Family corporates are key players in the global economy and considered as the backbone of the world economy particularly in Saudi Arabia, as they have investments worth 247.5 billion SAR which is equal to 10% of total national income according to Dr. Ehab Aburokba study (2015). The importance of family corporates comes of that the largest corporates in the world started as family corporates – Wal-Mart, Toyota, Ford, Samsung, and locally such as Alrajhi, Ben Laden, Alzamel, Abduallteif Jameel, and more. Generally, family corporates are unaware of the principles of good corporate governance and its importance roles.
Family corporates characterized by their high performance which exceeds the non-family corporates because they have many features such as long term investment, social responsibility supporting and interest with non-financial goals.
What is Corporate Governance?
Is a system of rules, practices and processes to direct and control the companies and regulate the relationships among management entities. The purpose of corporate governance is to facilitate effective, entrepreneurial and prudent management that can deliver the long-term success of the company.
Good corporate governance aims to establish a management structure and a mechanism within organizations to improve transparency and accountability within existing systems and to create relations between board of directors, the management, staff and shareholders to serve the best interests of shareholders, taking into account the interests of all stakeholders.
The Influencers on Corporate Governance
1- Boards of directors
– Takes the responsibility of the governance in their companies.
– Setting the company’s strategic aims providing the leadership to put them into effect, supervising the management of the business.
– Reporting to shareholders on their management.
2- The shareholders
Ensure that an appropriate governance structure is in place, they also appoint the directors and the auditors who satisfy themselves.
The challenges of governance in the family corporates
In KSA, family corporates are often private and limited companies. Shares are held by a small group of people which leads to a lack of objective analysis on the part of independent directors and limits on transferability.
The challenges are rooted in the organizational structures that prevent family corporates from attracting and retaining high quality human capital, obtaining lower cost debt and equity capital, and ensuring long term competitiveness and sustainability.
Benefits of good governance for the family corporates
- Integrating the strengths of family and business.
- Improving shareholder relationships through effective communication and conflict management.
- Managing ownership and leadership transitions.
- Developing the next generation of managers, shareholders, and family members.
- Performing better in commercial terms.
- Good governance mechanisms help in alleviating problems and in sustaining growth and overcoming short life cycles.
- Good governance assists in creating a more sustainable organization by delineating methods for generational transitions and succession planning.
Good corporate governance is not a cost, but rather a value addition, an investment in the future of the company. It is necessary for the creation of human, intellectual, financial capital and crucial for defining the respective roles of shareholders as owners on one hand, and managers on the other.
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