Perspective

Joe Saddi
Per-Ola Karlsson
Ahmed Youssef
Karim Abdallah

GCC Family Businesses

Face New Challenges

Contact Information
Beirut
Joe Saddi
Chairman
+961-1-985-655
joe.saddi@booz.com
Karim Abdallah
Associate
+961-1-985-655
karim.abdallah@booz.com
Dubai
Ahmed Youssef
Principal
+971-4-390-0260
ahmed.youssef@booz.com
Stockholm
Per-Ola Karlsson
Partner
+46-8-50619049
per-ola.karlsson@booz.com

Ghassan Barrage, Nans Mathieu, Ihab Khalil, and Marc-Albert Hamalian also contributed to this Perspective.

Booz & Company

EXECUTIVE
SUMMARY

Family businesses in the Gulf Cooperation Council (GCC)

region face the dual challenges of operating in a difficult
global economic environment and managing the transition
of the business to a third generation of family control. In
order to survive, grow, and take their places among the many
family-run firms that have achieved enduring success in the
global economy, firms must tame the restless entrepreneur
syndrome, and develop and enact a long-term strategy to
manage both the family and the business.
Concrete steps families can take to achieve lasting success for
their firms begin with a stringent reevaluation of their existing
portfolio of businesses. This process may involve the divestment of original businesses that no longer fit into a long-term
growth strategy, even though families may retain an emotional
attachment to those businesses. The same discipline required
to prune business portfolios needs to be applied to the evaluation of new investments, and may call for individual family
member investments to be separated from the firms activities.
Creating a formal governance structure to oversee both
family and business activities is another crucial step families
must take to ensure long-term success. Families also need to
recruit outside talent and accommodate their development,
relinquishing control when necessary. The appointment of a
change agent, whose interests are closely aligned with that of
the family, to implement these needed changes over time is the
best way to ensure that changes are achieved.

Booz & Company

family
businESSES:
MANAGING
CHANGE,
ACHIEVING
LASTING
SUCCESS

In an era of corporations with global

reach, multinational workforces,
and board-dominated corporate
structures, it is easy to overlook the
fact that some of the most successful companies are still family businessesthe oldest type of business
in the world. Wal-Mart (the worlds
largest corporation based on sales),
Ford, Cargill, Koch, Cemex, and
Bombardier in the Americas all began
as family businesses. Peugeot, LVMH,
IKEA, and Bosch in Europe also fall
into the category, as do Tata, LG, and
Samsung in Asia (see Major Family
Businesses Around the World).

nomic downturns, wars, family feuds,

and other challengesand they have
performed well. According to an index
compiled by Credit Suisse, family
firms have outperformed non-family
firms in shareholder value creation
by 15 percent from January 2005
through October 2008 (see Exhibit 1).

Family firms are developed and

sustained across generations. These
businesses have governance structures
that are either controlled by, or have
the strong involvement of, members of the original founding family.
Businesses with this structure have
thrived throughout the world and in
many cultures; they have survived eco-

Although family firms grow and flourish for many different reasons, our
analysis of more than 100 family businesses globally reveals that the most
critical factor to their success is the
families coordinated and sustained
long-term strategy for growing and
controlling their businesses. This strategy can take many forms, but usually
involves the exercise of patience in
investing capital, the retention of
companies through bull and bear markets, the long-term development of
talent, a focus on core businesses, the
maintenance of strong and enduring
values, and an emphasis on long-term
performance over quarterly gains.

Exhibit 1
Performance of Family Businesses, 20052008

Shares
Relative
Value
200%

Credit Suisse Family Index indicates that

family firms have outperformed non-family firms
by 15+ percentage points since 2005

Family Index (1)

MSCI World

180%

Change in Value
Between Family
Business and World
Stock Indexes
100%

(2)

90%

Spread

80%

160%
70%
140%

60%
50%

120%

40%

100%

30%
80%
20%
60%

10%
0%

40%
Jan
2005

Apr

Jul

Oct

Jan
2006

Apr

Jul

Oct

Jan
2007

Apr

Jul

Oct

Jan

Apr

Jul

Oct

2008

Notes: Credit Suisse Family Index includes 172 family businesses with more than 10 percent family ownership, and more than US$1 billion in market capitalization;
MSCI World is a market index of global stocks. It is maintained by MSCI Inc., formerly Morgan Stanley Capital International.
Source: Credit Suisse, MSCI, Booz & Company analysis

Booz & Company

Examples of Major Family Businesses Around the World

Company: Mars Inc.
Family name: Mars
Primary sector: Food
2007 revenues: $25 billion

Company: ArcelorMittal
Family name: Mittal
Primary sector: Steel
2007 revenues: $105 billion

Company: Cemex S.A.B. de C.V.

Family name: Zambrano
Primary sector: Building materials
2007 revenues: $22 billion

Company: BMW Group

Family name: Quandt
Primary sector: Auto
2007 revenues: $100 billion

Company: Ford Motor Company

Family name: Ford
Primary sector: Auto
2007 revenues: $172 billion

Company: Bombardier Inc.

Family name: Bombardier
Primary sector: Aerospace
2007 revenues: $7 billion

Company: Bosch Group

Family name: Bosch
Primary sector: Retail
2007 revenues: $80 billion

Company: Cargill Inc.

Family name: Cargill
Primary sector: Agriculture
2007 revenues: $120 billion

Company: Grupo Carso

Family name: Slim
Primary sector: Conglomerate
2007 revenues: $6 billion

Company: Agnelli Group

Family name: Agnelli
Primary sector: Investment holding
2007 revenues: $63 billion

North America
Company: Wal-Mart Stores Inc.
Family name: Walton
Primary sector: Retail
2007 revenues: $388 billion

Company: Koch Industries Inc.

Family name: Koch
Primary sector: Conglomerate
2007 revenues: $90 billion
Company: Tyson Foods Inc.
Family name: Tyson
Primary sector: Food
2007 revenues: $26 billion
Company: Power Corporation
of Canada
Family name: Desmarais
Primary sector: Mutual funds
2007 revenues: $26 billion

Booz & Company

Europe
Company: Carrefour Group
Family name: Defforey
Primary sector: Retail
2007 revenues: $150 billion
Company: PSA Peugeot Citron
Family name: Peugeot
Primary sector: Auto
2007 revenues: $110 billion

Company: Banco Santander S.A.

Family name: Botin
Primary sector: Financial
2007 revenues: $50 billion
Company: Bouygues Group
Family name: Bouygues
Primary sector: Conglomerate
2007 revenues: $50 billion
Company: Tengelmann Group
Family name: Haub
Primary sector: Retail
2007 revenues: $40 billion

Company: Ko Holding
Family name: Ko
Primary sector: Conglomerate
2007 revenues: $39 billion
Company: Novartis AG
Family name: Landolt
Primary sector: Pharmaceuticals
2007 revenues: $38 billion

Company: Porsche AG
Family name: Porsche-Pich
Primary sector: Auto
2007 revenues: $12 billion

Middle East

Company: Samsung
Family name: Lee
Primary sector: Conglomerate
2007 revenues: $174 billion
Company: LG Electronics
Family name: Koo
Primary sector: Conglomerate
2007 revenues: $95 billion

Company: Roche Group

Family name: La Roche
Primary sector: Pharmaceuticals
2007 revenues: $35 billion

Company: The Kharifi Group

Family name: Al Kharafi
Primary sector: Conglomerate
2007 revenues: N/A

Company: Tata Group

Family name: Tata
Primary sector: Conglomerate
2007 revenues: $62 billion

Company: IKEA Systems B.V.

Family name: Kamprad
Primary sector: Furniture
2007 revenues: $30 billion

Company: Majid Al Futtaim Group

Family name: Al Futtaim
Primary sector: Conglomerate
2007 revenues: N/A

Company: Hyundai Motor Company

Family name: Chung
Primary sector: Conglomerate
2007 revenues: ~$60 billion

Company: J Sainsbury plc

Family name: Sainsbury
Primary sector: Retail
2007 revenues: $30 billion

Company: Saudi Bin Laden Group

Family name: Bin Laden
Primary sector: Conglomerate
2007 revenues: N/A

Australia

Company: LVMH Group

Family name: Arnault
Primary sector: Luxury goods
2007 revenues: $25 billion

Company: Zamil Group

Family name: Zamil
Primary sector: Conglomerate
2007 revenues: N/A

Company: News Corporation

Family name: Murdoch
Primary sector: Media
2007 revenues: $28 billion

Company: Groupe Danone

Family name: Carasso
Primary sector: Food
2007 revenues: $21 billion
Company: Cadbury plc
Family name: Cadbury
Primary sector: Food
2007 revenues: $13 billion

Asia
Company: Toyota Motor Corp.
Family name: Toyoda
Primary sector: Auto
2007 revenues: $202 billion

Booz & Company

THE GCC:
UNIQUE
ENVIRONMENT,
UNIQUE
DRIVERS FOR
FAMILY FIRM
SUCCESS

In the GCC, family firms are an upand-coming force. They tend to be relatively young: Most firms are less than
60 years old (see Exhibit 2). Many of
them began as trading firms and have
expanded to include an array of businesses (see Exhibit 3, page 6). GCC
family businesses typically are managed by members of the first or second
generation, while a few see an increase
in involvement from third-generation
members. Despite their recent provenance, some family businesses have
gained international stature in the past
two or three decades.

The factors behind successful family

businesses in the GCC have in many
cases been very different from those
at Western companiesa result of
factors specific to emerging markets
and the regions cultural heritage. The
successful drivers include:
Limited external competition,
abundant opportunities, and
special access to capital, business
networks, and information.
Over time, the combination of
these factors has allowed privileged,
connected families to build large

Exhibit 2
Main Family Businesses in the GCC

1970s onwards

1940s1960s

Before the 1940s

Market Conditions

 ocal economies are

L
largely dependent on commerce

Percentage of
Surveyed Companies
Established
in This Period

28%

In the late 1930s, oil is discovered

in KSA and Kuwait
56%

 il development programs
O
do not enter into full swing
until mid-1940s (post-World War II)
 riven by the buildup
D
of oil wealth, the
economic development
of the GCC begins

16%

Original Sector of Startup

Country of Establishment

As commerce dominates the regions

economies, most family businesses start
as small traders of food and textiles

 ainly in Kuwait, UAE, and Bahrain,

M
on the commerce route between
the East and the Middle East

 tartups become more diversified,

S
particularly in construction and financial
services, as they take advantage of
economic growth caused by the oil industry

Mainly in Saudi Arabia (10 out of 14),

primarily due to the countrys
oil-driven economic boom

Family business startups span

various economic sectors,
with a focus on retail as disposable
income in the GCC increases

Still largely in Saudi Arabia,

but increasingly in the UAE

Note: Based on a sample of 25 family businesses spanning the GCC

Source: Booz & Company analysis

Booz & Company

conglomerates that span a variety

of sectors.
More concentrated control within
families. Because of GCC family
firms relative youth and because
of the culture and history of the
region, most family-controlled business organizations in the GCC are
still driven by one or two members
of the family. Many of them are still
driven or controlled by the original
owners, some of whom are highly
visionary and entrepreneurial.

Respect for traditional rules of

succession. The cultural heritage of
the region plays a role in limiting
destructive family feuds in family
businesses. As an example, the passing of control from one generation
to the next has been less contentious
an issue in GCC family businesses,
where leadership and control of a
company is traditionally passed to
the older brothera practice typically accepted by other members of
the family. Even in instances of conflict between family members, the
dispute tends to be kept private and

managed within the family, which

limits the disruptive impact on the
business. This advantage, however, can easily dissolve as families
expand and as the gap in experience
and knowledge increases among
various family members.
These distinct advantages have helped
families create and nurture a number
of successful, diversified conglomerates in the GCC region. However,
these factors will not forever insulate
family businesses from a number of
growth-oriented challenges.

Exhibit 3
Most Popular Sectors for Family Businesses in the GCC
Percentage of Family Businesses Active in Sector
72%
Established sectors for GCC family businesses

64%

Recent entry sectors for GCC family businesses

56%

56%

44%
36%
28%
24%
20%
16%

Retailing
& Trading

Financial
Services

Real
Estate

Construction
& Engineering

Hotels,
Restaurants
& Leisure

Industrial

Food
& Beverage
Production

Media

Transportation

Others

Note: Based on a sample of 25 family businesses spanning the GCC

Source: Booz & Company analysis

Booz & Company

Many of those who run these

family-controlled conglomerates act
in a way we characterize as restless entrepreneursthose who are
focused on the development of new
business and entry into new investments rather than on the scale and
institutionalization of the businesses
once they are created or acquired.
This approach can result in a lack of
focus on a particular sector: A survey
of 25 family-owned firms in the GCC
showed that nearly half (48 percent)
were involved in five or more sectors,
with nearly as many (40 percent)
engaged in activity in three or four
sectors, and only 12 percent active
in two sectors or fewer. The restless

entrepreneur syndrome is not unique

to GCC family-run firms. Indeed it
is typical of many companies that
operate within a context of strong
economic growth, limited competition, and abundant capital.

identity and brand of the group.

Another characteristic of family

firms in the GCC is the emotional
attachment many families have to the
original or earliest businesses. For
many regional families, the groups
original business defines the legacy of
the family and its stature in the community. Even if some of these businesses generate returns below the cost
of capital, the family often decides to
keep the unit in order to preserve the

The restless entrepreneur syndrome

is typical of many companies that
operate within a context of strong
economic growth, limited competition,
and abundant capital.

Booz & Company

UPCOMING
CHALLENGES
FOR
FAMILY FIRMS

Today, family businesses are going

to be put to the test as they face a
worldwide economic outlook that has
become uncertain, to say the least, and
businesses everywhere face unprecedented challenges and transformed
operating environments. For family
firms in the GCC, internal fundamentals are changing rapidly as well.
Firms must evolve to meet these new
challenges from within and without.
The current global economic
slowdown, coupled with increased
competition from both regional and
worldwide firms across industry

sectors, and the democratization of

business development in the Middle
East, will force family businesses to
focus on scaling businesses, improving
performance, and attracting new
talent. Many family conglomerates
are likely to find themselves cashconstrained over the next few
years, as their businesses demand
management attention and capital
to survive and prosper in a more
competitive environment.
In addition to responding to these
external pressures and challenges,
many GCC family businesses over

Many family conglomerates are

likely to find themselves cashconstrained over the next few years.

Booz & Company

Maintaining Family Control: Legal Limitations under Shariaa-based

GCC Family and Inheritance Laws1
In the GCC, founding families wishing to preserve control of their businesses
over the course of many years and generations must comply with Shariaa-based
family and inheritance laws. These rules dictate an approach to several issues
that differs somewhat from that of Western laws, including:
Separation of voting rights and ownership
Donation of business stakes to descendants during an owners lifetime
Consolidation of family voting power

the next decade will also have to

contend with the hurdles posed by
the transfer of company control to
a third generation. This transfer
of power creates two challenges in
particular, neither of which should be
underestimated:
Greater difficulty in maintaining
control over the business. As shareholders become more numerous and
begin to include non-family as well
as family members, centralized control over business strategy and decision-making becomes more difficult.
The transfer of control to a third
generation means that a company
formerly controlled by siblings with
the same mother is now controlled
by cousins, with different mothers,
and weaker family ties and obligations. The absence of the preferred
shareholder concept in some countries may exacerbate this problem
(see box at right, Maintaining
Family Control: Legal Limitations
under Shariaa-based GCC Family
and Inheritance Laws).

Booz & Company

Most GCC countries, in accordance with Shariaa laws, require that each shareholder in a business have votes in the organization equivalent to the number
of shares owned. Although some countries laws can be interpreted in theory
to allow the issuance of non-voting preferred shares, in practice the authorities
rarely give the right to issue such shares. In order to adhere to these rules while
limiting family capital commitments, many conglomerates in the Middle East
use cascading ownership, in which the owner sells 49.9 percent of the holding
company and 49.9 percent of his share of each entity in the holding companys
portfolio, thus maintaining a majority share while contributing only 25 percent of
each companys capital.
When it comes to transferring company ownership to descendants, Shariaabased laws allow a living owner to do so through an endowment. A business
owner can transfer a certain percentage of ownership to other family members
while he is still alive, thus allowing him to choose his successor and limit the dilution of ownership that might occur after his death.
Finally, the family trust, the vehicle of choice in Western countries for maintaining
the familys stake and consolidating control of a business, is not used in GCC
countries. Most GCC families rely on establishment of a mother company, or
holding company, to preserve family control, which simulates the trust mechanism, but does not offer the same control tools. Discussions have taken place
recently across the GCC about the creation of offshore Shariaa-compliant trusts.
Its currently not clear whetheror to what extentthese might circumvent
foreign ownership limitations.

Exhibit 4
Family Wealth Growth Rate Across Generations

$23,600,000

GR

18

Business Size Required to

Maintain Family Wealth
with Annual Takeout of 3% to 4%

CA

An increase in pressure to grow

the business. Large family size (the
average family in the GCC includes
five children) puts pressure on
family businesses to grow as quickly
as possible to maintain the wealth
of individual family members and
units. Based on the current average
size of GCC families, we estimate
that the typical family business
needs to grow at 18 percent each
year just to maintain the same level
of wealth across generations (see
Exhibit 4).

Family Business Value (Representative)

By the
4th generation,
the business
value
should
increase
by 236,000
times

$100
Years
Number of
Family Members

$5,500

$360,000

25

50

75

35

149

630

Generation 1

Generation 2

Generation 3

Generation 4

Note: This analysis assumes a generation span of 25 years, a fertility rate of 3.4, a male-to-female ratio of 1:1,
and an inflation rate of 5 percent.
Source: Booz & Company

10

Booz & Company

CONTINUING
A TRADITION
OF SUCCESS

The evolution of family businesses

is natural, and is to be expected;
however, many family businesses do
not survive the process. Managing the
transition through changing economic
climates and across generations
requires that family businesses
overcome the restless entrepreneur
syndrome, let go of emotional
attachments to businesses that are no
longer viable or part of the long-range
plan, and focus on building a more
scalable and sustainable organization.
Given these challenges and based on
our experience working with family
businesses and conglomerates in the
GCC and around the world, we have
identified two broad areas that family
firms must address: first, business
management and development; and
second, family issues.
In terms of business management and
development, family conglomerates
must take four steps:
Reevaluate existing portfolio of
businesses to create sharper focus.
When capital and management time
are abundant, an organization can

enter into any business as long as

the return exceeds its cost of capital.
However, when capital costs increase
and management capacity is stretched
thin, family conglomerates must
focus on the best possible use of both
capital and time. This will often mean
divesting or lowering the priority of
some of their traditional businesses. A
sharper focus will also allow leaders
to build a set of capabilities that can
add value in a more competitive environment and roll out these capabilities consistently across the portfolio
of businesses.
Let go of emotional attachments to
traditional businesses. This can be
difficult as many GCC families tend to
hold on to their traditional businesses
for emotional rather than rational
reasons. However, as they evolve,
family-run conglomerates must have
the discipline to focus on the most
advantageous use of their capital
and target fewer businesses to drive
superior performance. Our analysis
shows that between 2003 and 2007,
family firms that focused on one
coherent sector group outperformed
those that didnt by 5.5 percent per

Family-run businesses must have

the discipline to focus on the most
advantageous use of their capital.

Booz & Company

11

year. Such an approach does not mean

that a company will be limited to a
single market, nor will it position the
company in just one niche; rather,
businesses should take a diversified
approach within a sector or industry,
and leverage their market presence,
brand name, and core competencies.
Apply rigorous discipline to evaluation
of new investments. As the portfolio
of existing businesses is rationalized,
family businesses must create clear
guidelines for new investments, focusing on scalability and relative return
on capital and management time.
Businesses or ventures that do not fit
the criteria but are important for the
family can be financed by funds (individual or collective) that are independent of the business.

Most important, build management

capabilities and relinquish control
when necessary. An essential element
for an immortal family business
is a management team that is able
to grow the business independent of
the shareholding. A silver lining in
the current economic downturn is
the sudden availability and unprecedented access family businesses will
gain to management and technical
talent, which is crucial for the longterm growth and success of family
firms. To recruit successfully and
retain this talent, however, family
businesses must delegate control to
the management team when required,
eliminate the glass ceiling, and create
the right incentive structures. Many
family-controlled firms have failed
to retain top executives because they
have been unable or unwilling to take
these crucial steps.

In terms of family issues, there are

three separate steps for firms and
families:
Separate family and business activities. In the Middle East the line
between family and business activities
is often blurred. This lack of distinction between business and family
functions can include management
of basic family support services, all
the way up to management of more
complex and costly services such
as the funding of individual investments and family member ventures,
and of philanthropic activities. This
blurring of family and firm roles and
operations reduces transparency,
making it difficult to measure the real
profitability of the business. At the
same time, it increases the potential
for areas of conflict among family
members. Families need to focus on

Families need to focus on

drawing clear lines between family
and company activities.

12

Booz & Company

drawing clear lines between family

and company activities. This can be
accomplished by:
Creating a family office to handle
family-related activities, which
range from provision of basic
services such as travel arrangements
to the management of individual
family members wealth.
Separating philanthropy from
the business by the creation of a

foundation to enhance the control,

planning, and accountability of
philanthropic activities, or establishment of a policy whereby the
philanthropic activities of individual
family members do not extend to
the business.
E
 xploring the creation of a separate
financing arm that could support
family members own business
ventures, so that those ventures
would not be automatically folded
into the existing business.

Create a formal governance structure

to govern family and business
activities. Family businesses must
formalize the governance of the family
to ensure effective delegation and
separation of activities (both business
and non-business related) and to
prepare for succession (see Exhibit
5). Designing an effective governance
structure is straightforward; however,
implementation should be managed
carefully and introduced gradually,
over a long period of time. Families

Exhibit 5
Potential Operating Model for Diversified Family Businesses

Family/
Shareholder

Family Assembly

Oversees business and ensures alignment with family values

Acts as a forum for family shareholders to formulate
unified positions on key issues
Includes elected family members who are shareholders

Shareholder/
Family Council

Group

Board of Directors
2

Portfolio
Companies

Corporate

Safeguards long-term interests, identity, and cohesion of family

Assembles family, promotes its values, and expresses its needs
Includes family members (as defined by a family charter)
who meet minimum requirements (e.g., age, education, etc.)

Governs company on behalf of shareholder/family members

Recruits and oversees top-line management
Has ultimate responsibility for firm performance
Assists in opportunity sourcing
Sources and executes investments in line with strategy
Governs portfolio companies through boards or committees

Board of Portfolio Co.

Board of Portfolio Co.

Board of Portfolio Co.

Portfolio Co.

Portfolio Co.

Portfolio Co.

For controlled companies, the board typically consists of

group representatives, other owners, and independent directors
Independent entities

Source: Booz & Company analysis

Booz & Company

13

should use the governance structure

to include and involve various family
members who might not otherwise be
actively engaged with the business.
Appoint a change agent. In our
experience, successful change in GCC
family businesses is championed and
implemented by one individual. To
drive change across the family and the
business, it is critical for the family to
appoint a change agent. The change
agent could be a family or non-family
member, but must be close to and
respected by the family and must
also have a thorough knowledge of
the business. Most important, the
interests of the change agent should be
aligned with those of the family. Many

families, although aware that they

must change the way they manage
their business, distribute responsibilities among family members, with no
clear accountability. With no single
person to take ownership of the firms
evolution, the firm often fails to fully
implement needed changes.
When it comes to family business,
theres an old saying that contains a
grain of truth: The first generation
makes the money, the second
generation tries to keep it, and the
third generation loses it. Some
studies show that up to 80 percent
of family businesses fail to make it
through the third generation. Today,
many GCC family businesses will

be put to the testlarge family size

will require them to seek around 18
percent a year in growth to maintain
the same level of wealth across
generations. This has to be managed
through economic downturns and
across generational changes. Either
they institutionalize their business
and manage the restless entrepreneur
syndrome, or they risk decline and
possible extinction. Many of the
worlds greatest corporations have
been started and continue to be run
by family dynasties. All have faced
challenges along the way and have
successfully evolved and adapted to
changing business conditions and
family needs and abilities.

Many of the worlds greatest

corporations have been started and
continue to be run by family dynasties.

14

Booz & Company

The Rise of Famco

In 1969, a small company called Famco was formed to develop upscale housing developments in a GCC nation. Fueled by skyrocketing oil prices worldwide
throughout the 1970s, demand for these projects began increasing dramatically,
and Famco was able to expand the number of developmentsand its busi
nesses. Famco first opened up a luxury car dealership and then a shopping
center with world-renowned retailers. The founder brought in his eldest brother
to help him manage his new businesses.
By the 1980s, Famco was generating millions of dollars of cash per month. The
controlling family had become powerful in society and was invited by the ruling
family to participate in some of the nations largest domestic projects. By the
1990s, the initial housing business was only a small piece of a sprawling business conglomerate. A construction company developed the countrys port and
international airport. Another company specialized in building power plants. A
separate unit focused on the construction of schools and hospitals. And another
separate business unit, run by the founders son, began participating in projects
in other GCC countries.
This is the story of a hypothetical GCC conglomerate, which, though fictional,
is typical of myriad GCC companies that were founded and matured as familyowned businesses. Like many others in the region, this family-owned concern
started out simply, in the late 1960s, as a single construction or retail business.
The company began to diversify slowly as its businesses began to generate

Booz & Company

15

Conclusion

cash and then it entered a period of rapid growth and diversificationfirst in the
region and then abroad.
In recent years, Famco became aggressive in taking on debt, tapping the capital
marketsrather than using the cash it was generatingto fuel even more ambitious growth. It announced plans for a multibillion-dollar mixed-use construction
project and made major investments in U.S.- and European-based companies
through newly formed private equity ventures.
Meanwhile, the dynamics within the companys controlling family shifted. More
than a dozen family members were now involved in running the business, each
with growing needs to generate cash to support his own luxurious lifestyle. The
founder and his brotherthe original two operators of the businesswere now
approaching 70 and wanted to retire and leave the businesses they helped
create. Neither was certain that his relatives had the skills to continue to run, let
alone expand, the family empire.
The current global economic slowdown is exacerbating critical issues at all
companiesand Famco is no different. Demand for its projects has slowed
(the multibillion-dollar development has been postponed for lack of demand for
high-end hotels, retail space, offices, and housing). Because of the global credit
crunch, the company cannot issue debt to meet its obligations and its private
equity investments are underwaterworth less than the amount invested.

The family-run business is not an

anachronism, but a viable and
prevalent model for competing
effectively in the global economy,
achieving impressive long-term
growth, attracting top talent, and
increasing family wealth over
generations. However, in order
to take a place in the worldwide
roster of highly successful familyrun firms, these businesses must
eliminate or curb the restless
entrepreneur syndrome, let go of
emotional attachments to core
but less profitable businesses, and
institute guidelines that provide
clear lines of separation between
family and business activities. A
challenging global economy and
internal transition to new generations
of family management make these
changes all the more critical and
timely, but they can be successfully
implemented through careful planning
and appointment of a change agent
within the business to see it through
its necessary evolution.

Famco is at a critical crossroadshow does it manage change and achieve

lasting success? Does it divest businesses? Does it create a new corporate governance structure? Should it bring in outside talent to manage its businesses?
The answers to these questions will determine whether the company will enjoy
the same success for the next 40 years that it has since its founding.

16

Booz & Company

Endnotes
Based on an interview with Amal Abdallah and Nazih Hameed of
the Al-Saleh & Partners Law firm, Kuwait City, Kuwait.
1

About the Authors

Joe Saddi is the chairman of
the board of Booz & Company.
Based in Beirut, he also leads
Booz & Companys activities
in the Middle East. He specializes in strategic, organizational,
and restructuring services
for a wide variety of industries.

Ahmed Youssef is a principal

with Booz & Company in Dubai.
He specializes in corporate
strategy and finance, governance, and operating model
transformation for regional
holding companies, family conglomerates, and private equity.

Per-Ola Karlsson is a partner

with Booz & Company in
Stockholm. He leads the
global organization, change,
and leadership practice.
He specializes in challenges
at the intersection of strategy,
organization, and leadership.

Karim Abdallah is an associate with Booz & Company in

Beirut. He works with family
conglomerates and real estate
companies on portfolio rationalization, governance design,
and organizational structure.

Booz & Company

17

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