Family businesses encouraged to embrace corporate governance

AMMAN — Corporate governance was stressed on Tuesday as a crucial step for the sustainability and competitiveness of family businesses.

Although around 90 per cent of small- and medium-sized businesses in Jordan are family-owned, only 3 per cent survive past the third generation, according to Maali Qasem, executive manager of the Jordan Institute of Directors (JIoD).

"Only 30 per cent of family owned businesses pass on to the second generation, while only 10 per cent pass on to the third generation," she said at a conference of family governance carried out by the JIoD.

She added that corporate governance policies can help family businesses improve their performance and grow, noting that the institute works closely with enterprises and businesses on enhancing governance practices.

Corporate governance practices seek to enhance economic and financial stability of businesses as well as achieving capital market development and firm growth,  Philip Armstrong,  International Finance Corporation (IFC)  senior adviser on corporate governance, said. 

He added that corporate governance practices include the creation of internal control units that monitor the performance of board members and protect investors.

Moreover, family businesses, which form around 75 per cent of businesses worldwide, should develop a "clear and agreed process for leadership succession" to take over when the business founder passes away to avoid internal dispute.

However, family businesses willing to follow corporate governance practices face challenges including leadership succession and creating a balance between family and business interests, said IFC country manager in Jordan, Ahmad Atiqa.

He added that the IFC has helped several public and private institutions in enhancing governance practices, including the Central Bank of Jordan, the Jordan Securities Commission, the Companies Control Department and Nuqul Group, which comprises 30 companies.

Ghassan Nuqul, vice chairman of Nuqul Group, said corporate governance is "more needed" in family businesses than in non-family ones, noting that it is easier to start governance practices in small businesses.

He noted that family businesses tend to involve emotions, which sometimes leads to escalation of disputes between family members, highlighting a need for separating business ownership from business management.

He called on family businesses to open up for diversity among their employees and to encourage independent non-family board members and "top calibres" to join the business.

He noted that family businesses are usually less affected by economic recessions as sustaining a family legacy is a key drive for these businesses, in addition to the passion for work and risk taking.