Perspective Joe SaddiPer-Ola KarlssonAhmed YoussefKarim Abdallah

GCC Family Businesses Face New Challenges

Booz & Company

Contact Information

BeirutJoe SaddiChairman+961-1-985-655joe.saddi@booz.com

Karim AbdallahAssociate+961-1-985-655karim.abdallah@booz.com

DubaiAhmed YoussefPrincipal+971-4-390-0260 ahmed.youssef@booz.com

StockholmPer-Ola KarlssonPartner+46-8-50619049per-ola.karlsson@booz.com

Ghassan Barrage, Nans Mathieu, Ihab Khalil, and Marc-Albert Hamalian also contributed to this Perspective.

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EXECUTIVE SUMMARY

Family businesses in the Gulf Cooperation Council (GCC) region face the dual challenges of operating in a difficult global economic environment and managing the transition of the business to a third generation of family control. In order to survive, grow, and take their places among the many family-run firms that have achieved enduring success in the global economy, firms must tame the “restless entrepreneur” syndrome, and develop and enact a long-term strategy to manage both the family and the business. Concrete steps families can take to achieve lasting success for their firms begin with a stringent reevaluation of their existing portfolio of businesses. This process may involve the divest-ment of original businesses that no longer fit into a long-term growth strategy, even though families may retain an emotional attachment to those businesses. The same discipline required to prune business portfolios needs to be applied to the evalu-ation of new investments, and may call for individual family member investments to be separated from the firm’s activities.

Creating a formal governance structure to oversee both family and business activities is another crucial step families must take to ensure long-term success. Families also need to recruit outside talent and accommodate their development, relinquishing control when necessary. The appointment of a change agent, whose interests are closely aligned with that of the family, to implement these needed changes over time is the best way to ensure that changes are achieved.

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In an era of corporations with global reach, multinational workforces, and board-dominated corporate structures, it is easy to overlook the fact that some of the most success-ful companies are still family busi-nesses—the oldest type of business in the world. Wal-Mart (the world’s largest corporation based on sales), Ford, Cargill, Koch, Cemex, and Bombardier in the Americas all began as family businesses. Peugeot, LVMH, IKEA, and Bosch in Europe also fall into the category, as do Tata, LG, and Samsung in Asia (see “Major Family Businesses Around the World”).

Family firms are developed and sustained across generations. These businesses have governance structures that are either controlled by, or have the strong involvement of, mem-bers of the original founding family. Businesses with this structure have thrived throughout the world and in many cultures; they have survived eco-

nomic downturns, wars, family feuds, and other challenges—and they have performed well. According to an index compiled by Credit Suisse, family firms have outperformed non-family firms in shareholder value creation by 15 percent from January 2005 through October 2008 (see Exhibit 1).

Although family firms grow and flour-ish for many different reasons, our analysis of more than 100 family busi-nesses globally reveals that the most critical factor to their success is the families’ coordinated and sustained long-term strategy for growing and controlling their businesses. This strat-egy can take many forms, but usually involves the exercise of patience in investing capital, the retention of companies through bull and bear mar-kets, the long-term development of talent, a focus on core businesses, the maintenance of strong and enduring values, and an emphasis on long-term performance over quarterly gains.

2

FAMIlY BUSINESSES: MANAGING CHANGE, ACHIEVING lASTING SUCCESS

Exhibit 1 Performance of Family Businesses, 2005–2008

Notes: Credit Suisse Family Index includes 172 family businesses with more than 10 percent family ownership, and more than US$1 billion in market capitalization; MSCI World is a market index of global stocks. It is maintained by MSCI Inc., formerly Morgan Stanley Capital International.Source: Credit Suisse, MSCI, Booz & Company analysis

200%

180%

160%

140%

120%

100%

80%

60%

40%

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct

2005 2006 2007 2008

Credit Suisse Family Index indicates that family firms have outperformed non-family firms

by 15+ percentage points since 2005

SharesRelative

Value

Change in Value Between Family

Business and World Stock Indexes

Family Index (1)

MSCI World (2)

Spread

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North AmericaCompany: Wal-Mart Stores Inc. Family name: Walton Primary sector: Retail 2007 revenues: $388 billion

Company: Ford Motor Company Family name: Ford Primary sector: Auto 2007 revenues: $172 billion

Company: Cargill Inc. Family name: Cargill Primary sector: Agriculture 2007 revenues: $120 billion

Company: Koch Industries Inc. Family name: Koch Primary sector: Conglomerate 2007 revenues: $90 billion

Company: Tyson Foods Inc. Family name: Tyson Primary sector: Food 2007 revenues: $26 billion

Company: Power Corporation of Canada Family name: Desmarais Primary sector: Mutual funds 2007 revenues: $26 billion

Company: Mars Inc. Family name: Mars Primary sector: Food 2007 revenues: $25 billion

Company: Cemex S.A.B. de C.V. Family name: Zambrano Primary sector: Building materials 2007 revenues: $22 billion

Company: Bombardier Inc. Family name: Bombardier Primary sector: Aerospace 2007 revenues: $7 billion

Company: Grupo Carso Family name: Slim Primary sector: Conglomerate 2007 revenues: $6 billion

EuropeCompany: Carrefour Group Family name: Defforey Primary sector: Retail 2007 revenues: $150 billion

Company: PSA Peugeot Citroën Family name: Peugeot Primary sector: Auto 2007 revenues: $110 billion

Company: ArcelorMittal Family name: Mittal Primary sector: Steel 2007 revenues: $105 billion

Company: BMW Group Family name: Quandt Primary sector: Auto 2007 revenues: $100 billion

Company: Bosch Group Family name: Bosch Primary sector: Retail 2007 revenues: $80 billion

Company: Agnelli Group Family name: Agnelli Primary sector: Investment holding 2007 revenues: $63 billion

Company: Banco Santander S.A. Family name: Botin Primary sector: Financial 2007 revenues: $50 billion

Company: Bouygues Group Family name: Bouygues Primary sector: Conglomerate 2007 revenues: $50 billion

Company: Tengelmann Group Family name: Haub Primary sector: Retail 2007 revenues: $40 billion

Examples of Major Family Businesses Around the World

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Company: Koç Holding Family name: Koç Primary sector: Conglomerate 2007 revenues: $39 billion

Company: Novartis AG Family name: Landolt Primary sector: Pharmaceuticals 2007 revenues: $38 billion

Company: Roche Group Family name: La Roche Primary sector: Pharmaceuticals 2007 revenues: $35 billion

Company: IKEA Systems B.V. Family name: Kamprad Primary sector: Furniture 2007 revenues: $30 billion

Company: J Sainsbury plc Family name: Sainsbury Primary sector: Retail 2007 revenues: $30 billion

Company: LVMH Group Family name: Arnault Primary sector: Luxury goods 2007 revenues: $25 billion

Company: Groupe Danone Family name: Carasso Primary sector: Food 2007 revenues: $21 billion

Company: Cadbury plc Family name: Cadbury Primary sector: Food 2007 revenues: $13 billion

Company: Porsche AG Family name: Porsche-Piëch Primary sector: Auto 2007 revenues: $12 billion

Middle East

Company: The Kharifi Group Family name: Al Kharafi Primary sector: Conglomerate 2007 revenues: N/A

Company: Majid Al Futtaim Group Family name: Al Futtaim Primary sector: Conglomerate 2007 revenues: N/A

Company: Saudi Bin Laden Group Family name: Bin Laden Primary sector: Conglomerate 2007 revenues: N/A

Company: Zamil Group Family name: Zamil Primary sector: Conglomerate 2007 revenues: N/A

Asia

Company: Toyota Motor Corp. Family name: Toyoda Primary sector: Auto 2007 revenues: $202 billion

Company: Samsung Family name: Lee Primary sector: Conglomerate 2007 revenues: $174 billion

Company: LG Electronics Family name: Koo Primary sector: Conglomerate 2007 revenues: $95 billion

Company: Tata Group Family name: Tata Primary sector: Conglomerate 2007 revenues: $62 billion

Company: Hyundai Motor Company Family name: Chung Primary sector: Conglomerate 2007 revenues: ~$60 billion

Australia

Company: News Corporation Family name: Murdoch Primary sector: Media 2007 revenues: $28 billion

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In the GCC, family firms are an up-and-coming force. They tend to be rel-atively young: Most firms are less than 60 years old (see Exhibit 2). Many of them began as trading firms and have expanded to include an array of busi-nesses (see Exhibit 3, page 6). GCC family businesses typically are man-aged by members of the first or second generation, while a few see an increase in involvement from third-generation members. Despite their recent prov-enance, some family businesses have gained international stature in the past two or three decades.

THE GCC: UNIQUE ENVIRONMENT, UNIQUE DRIVERS FOR FAMIlY FIRM SUCCESS

Exhibit 2 Main Family Businesses in the GCC

Note: Based on a sample of 25 family businesses spanning the GCCSource: Booz & Company analysis

The factors behind successful family businesses in the GCC have in many cases been very different from those at Western companies—a result of factors specific to emerging markets and the region’s cultural heritage. The successful drivers include:

• Limited external competition, abundant opportunities, and special access to capital, business networks, and information. Over time, the combination of these factors has allowed privileged, connected families to build large

Local economies are largely dependent on commerce

Market Conditions Original Sector of Startup Country of Establishment

Percentage of Surveyed Companies Established in This Period

As commerce dominates the region’s economies, most family businesses start as small traders of food and textiles

Mainly in Kuwait, UAE, and Bahrain, on the commerce route between the East and the Middle East

Mainly in Saudi Arabia (10 out of 14), primarily due to the country’s oil-driven economic boom

Still largely in Saudi Arabia, but increasingly in the UAE

Startups become more diversified, particularly in construction and financial services, as they take advantage of economic growth caused by the oil industry

Family business startups span various economic sectors, with a focus on retail as disposable income in the GCC increases

1970

s on

war

ds

1940

s–19

60s

Bef

ore

the

1940

s

In the late 1930s, oil is discovered in KSA and Kuwait

Oil development programs do not enter into full swing until mid-1940s (post-World War II)

Driven by the buildup of oil wealth, the economic development of the GCC begins

28%

56%

16%

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conglomerates that span a variety of sectors.

• More concentrated control within families. Because of GCC family firms’ relative youth and because of the culture and history of the region, most family-controlled busi-ness organizations in the GCC are still driven by one or two members of the family. Many of them are still driven or controlled by the original owners, some of whom are highly visionary and entrepreneurial.

• Respect for traditional rules of succession. The cultural heritage of the region plays a role in limiting destructive family feuds in family businesses. As an example, the pass-ing of control from one generation to the next has been less contentious an issue in GCC family businesses, where leadership and control of a company is traditionally passed to the older brother—a practice typi-cally accepted by other members of the family. Even in instances of con-flict between family members, the dispute tends to be kept private and

managed within the family, which limits the disruptive impact on the business. This advantage, how-ever, can easily dissolve as families expand and as the gap in experience and knowledge increases among various family members.

These distinct advantages have helped families create and nurture a number of successful, diversified conglomer-ates in the GCC region. However, these factors will not forever insulate family businesses from a number of growth-oriented challenges.

Exhibit 3 Most Popular Sectors for Family Businesses in the GCC

Note: Based on a sample of 25 family businesses spanning the GCCSource: Booz & Company analysis

Retailing & Trading

Financial Services

Real Estate

Construction & Engineering

Hotels, Restaurants

& Leisure

Industrial Food & Beverage Production

Media Transportation Others

72%

64%

56% 56%

Percentage of family Businesses active in sector

44%

36%

28%24%

16%

20%

Established sectors for GCC family businesses

Recent entry sectors for GCC family businesses

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Many of those who run these family-controlled conglomerates act in a way we characterize as “rest-less entrepreneurs”—those who are focused on the development of new business and entry into new invest-ments rather than on the scale and institutionalization of the businesses once they are created or acquired. This approach can result in a lack of focus on a particular sector: A survey of 25 family-owned firms in the GCC showed that nearly half (48 percent) were involved in five or more sectors, with nearly as many (40 percent) engaged in activity in three or four sectors, and only 12 percent active in two sectors or fewer. The restless

entrepreneur syndrome is not unique to GCC family-run firms. Indeed it is typical of many companies that operate within a context of strong economic growth, limited competi-tion, and abundant capital.

Another characteristic of family firms in the GCC is the emotional attachment many families have to the original or earliest businesses. For many regional families, the group’s original business defines the legacy of the family and its stature in the com-munity. Even if some of these busi-nesses generate returns below the cost of capital, the family often decides to keep the unit in order to preserve the

The restless entrepreneur syndrome is typical of many companies that operate within a context of strong economic growth, limited competition, and abundant capital.

identity and brand of the group.

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UPCOMING CHAllENGES FOR FAMIlY FIRMS

Today, family businesses are going to be put to the test as they face a worldwide economic outlook that has become uncertain, to say the least, and businesses everywhere face unprec-edented challenges and transformed operating environments. For family firms in the GCC, internal funda-mentals are changing rapidly as well. Firms must evolve to meet these new challenges from within and without.

The current global economic slowdown, coupled with increased competition from both regional and worldwide firms across industry

sectors, and the “democratization” of business development in the Middle East, will force family businesses to focus on scaling businesses, improving performance, and attracting new talent. Many family conglomerates are likely to find themselves cash-constrained over the next few years, as their businesses demand management attention and capital to survive and prosper in a more competitive environment.

In addition to responding to these external pressures and challenges, many GCC family businesses over

Many family conglomerates are likely to find themselves cash-constrained over the next few years.

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the next decade will also have to contend with the hurdles posed by the transfer of company control to a third generation. This transfer of power creates two challenges in particular, neither of which should be underestimated:

• Greater difficulty in maintaining control over the business. As share-holders become more numerous and begin to include non-family as well as family members, centralized con-trol over business strategy and deci-sion-making becomes more difficult. The transfer of control to a third generation means that a company formerly controlled by siblings with the same mother is now controlled by cousins, with different mothers, and weaker family ties and obliga-tions. The absence of the “preferred shareholder” concept in some coun-tries may exacerbate this problem (see box at right, “Maintaining Family Control: Legal Limitations under Shariaa-based GCC Family and Inheritance Laws”).

Maintaining Family Control: Legal Limitations under Shariaa-based GCC Family and Inheritance Laws1

In the GCC, founding families wishing to preserve control of their businesses over the course of many years and generations must comply with Shariaa-based family and inheritance laws. These rules dictate an approach to several issues that differs somewhat from that of Western laws, including:

• Separation of voting rights and ownership

• Donation of business stakes to descendants during an owner’s lifetime

• Consolidation of family voting power

Most GCC countries, in accordance with Shariaa laws, require that each share-holder in a business have votes in the organization equivalent to the number of shares owned. Although some countries’ laws can be interpreted in theory to allow the issuance of non-voting preferred shares, in practice the authorities rarely give the right to issue such shares. In order to adhere to these rules while limiting family capital commitments, many conglomerates in the Middle East use “cascading ownership,” in which the owner sells 49.9 percent of the holding company and 49.9 percent of his share of each entity in the holding company’s portfolio, thus maintaining a majority share while contributing only 25 percent of each company’s capital.

When it comes to transferring company ownership to descendants, Shariaa-based laws allow a living owner to do so through an endowment. A business owner can transfer a certain percentage of ownership to other family members while he is still alive, thus allowing him to choose his successor and limit the dilu-tion of ownership that might occur after his death.

Finally, the family trust, the vehicle of choice in Western countries for maintaining the family’s stake and consolidating control of a business, is not used in GCC countries. Most GCC families rely on establishment of a “mother” company, or holding company, to preserve family control, which simulates the trust mecha-nism, but does not offer the same control tools. Discussions have taken place recently across the GCC about the creation of offshore Shariaa-compliant trusts. It’s currently not clear whether—or to what extent—these might circumvent foreign ownership limitations.

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0

8

Generation 1

25

35

Generation 2

50

149

Generation 3

75

630

Generation 4

• An increase in pressure to grow the business. Large family size (the average family in the GCC includes five children) puts pressure on family businesses to grow as quickly as possible to maintain the wealth of individual family members and units. Based on the current average size of GCC families, we estimate that the typical family business needs to grow at 18 percent each year just to maintain the same level of wealth across generations (see Exhibit 4).

Exhibit 4 Family Wealth Growth Rate Across Generations

Note: This analysis assumes a generation span of 25 years, a fertility rate of 3.4, a male-to-female ratio of 1:1, and an inflation rate of 5 percent.Source: Booz & Company

Fam

ily B

usin

ess

Valu

e (R

epre

sent

ativ

e)

CAGR = 1

8%

Business Size Required to Maintain Family Wealth with Annual Takeout of 3% to 4%

$100 $5,500$360,000

$23,600,000

By the 4th generation, the business

value should

increase by 236,000

times

Number of Family Members

Years

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The evolution of family businesses is natural, and is to be expected; however, many family businesses do not survive the process. Managing the transition through changing economic climates and across generations requires that family businesses overcome the restless entrepreneur syndrome, let go of emotional attachments to businesses that are no longer viable or part of the long-range plan, and focus on building a more scalable and sustainable organization.

Given these challenges and based on our experience working with family businesses and conglomerates in the GCC and around the world, we have identified two broad areas that family firms must address: first, business management and development; and second, family issues.

In terms of business management and development, family conglomerates must take four steps: Reevaluate existing portfolio of businesses to create sharper focus. When capital and management time are abundant, an organization can

CONTINUING A TRADITION OF SUCCESS

enter into any business as long as the return exceeds its cost of capital. However, when capital costs increase and management capacity is stretched thin, family conglomerates must focus on the best possible use of both capital and time. This will often mean divesting or lowering the priority of some of their traditional businesses. A sharper focus will also allow leaders to build a set of capabilities that can add value in a more competitive envi-ronment and roll out these capabili-ties consistently across the portfolio of businesses.

Let go of emotional attachments to traditional businesses. This can be difficult as many GCC families tend to hold on to their traditional businesses for emotional rather than rational reasons. However, as they evolve, family-run conglomerates must have the discipline to focus on the most advantageous use of their capital and target fewer businesses to drive superior performance. Our analysis shows that between 2003 and 2007, family firms that focused on one coherent sector group outperformed those that didn’t by 5.5 percent per

Family-run businesses must have the discipline to focus on the most advantageous use of their capital.

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year. Such an approach does not mean that a company will be limited to a single market, nor will it position the company in just one niche; rather, businesses should take a diversified approach within a sector or industry, and leverage their market presence, brand name, and core competencies.

Apply rigorous discipline to evaluation of new investments. As the portfolio of existing businesses is rationalized, family businesses must create clear guidelines for new investments, focus-ing on scalability and relative return on capital and management time. Businesses or ventures that do not fit the criteria but are important for the family can be financed by funds (indi-vidual or collective) that are indepen-dent of the business.

Most important, build management capabilities and relinquish control when necessary. An essential element for an “immortal” family business is a management team that is able to grow the business independent of the shareholding. A silver lining in the current economic downturn is the sudden availability and unprec-edented access family businesses will gain to management and technical talent, which is crucial for the long-term growth and success of family firms. To recruit successfully and retain this talent, however, family businesses must delegate control to the management team when required, eliminate the glass ceiling, and create the right incentive structures. Many family-controlled firms have failed to retain top executives because they have been unable or unwilling to take these crucial steps.

In terms of family issues, there are three separate steps for firms and families:

Separate family and business activi-ties. In the Middle East the line between family and business activities is often blurred. This lack of distinc-tion between business and family functions can include management of basic family support services, all the way up to management of more complex and costly services such as the funding of individual invest-ments and family member ventures, and of philanthropic activities. This blurring of family and firm roles and operations reduces transparency, making it difficult to measure the real profitability of the business. At the same time, it increases the potential for areas of conflict among family members. Families need to focus on

Families need to focus on drawing clear lines between family and company activities.

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Por

tfolio

C

omp

anie

sG

roup

Fam

ily/

Sha

reho

lder

drawing clear lines between family and company activities. This can be accomplished by:

• Creating a “family office” to handle family-related activities, which range from provision of basic services such as travel arrangements to the management of individual family members’ wealth.

• Separating philanthropy from the business by the creation of a

foundation to enhance the control, planning, and accountability of philanthropic activities, or estab-lishment of a policy whereby the philanthropic activities of individual family members do not extend to the business.

• Exploring the creation of a separate

financing arm that could support family members’ own business ventures, so that those ventures would not be automatically folded into the existing business.

Exhibit 5 Potential Operating Model for Diversified Family Businesses

Source: Booz & Company analysis

Create a formal governance structure to govern family and business activities. Family businesses must formalize the governance of the family to ensure effective delegation and separation of activities (both business and non-business related) and to prepare for succession (see Exhibit 5). Designing an effective governance structure is straightforward; however, implementation should be managed carefully and introduced gradually, over a long period of time. Families

Family Assembly

Shareholder/ Family Council

Board of Directors

Corporate

Board of Portfolio Co.

Portfolio Co.

Board of Portfolio Co.

Portfolio Co.

Board of Portfolio Co.

Portfolio Co.

• Safeguards long-term interests, identity, and cohesion of family• Assembles family, promotes its values, and expresses its needs• Includes family members (as defined by a family charter)

who meet minimum requirements (e.g., age, education, etc.)

• Oversees business and ensures alignment with family values• Acts as a forum for family shareholders to formulate

unified positions on key issues• Includes elected family members who are shareholders

• Governs company on behalf of shareholder/family members • Recruits and oversees top-line management • Has ultimate responsibility for firm performance • Assists in opportunity sourcing

• Sources and executes investments in line with strategy • Governs portfolio companies through boards or committees

• For controlled companies, the board typically consists of group representatives, other owners, and independent directors

• Independent entities

1

2

3

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should use the governance structure to include and involve various family members who might not otherwise be actively engaged with the business.

Appoint a change agent. In our experience, successful change in GCC family businesses is championed and implemented by one individual. To drive change across the family and the business, it is critical for the family to appoint a change agent. The change agent could be a family or non-family member, but must be close to and respected by the family and must also have a thorough knowledge of the business. Most important, the interests of the change agent should be aligned with those of the family. Many

families, although aware that they must change the way they manage their business, distribute responsibili-ties among family members, with no clear accountability. With no single person to take ownership of the firm’s evolution, the firm often fails to fully implement needed changes. When it comes to family business, there’s an old saying that contains a grain of truth: “The first generation makes the money, the second generation tries to keep it, and the third generation loses it.” Some studies show that up to 80 percent of family businesses fail to make it through the third generation. Today, many GCC family businesses will

be put to the test—large family size will require them to seek around 18 percent a year in growth to maintain the same level of wealth across generations. This has to be managed through economic downturns and across generational changes. Either they institutionalize their business and manage the restless entrepreneur syndrome, or they risk decline and possible extinction. Many of the world’s greatest corporations have been started and continue to be run by family dynasties. All have faced challenges along the way and have successfully evolved and adapted to changing business conditions and family needs and abilities.

Many of the world’s greatest corporations have been started and continue to be run by family dynasties.

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The Rise of Famco

In 1969, a small company called Famco was formed to develop upscale hous-ing developments in a GCC nation. Fueled by skyrocketing oil prices worldwide throughout the 1970s, demand for these projects began increasing dramatically, and Famco was able to expand the number of developments—and its busi-nesses. Famco first opened up a luxury car dealership and then a shopping center with world-renowned retailers. The founder brought in his eldest brother to help him manage his new businesses.

By the 1980s, Famco was generating millions of dollars of cash per month. The controlling family had become powerful in society and was invited by the ruling family to participate in some of the nation’s largest domestic projects. By the 1990s, the initial housing business was only a small piece of a sprawling busi-ness conglomerate. A construction company developed the country’s port and international airport. Another company specialized in building power plants. A separate unit focused on the construction of schools and hospitals. And another separate business unit, run by the founder’s son, began participating in projects in other GCC countries.

This is the story of a hypothetical GCC conglomerate, which, though fictional, is typical of myriad GCC companies that were founded and matured as family-owned businesses. Like many others in the region, this family-owned concern started out simply, in the late 1960s, as a single construction or retail business. The company began to diversify slowly as its businesses began to generate

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The family-run business is not an anachronism, but a viable and prevalent model for competing effectively in the global economy, achieving impressive long-term growth, attracting top talent, and increasing family wealth over generations. However, in order to take a place in the worldwide roster of highly successful family-run firms, these businesses must eliminate or curb the restless entrepreneur syndrome, let go of emotional attachments to core but less profitable businesses, and institute guidelines that provide clear lines of separation between family and business activities. A challenging global economy and internal transition to new generations of family management make these changes all the more critical and timely, but they can be successfully implemented through careful planning and appointment of a change agent within the business to see it through its necessary evolution.

CONClUSION

cash and then it entered a period of rapid growth and diversification—first in the region and then abroad.

In recent years, Famco became aggressive in taking on debt, tapping the capital markets—rather than using the cash it was generating—to fuel even more ambi-tious growth. It announced plans for a multibillion-dollar mixed-use construction project and made major investments in U.S.- and European-based companies through newly formed private equity ventures.

Meanwhile, the dynamics within the company’s controlling family shifted. More than a dozen family members were now involved in running the business, each with growing needs to generate cash to support his own luxurious lifestyle. The founder and his brother—the original two operators of the business—were now approaching 70 and wanted to retire and leave the businesses they helped create. Neither was certain that his relatives had the skills to continue to run, let alone expand, the family empire.

The current global economic slowdown is exacerbating critical issues at all companies—and Famco is no different. Demand for its projects has slowed (the multibillion-dollar development has been postponed for lack of demand for high-end hotels, retail space, offices, and housing). Because of the global credit crunch, the company cannot issue debt to meet its obligations and its private equity investments are underwater—worth less than the amount invested.

Famco is at a critical crossroads—how does it manage change and achieve lasting success? Does it divest businesses? Does it create a new corporate gov-ernance structure? Should it bring in outside talent to manage its businesses? The answers to these questions will determine whether the company will enjoy the same success for the next 40 years that it has since its founding.

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About the Authors

Joe Saddi is the chairman of the board of Booz & Company. Based in Beirut, he also leads Booz & Company’s activities in the Middle East. He special-izes in strategic, organizational, and restructuring services for a wide variety of industries.

Per-Ola Karlsson is a partner with Booz & Company in Stockholm. He leads the global organization, change, and leadership practice. He specializes in challenges at the intersection of strategy, organization, and leadership.

Ahmed Youssef is a principal with Booz & Company in Dubai. He specializes in corporate strategy and finance, gover-nance, and operating model transformation for regional holding companies, family con-glomerates, and private equity.

Karim Abdallah is an associ-ate with Booz & Company in Beirut. He works with family conglomerates and real estate companies on portfolio ratio-nalization, governance design, and organizational structure.

Endnotes

1 Based on an interview with Amal Abdallah and Nazih Hameed of the Al-Saleh & Partners Law firm, Kuwait City, Kuwait.

Printed in USA©2009 Booz & Company Inc.

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