for a more diversified economy: merchants ventured into
the banking and construction sectors and then, building
on these successful investments, into retail and services.
Businesses operated in relatively closed economies
with limited competition, relied on personal and
socially influential networks, and benefited from capital
abundance. This particular environment offered these
businesses a dominant position, considerable power,
and moreover confidence in the existing management
principles which proved successful during that period.
Over this short history of modern capitalism, and despite
numerous international joint ventures that had become
common over time, the tribal values persisted and left their
marks on how we are doing business in the region today:
(i) The “Chairman” corresponds to the historical “Tribal
Chief” who is typically the principal founder. He still
owns the bulk of the enterprise and still possesses the
majority of the powers associated with the position
of Chief Executive. The title “Chairman” is also easily
interchangeable with other titles such as General Manager,
President and even Managing Director.
(ii) The board of directors, the corporate evolution of the
traditional Majlis, operated for a long period in an oral and
consensus-based culture, where many did not realize the
need to create and document policies and procedures to
improve operational efficiencies and reduce future conflicts.
(iii) The disclosure adverse culture is another inheritance
probably relating to the trade secret mentality. Most
private sector wealth is held privately. The overall owners’
reluctance to publicise the operational and financial
aspects of their enterprises, have led over time to a
general acceptance of the lack of transparency. This has
also contributed towards a fear of international Private
Equity firms to venture into the Middle Eastern region.
(iv) There are a large number of traditional small to
medium sized firms in the region where the chairman still
signs the payroll, and if he happens to be travelling his
staff’s salaries wait until his return for his signature on the
cheques! Whilst this example of the lack of delegation may
seem archaic in terms of a ‘Western’ governance model,
Middle Eastern culture has always been slightly resistant
to the delegation of authority. This has contributed
towards operational bottlenecks and restrictive corporate
practices. The resistance to relinquish control can make it
difficult for private equity managers with a minority share
to initiate the required changes effectively so as to steer
the organisation towards its full potential.
In my opinion, what private equity managers should focus
on to overcome these cultural hurdles, is to work with
portfolio companies on four different fronts:
The Courage to Change?
Article by Jan Bladen
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