A blow to Saudi Arabia’s family firms

Family-owned companies are among the most significant pillars for the development of the Saudi economy. They account for a significant proportion of the Kingdom’s large and medium-sized enterprises. In previous years, these family-owned businesses have made striking improvements in the way they are managed following a wave of problems, failures and bankruptcies that hit some of them as a result of disputes over inheritance after the death of their founders.
Sensing these pitfalls, some companies have taken a number of significant steps. These include creating professional and advanced administrative systems and applying good governance in line with internationally accredited standards. This step has begun to bear fruit, with more and more companies separating management from ownership by employing professionals, in order to avoid the issues that often arise from hiring kith and kin. These changes advanced dramatically when some family companies started to form genuine boards of directors operating in accordance with global capital market authorities. Things developed further when some companies started to appoint non-executive directors with years of experience to benefit from their objective and independent opinions. This trend in business is approved of by the Saudi capital market authority, which does not object to the presence of independent non-executive board members at the listed corporations.
However, the Saudi Ministry of Commerce and Industry has issued a decision banning the appointment of non-Saudi independent board members unless they are sponsored by the company. The decision came as a shock to business owners, especially since it affects non-executive board members. As a result of this, the decision will prevent Saudi companies from attracting qualified staff to enrich their boards.
Foreign non-executive members would not accept being placed under company sponsorship given the enormous tax consequences of this move. The decision will cut Saudi companies off from a source of competent staff. It is hard to see why this measure has to be adopted from the perspective of labor market regulation when other sectors are able to impose sensible regulations. A clear and beneficial example comes from the private health sector: hospitals and clinics in Saudi Arabia invite successful and distinctive staff to come and work for them for a limited period of time without having to sponsor them in this way.
This case of double standards has caused an unnecessary confusion among a wide and vital part of our economy, within companies of all kinds. Foreign expertise is vital for any economy worldwide, no matter how self-confident and advanced it is, otherwise, economies will suffer from isolation and unnecessary complications.
Family-owned companies need protection, development, support and the application of international standards. Saudi Arabia badly needs economic legislation that reflect its status as the Middle East’s largest economy.

The views expressed by the author do not necessarily represent or reflect the editorial policy of Arab Today.