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THE LAW FIRM OF HAZIM AL MADANI ATTORNEYS AND LEGAL CONSULTANTS

A Comprehensive Study on Family Businesses and Overcoming Challenges

Family businesses, those owned and managed by one family or a group of relatives, play a crucial role in the economy of the Kingdom, constituting approximately 90% of private companies in the country. These enterprises provide employment opportunities for millions of Saudi nationals and expatriates, contribute to the diversification of the economy, and boost productivity and innovation.
In addition to these benefits, it’s important to acknowledge that family businesses face unique challenges, different from those encountered by non-family businesses. These include succession planning, maintaining cohesion and trust among family members, balancing personal and professional interests, and dealing with market fluctuations and regulations. Therefore, family businesses need to adopt strategies and policies based on best practices to ensure their sustainability and future success.

This article aims to highlight some of the key features of family businesses, including:

  • Commitment, trust, and communication among members.
  • The ability to make decisions quickly and flexibly.
  • Maintenance of a common vision and values.
  • Support for the national economy and job creation opportunities for young people.

However, this type of company faces certain challenges and drawbacks that may limit success and continuity. In this context, we outline the main challenges facing family businesses:

  • Lack of strategic and financial planning.
  • Weak governance and institutional management.
  • The blurring of personal and professional interests.
  • Difficulty in providing necessary skills and experiences.
  • The impact of family conflicts on company performance.
  • Intense competition from more modern and innovative companies.

We further classify family businesses in the Kingdom into three main types:

The electronic lease contract serves as a legal measure designed to protect the rights of both parties and mitigate real estate disputes. Through the Ejar platform, an initiative by the Ministry of Housing, the contract documentation process becomes seamless. The platform facilitates the registration of party details, property information, contract terms, duration, value, and payment methods, thereby fostering trust in the transaction.
Each party receives a digitally certified copy of the contract, complete with a confirmation code, which can be used as a reference in the event of disputes or issues. This digital documentation is crucial in enhancing the tenant’s confidence in the property’s quality and the transparency of information, while simultaneously ensuring the landlord’s rental income and property maintenance.

Key Regulations Governing Electronic Lease Contracts

Established family businesses: These have a clear and defined institutional structure, including an independent board of directors and professional executive management. They follow a long-term strategy for business development and expansion while maintaining their family values and organizational culture. They also have mechanisms to regulate the relationship of family members with the company and with each other, and pay special attention to succession planning and business continuity.

Transforming family businesses: These are transitioning from traditional family businesses to established ones by making some changes in their structure, management, and strategy. These businesses face challenges in reconciling different family interests and introducing new concepts such as accountability, transparency, and governance. They also need to develop their competitive capabilities in a changing and competitive market.

Traditional family businesses: These retain their family and personal character, do not adopt a formal institutional or administrative system, and do not set specific strategic or succession plans. These companies rely heavily on a family leader or leaders who make all decisions and do not easily accept new ideas or innovations. It is also difficult for these companies to attract or retain qualified employees or potential investors.

Thus, the forms of family businesses in the Kingdom reflect their stages of growth and development, and they need periodic evaluation to face challenges and take advantage of opportunities in a diverse and evolving business environment.
Finally, we propose some recommendations to improve the performance of family businesses and increase their competitiveness in a changing market:
  • Prepare clear and specific strategic and financial plans that define the company's short and long-term objectives and priorities
  • Apply principles of governance and institutional management that ensure the responsibility, transparency, and effectiveness of board members and executive management
  • Separate personal interests from professional ones, and avoid inheritance or favoritism in appointing family members to leadership or management positions.
  • Attract and develop qualified and specialized human resources, both from within and outside the family, based on professional standards.
  • Resolve or avoid family conflicts in peaceful and civilized ways, involving neutral parties in case of escalation.
  • Keep up with changes in the labor market and technology, and invest in research, development, and innovation to improve the company's products and services