Corporate governance in middle east family businesses

Abstract

This study examines governance-related issues within Middle East family businesses. The absence of proper external monitoring mechanisms – governmental or other – to protect shareholder rights, and the absence of any pre-existing literature on the Middle East market provides the motivation to evaluate the corporate governance practices of Middle East family businesses. Using a sample of 124 family businesses, we construct a governance index and use a probit model to examine whether family-related variables can explain the level of corporate governance. It is found that the majority of boards had a prevalence of family members and a low proportion of independent directors. Family businesses, still being run by the first generation, have a limited number of independent members on their boards and tend to adopt poorer governance practices than other firms where the third or fourth generations are involved. Instituting a family council has a positive governance impact, however, much work is needed, especially that it seems to lack clear vision as it is rendering the involvement of new generations ineffective.