Separation of Ownership from Management in Family-Owned Businesses In Saudi Arabia

Abstract

Extensive research has demonstrated that most family businesses in Saudi Arabia recognise the importance of corporate governance in principle, but do not believe that it has a contributory effect on the long-term success of their businesses. Currently, it is considered a "box-ticking" practice instead of a commercial priority. Additionally, some firms do not consider corporate governance to be a priority due to the lack of practical knowledge relating to effective implementation. This has led to particular governance issues being cited by involved stakeholders as areas of particular concern, including voting rights, conflicts of interest and oppression of shareholders, succession, and alignment with managers. Many families will have solid emotional ownership of their business, and will continuously take an active informal role in the constant decision-making process. Despite their involvement being helpful, it does create tension regarding whether those entrusted with making decisions feel that they have no authority or real autonomy. To this effect, these family businesses fail in having a professional approach to management, which ultimately affects how conflicts in the company are handled. This study sought to explore the weaknesses of the legal systems within Saudi Arabia related to the corporate governance of family-owned businesses. The family forms are targeted due to their dominance in the Saudi market, and the fact that the legal system's weaknesses are heavily manifested in the company's governance practices. This research determined that the country does require proper legal reforms in its established provisions, hence improving the daily operations of businesses. The UK provided a good exemplar, since its corporate governance provisions have been effectively implemented and established to follow international standards.