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A family affair

A family affair

A far greater proportion of companies in the region are family owned than the global average. But even successful family owned companies rarely make it past the third generation.

July 4, 2010 11:53 by

In May, the Abdullah brothers, whose family once owned Damas Jewellery, failed to make promised repayments on company money they had borrowed for personal investments.

News in 2009 that Damas chief executive Tawhid Abdullah and his brothers, Tawfique and Tamjid, had used company funds to invest in real estate projects startled the markets and Damas investors.

The issue is a major one for more companies than just the Dubai-based jeweler. Family-owned firms – even successful ones – rarely make it through to a third generation of family management.

Misunderstandings over separation of company and family coffers, and a market inhostpitable to new public offerings, means succession planning in the region’s privately-held firms will be critical in the coming years.

In the Middle East and North Africa, family businesses play a greater role in the economy than they do globally. According to data compiled by economists at the Dubai International Financial Center, family businesses represent more than 90 percent of businesses in the region; in the rest of the world, they count for about 70 percent.

In the region, and in the Gulf in particular, control of the economy is in the hands of a few families. In Qatar, 15 families have 55 percent of board seats, according to the DIFC data. In Abu Dhabi, the 15 biggest families control 40 percent.

These boards often have multiple representatives from the same family: more than 35 percent of companies in the U.A.E. have two or more directors who are related. Only 5 to 15 percent of family-owned firms continue to be managed by descendents of the founders by the third generation.

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