Every Family Owned Business (FOB) has aspirations to translate the success of its patriarch into a lasting trans-generational business. The Board has a key role to play in facilitating effective, entrepreneurial and prudent management of its businesses that can deliver the long-term success. However, the FOB Board will have to overcome a number of critical challenges.

1. Considering that family owned businesses (FOBs) are such critical engines of social and
economic development in the MENA region, the fact that less than a third survive the transition
from the first to the second generation is a critical concern. The root cause of many of these
FOB failures can be traced back to ineffective governance. While governance covers a broad
remit, the central role of the Board will be our focus. Boards in the region face seven typical
challenges that limit their ability to ensure trans-generational survival. Critical actions to address
these challenges will also be discussed.
Challenge #1: The Board Role – Family First or Business First?
Many FOB Boards have informally evolved over time as their businesses have scaled and as
younger family members have grown to take on leadership positions. Often there is no formal
communication for what the Board is there to do or any structured training for what the
individual Directors role and responsibilities are. Instead, new family Directors learn “on-the-
job” by watching how older siblings on the Board operate. To further complicate matters, FOB
Boards are faced by a unique challenge: whether to put family first or the business first. What
happens when, for example, the family wants bigger dividends but the business needs greater
funding for operations and growth? How does the Board respond to conflicts of interest – for
example, if a family member starts a competing business? Historically, clarity on the Boards
role, responsibilities and accountabilities were not necessary as the Board had time to be all
things to all stakeholders.
However, as the complexity of business operations has grown – both in terms of industry
participation, geographic footprint and competitive dynamics – and as the expectations of a
growing family has also increased, there is no way for a FOB Board to be effective without the
clarity of purpose and the focus of objectives. To address these complexities, FOBs are
increasingly segregating family governance from business governance.

2. Figure: Transition to a Modern FOB Governance Structure
Critical Actions:
1. Deploy segregated, but aligned, family and corporate governance structures
2. Draft and socialize the Board mandate
3. Detail and align on Directors roles and responsibilities
4. Provide structured and formal training for Board and individual directors
5. Utilize mentors for younger Board members
Challenge #2: Incorrect Board Composition
Many FOB Boards are comprised solely of family members who have grown up within – and
along with – their businesses. As their businesses have enjoyed success, they have taken on
greater leadership positions culminating in a role on the Board. While this not only ensures a
trusted individual with a vested interest in the long-term success of the business, it also
provides someone with a proven and intimate operational knowledge. A critical downside
however, is a Board that is skewed in its background, experience and mindset. The table below
illustrates the typical breadth a Board would need to have. A depth developed from within the
FOB may not translate into a breadth of experiences, mindset and skills required for a rapidly
dynamic business environment.
Figure: Typical Experience, Mindset and Skills Required for Board

3. An additional complication for FOBs is handling the transition from a family-only board to one
that includes independent Directors. Ensuring the exiting family Directors have an alternative
role – such as a Director on the Investment or HR committee or on a family entity such as the
Family foundation – is critical for maintaining commitment and family unity.
Key Actions:
1. Define the required Board composition based on foreseeable business challenges
2. Determine need and timeline for Independent Board members
3. Define selection criteria and process for family appointees to Board
4. Define selection criteria and process for independent appointees to Board
5. Find new roles for exiting Board members to retain motivation & family unity
5. Detail a process for ongoing Board succession and renewal
Challenge #3: Ineffective Board Dynamics
A Board has limited time to get behind the financials and truly understand the critical drivers of
business value and to effectively challenge management in order to make insightful and
impactful decisions. This requires each Board member to play their role and bring their specific
attributes to drive a productive dialogue. Ineffective board dynamics – both between Board
members and between the Board and management – severely limit value add impact.
Poor Board dynamics in regional FOBs typically stem from common behaviors:
§ A lack of trust based on poor transparency, past failures or lack of accountability,
resulting in aggressive dialogue with management rather than insightful challenge
§ cultural norms of avoiding potential conflict, especially within the family hierarchy
§ Weakened commitment as real discussions held in privacy of majlis and only rubber
stamped at Board or due to a disconnect between family values and business practices
§ An abdication of accountability because the Chairman doesn’t enable or encourage
effective dialogue
§ Poor results driven by conflicting individual and business agendas that stay below the
surface during the Board but influence decision-making in the day-to-day operations

4. Effective Board dynamics are critical – as with any team, the better its participants work together
and are able to leverage their specific skills and experiences, the better the impact on business
outcomes. It is the Chairman’s responsibility to ensure authentic and constructive debate that
ensures clarity, accountability and, ultimately, results.
Key Actions:
1. Align Board objectives and behaviors with Family values and expectations
2. Establish formalized Director onboarding program
3. Ensure Board development has regular slot on Board agenda
4. Institute annual independent and peer assessment of Board performance
5. Deploy annual independent and peer assessment of Director performance
Challenge #4: Wrong Focus of Board Time & Discussion
As each Board meeting is an expensive use of senior executive time, it is imperative that this
time is used efficiently and for optimal business impact. Typically, as FOB Directors have
evolved from hands-on roles from within the family business, the focus of the board can
become very operational and granular. This can result in too much time and attention being
given to the most recent operational issue rather than more critical commercial or strategic
issues. Also, many FOBs will revert Board meetings to a review of each business units’
financials. Going line by line through a profit and loss statement offer little real value add and is
akin to driving a car using only the rear-view mirror – in the middle of the night! FOB Boards
may feel they can transition away from a predominantly monitoring and control function only
when management improve transparency and eliminate typical year end “surprises.” However,
this will only result in an inwardly focus that is too paralyzed to exploit market opportunities.
Figure: FOB Board Focus
An effective Board must balance not only and internal operational with an external market
perspective, but also understanding past performance with future opportunities. The Board
must focus on its strategic functions while ensuring other structures – such as the Executive
Committee or Audit Committee – enforce monitoring and control functions.

5. Key Actions:
1. Chairman to align with CEO/ExCom on critical discussion topics for the Board
2. Circulate detailed agenda for each Board
3. Develop standard reporting template with common KPIs & section for discussion topics
Challenge #5: Lack of Preparation
The responsibility for productive Board meetings lies with the Chairman whose primary
function is to ensure the right agenda is set, dialogue in the Board is focused, rigorous and
constructive, and accountability for action is established. However, this relies on Board
members ensuring they are up-to-date on the agenda topics and on management to provide
insight and transparency. If a common fact base of issues is understood prior to the meeting,
Board time can be more effectively spent on assessing options and aligning with management
on the optimal way forward. Without this understanding, Board time will, at best, be wasted on
bringing Directors up to the same level or, at worst, end with frustrating indecision that delays
progress and action.
Figure: Sample Board Director Time Allocation
As the saying goes “proper planning and preparation prevents painfully poor performance”
and nowhere is this more apt than for effective Board meetings. With Board meeting dates for
the year usually scheduled in advance, Directors should easily be able to set aside regular
blocks of time to review materials, prepare questions and submit requests for additional
information or clarifications. This should really be the base expectation of any credible Director
whether they are family members or independent.
Key Actions:
1. Set annual Board dates and communicate agenda focus for each session
2. Send Board papers 7-10 working days in advance
3. Evaluate Board reporting packs for transparency and insight
4. Utilise tools such as Boardpad for electronic store of latest reports and offline voting

6. Challenge #6: Reluctance to Make Difficult Decisions
Decision making in regional FOBs can be very complex. The benefits of the FOB model – a
patient long-term approach to the deployment of capital together with an entrepreneurial
mindset – drives a different decision-making approach to a Board driven by a short term focus
on quarterly earnings. This approach has resulted in decisions to enter new industries or
geographies driven as much by family reasons as commercial. A new business can be born
from the passion of one of the family members and, if they are able to convince the patriarch,
the new venture can easily raise funding. As the rationale to enter a new sector is often not
wholly commercial, the decision for FOBs to exit out of businesses – many of which may have
the emotional attachment of been started by parents or even grand-parents – is also not just
driven by numbers. Consequently, a FOB can carry loss making entities for years and years.
Every Board the hockey stick turnaround (a short period of continuing decline followed by a
sudden and prolonged upturn in performance) is promised and unfortunately almost every
subsequent Board the hockey stick is revised further out.
Figure: Evaluating the FOB Operating Asset Portfolio
An effective Board will not hesitate to make dispassionate decisions driven by cold hard facts.
Family harmony and unity is not best served by turning a blind eye to underperformance of
assets with emotional attachment. It is best served by maintaining a healthy portfolio of cash
generating businesses that will serve the social and economic needs of family members. By
taking a strategic view, the Board can maximize shareholder value by addressing assets before
they enter the Business Model: Broken & Financial Performance: Off-Track quadrant.
Key Actions:
1. Implement a commonly understood performance management model (as above)
2. Conduct detailed portfolio review every two to three years
3. Supplement portfolio review with annual refresh of key assumptions
4. Establish Corporate Development function to execute for portfolio decisions
5. Deploy a robust investment, M&A and divestiture process

7. Challenge #7: Inadequate Follow Up
A common complaint of FOB Boards is the lack of certainty that decisions made at the Board
will flow though to management actions in day to day operations. Board frustration is palpable
when management does not reflect the urgency or priority the Board expects. Even with the
best will in the world, the Board cannot be everywhere and know everything that is happening
in its businesses. Equally, the company secretary is often nothing more than a note taker who
checks-in just before Board papers are due for an update that it cut-and-pasted into the pack.
This can lead to a breakdown in trust which is only compounded by micro-management that
only creates a burdensome bottleneck that chokes decision making and paralyzes the
businesses.
Establishing a clear hierarchy of support structures under the Board is essential for driving
follow through and execution. The Board must provide clear direction and oversight but must
also give accountability to the relevant support structure. The Corporate Centre – which is often
nothing more than a financial reporting and administration function in many FOBs – needs to
step up as this group will carry a significant role as the execution arm of the Board.
Key Actions:
1. Institute functional committees to develop detailed recommendations for the Board
2. Deploy industry specialist committees to provide sector insight and validation
3. Establish controlled delegation of authority to support committees (i.e. ExCom)
4. Enable corporate centre to facilitate execution of key initiatives
5. Employ full-time company secretary to proactively follow up on Board actions
Conclusion
All FOBs harbor the dream of translating the success of the patriarch into a truly sustainable
trans-generational business. The benefits of the FOB model – an entrepreneurial mindset
coupled with a patient approach to deploying capital – can only become sustainable by
ensuring the appropriate discipline and governance is instituted. As the Board has a central
role to play in this, it must dispatch the typical challenges that create inertia and friction in the
execution of its objective: facilitate effective, entrepreneurial and prudent management that
can deliver the long-term success of the company (Institute of Chartered Accountants of
England & Wales)

8. About the Author: Sohail Gondal, Founder & Managing Partner
Sohail has a proven track record of delivering shareholder value for principal investors through active management of a
portfolio of companies. Over the course of his professional career, Sohail has built new businesses as a founder and early stage
Director, delivered operational and bottom line improvements to companies in Family Office portfolios in interim positions,
restructured or turned around businesses as a CEO and served Boards and CEOs of large corporations as a strategic advisor.
At home in a broad number of industries, Sohail has a deeper understanding, from a strategic, investment and operational
leadership perspective, across sectors including retail, technology, telecoms, media, education, financial services and private
equity. Sohail holds an MBA from Columbia Business School, a Masters in Industrial Engineering from the London School of
Economics and a bachelors degree with double major in Accounting & Computer Science from the University of Liverpool.