Finance

Family companies don’t like to be questioned, says Mishal Kanoo

December 14, 2023, 12:13 PM

Adult, Female, Person — A family-run company has to consider the family members' interests, but an IPO adds shareholders to the mix

UAE families reluctant to list
IPOs demand ‘switch in mindset’
Mena IPOs worth $22bn in 2021

Most family-run companies in the UAE shy away from becoming listed because they are not accustomed to the level of scrutiny and transparency that an IPO entails, according to leading Gulf businessman Mishal Kanoo.

Kanoo, chairman of The Kanoo Group, one of the largest independent groups of companies in the Gulf region – and the longest-running family-owned business – was speaking at Abu Dhabi Finance Week.

“What most families are not prepared for – and believe me, they’re not prepared – is to be questioned,” he said.

Kanoo emphasised the significant gap in readiness among family businesses for the heightened scrutiny and accountability that accompany an IPO.

“They like their own little empire and everything is done within [the] family. But when a shareholder has the right to question Mr Chairman, who thinks the world revolves around him, and he’s not prepared for that, there’s an issue.”

The UAE’s family-run businesses make up more than 85 percent of companies in the Gulf. According to PwC, Gulf family businesses contribute about 80 percent of the non-oil sector GDP in the region.

Family-owned businesses employ more than 70 percent of the UAE private-sector workforce, figures from the Ministry of Economy show, and Dubai’s family businesses generate more than 40 percent of the emirate’s GDP.

IPOs increasing

There was a surge in IPO activity in the Mena region last year, predominantly led by government entities.

A report from EY said there were 51 IPOs in 2022, almost one a week, raising $22 billion, an increase of 143 percent in volume and 179 percent in value compared with 2021.

The momentum in IPOs is now shifting towards the private sector, including family-run companies.

A notable example is Al Ansari Financial Services, one of the UAE’s largest remittance and foreign currency exchange companies. Owned by a local family group, this year it raised $210 million.

Mishal Kanoo’s own company is now on its sixth generation of family involvement

Shift in mindset

Kanoo said this transition towards IPOs, while offering potential benefits such as increased capital and market presence, also demanded a shift in mindset by owners.

“What people seem to forget is that an IPO means I have responsibility not just to my family, but to all the shareholders, the public included,” he said.

“That means even the person who has one share in my company, I have a duty towards him or her to protect his or her interest in the company. That is a mindset.”

The Kanoo Group, founded in 1890, is currently navigating its sixth generation. Just 4 percent of family businesses endure past the fourth generation.

Kanoo credited the company’s longevity to effective succession planning, emphasising the importance of balancing business needs with family members’ aspirations.

He said it was necessary to integrate family members’ interests into the business to prevent feelings of alienation.

“There is the management planning and then there’s the family planning,” Kanoo said.

“I don’t need to have family members in a family business for the business to flourish. I can hire professionals. But I do need to take into consideration what the family members need in a succession.

“What if that person is more interested in doing something else? Do I help them create that something else? If I can help them create it within the organisation, great, they stay on board. But if I make life so miserable and so tedious, I’m pushing them away.”

Not the whole picture

Emirati lawyer Dr. Habib Al Mulla, who has been practising in the UAE for four decades and advises many large family businesses, said Kanoo was right, but only to an extent.

Al Mulla said it was true some family businesses were run on a more casual basis.

“I recall, for example a company that did not hold any AGM for almost 25 years. However, there are a number of companies that are structured and organised better than even some of the listed companies. in fact, they are ready to go IPO the next day if they so desire.”

The lawyer also pointed out that many family businesses already have to deal with banks and government regulators, so they are used to being transparent and being answerable to outside entities.

“No matter what, there is certain level of compliance involved. True, it may not be as vigorous as a listed company but there is some level of transparency involved,” he added.