EXCLUSIVE
Finance

The No 1 problem in a family business? ‘Not business, but family’

November 21, 2024, 7:45 AM

Listing is seen as a way to professionalise family-run companies, but Mishal Kanoo argues that it does not fundamentally change family dynamics

Interview with Mishal Kanoo
85% of Gulf companies family run
IPOs can’t resolve their issues

Public listings offer access to capital markets but they do not resolve the issues that often plague family businesses, the chairman of one of the Gulf’s largest and oldest family-owned conglomerates has told AGBI.

Those challenges are governance, mindset and personal dynamics, said Mishal Kanoo, chairman of the Kanoo Group.

“Not a lot of people understand the concept of managing a business versus managing a family. The biggest problem in a family business is not because of the business – it’s because of the family.”

Family-run enterprises account for more than 85 percent of Gulf companies and contribute about 80 percent of non-oil GDP, according to consultancy PwC.

In the UAE, these businesses contribute more than 40 percent of Dubai’s GDP and employ over 70 percent of the private-sector workforce, according to the Ministry of Economy.

Last year a surge in initial public offerings on Mena stock exchanges was predominantly led by government entities, but IPO momentum is now shifting toward the private sector.

Listing is seen as a way to professionalise family-run companies, but Kanoo argued that it does not fundamentally change family dynamics. If founders list 10 percent of their enterprise, they still own 90 percent, he pointed out.

“What matters is the individuals who are running the business and how they interact with one another.

“If you have people who have a very prehistoric mentality, going public is not going to change that,” Kanoo said.

Speaking at the Horasis Asia gathering of business leaders, which took place in Dubai this week, he also emphasised that public ownership and regulatory frameworks did not guarantee longevity.

The Kanoo Group, founded in 1890 and now in its sixth generation, is one of the rare Gulf family businesses to survive multiple transitions.

“Most of the companies [from a hundred years ago] in the S&P [stock
market index] don’t exist anymore,” he said.

At Abu Dhabi Finance Week last year, Kanoo told delegates that many family businesses were unprepared for the scrutiny and transparency required by public markets.

Only 4 percent of family businesses endure past the fourth generation, highlighting the difficulty of maintaining family cohesion and business success.

Kanoo used the example of the great showman PT Barnum to underscore the importance of substance over spectacle in pursuing IPOs. “Before his circus came to a place, he had to market it,” he said.

“Then it comes in and it was a show – it was a great show. But not every show was fantastic, though people had already paid.”