr. Shimail noted, “Corporate governance has been the key to our success, as sticking to business ethics has resulted in carving out our identity. People trust us, for we watch out for their interests at all costs.”

In 2006, when CIPE initiated its work in Pakistan, one of the major initiatives was to introduce the concept of corporate governance in family businesses to help them be more sustainable. Maryam is just one example of that.

In the last five years, CIPE has been working with the Pakistan Institute of Corporate Governance and the Institute of Chartered Accountants of Pakistan to promote corporate governance among family businesses. After the launch of the Corporate Governance Guide for Family-Owned Companies in 2007, CIPE started direct engagement with family businesses across Pakistan in cooperation with regional chambers of commerce. As a part of that work, CIPE conducted one-day workshops focusing on directors, particularly those belonging to the second generation (and beyond) of family business owners.

Over 150 families have gone through the program, hosted by chambers of commerce in Karachi, Lahore, Rawalpindi, Islamabad and Faisalabad.

Traditionally Pakistani family-owned enterprises were unwilling to publically share information about how they operate their businesses. As a result of this continued work with family businesses, in mid-2010 when CIPE wanted to conduct case studies on corporate governance in family businesses, four companies volunteered to share information about their business structure and state of corporate governance. The case studies have just been published in Safeguarding the Legacy: Corporate Governance and Longevity in Family-Owned Enterprises. Maryam is one of them.

In the other cases, the family business of Mr. Siddique Sheikh combines respect for older generations with independent divisions each managed by a different family member to create a structure designed to be sustainable and flexible enough to adapt as needed; strong and early commitment to corporate governance allowed National Foods to become a prime source of employment for talented workers outside the founding family; and in the case of Ismail Industries Ltd., three brothers who had experienced a loss of a previous family business due to poor corporate governance started a new and growing venture on a foundation of good corporate governance.

As Moin Fudda, CIPE-Pakistan’s Country Director notes in the preface, “This publication will be used as a reference to provide corporate governance guidelines for the 50,000 family-owned businesses in Pakistan.”

Continuity in Business

Historically, family run businesses have been the backbone of Pakistan’s economy. Although over the years a number of families have opted to go public through listing on stock exchanges, there is no doubt that family businesses are still dominant in the economy. For a long time, family firms would claim exemption from corporate governance standards. There is no conflict of ownership and control, many would argue, since managers and owners are one and the same. But the tide is turning.

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“Addressing Problems That Tear Families Apart: Why Good Governance Matters for Family Firms”

Family firms have long been excluded from the debate on good governance, since corporate governance is conventionally viewed as applicable only in the domain of public corporations. Yet only 15 percent of family-owned businesses survive until the third generation, indicating a great need for improved governance.

In his Feature Service article, Mr. A. Razak Dawood, Chairman of the Pakistan Business Council and the former Federal Commerce Minister of Pakistan, addresses crucial problems faced by family firms, such as inadequate focus on preserving their human and intellectual capital rather than just financial assets. He also talks about the ways in which governance in family firms can be improved, starting with the formulation of a statement outlining the purpose, values, and goals of each family business. He notes that, “The objective of a system of family governance must be to align the aspirations of each individual family member with the goals of the family as a whole.”

Committing to good governance practices for all generations to come may seem like a daunting task for a family business. But, as Mr. Dawood concludes, “The result of good governance within the family and its companies is a family-based, professionally-run, continually growing institution.”

Article at a Glance

  • Family-owned businesses face unique problems with continuing their operations successfully over several generations due to governance issues.
  • While corporate governance is conventionally regarded as applicable to public corporations, family-owned companies are equally in need of sound governance mechanisms.
  • Creating and applying a system of good governance is crucial for the preservation of not just financial wealth, but also human and intellectual capital of family firms.