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.