- Family businesses should avoid resorting to initial public offerings
- Inheritance challenges may push more businesses to list
The Gulf Family Business Council (GFBC) and US-based McKinsey & Company does not advise family business to consider initial public offerings (IPOs) even though few family businesses in the UAE have tapped equity markets for funding.
If those family founders are not really ready to make tough decisions and to put the transition process in place and make sure the next generation is somehow involved, and the governance is there, the last best solution for them is an IPO, says Abdul Aziz Abdulla al-Ghurair, chairman of the GFBC and Dubais Al-Ghurair Investments. We encourage the family to keep it private, but if they cannot it is the last solution for you, and we want you to survive and succeed.
If they are not publicly listed, family businesses can choose not to use auditors, hold board meetings or publish results, leaving more power in the hands of the business founder.
Permitting outside shareholders a vote, introducing government legislation to enforce these management practises, or turning to outside mediation is seen as a step too far.
Whatever family businesses do, dont allow third parties interfere in what your future is, says al-Ghurair. It is better, even if it is a dispute between two brothers, to resolve it between them.
Intergenerational issues are already pushing family business towards stock markets, especially in Saudi Arabia where the third generation is starting to gain importance.
Formalising governance within a family business also improves its chances of surviving the transition to the next generation. It would also allow family members to exit or reduce their stake in the business for a fair price.
GCC equity markets have long suffered from a lack of depth due to low numbers of listed companies. Family businesses, which make up 75 per cent of the public sector, are especially reluctant to list as they can tap their own sources of funding or bank loans, while retaining control.
But professional management has increasingly been brought in as a solution to transitioning between generations. IPOs may be the next step.