Family owned businesses (FOBs) in the UAE need to establish risk management, internal control, and governance systems in place in order to survive, according to Osama Al Rahma, Director, Al Fardan Group, one of the leading family-owned business conglomerates in the UAE.
Al Rahma, speaking at the Family Business Forum of the Internal Audit Festival, organised under the patronage of HH Sheikh Maktoum bin Mohammed bin Rashid, warned only 15% of FOBs in the UAE will survive through to the third generation because of the absence of a governance structure that will guide future generations in operating the business successfully.
“This in addition to lack of discipline, not being able to articulate and pass on the knowledge of the business, as well as family business issues will make it difficult for family owned businesses to survive, much more succeed,” Al Rahma added.
The Family Owned Business Forum was one the sector highlights of the recently concluded Internal Audit Festival. The other forums targeted key sectors of the UAE economy, such as banking, information technology, sports and oil and gas where internal audit plays a critical role. Public sector forums were likewise organised in Sharjah/Ajman, Dubai, Ras Al Khaimah (covering Umm Al Quwain and Fujairah), and Abu Dhabi.
A similar forum on family owned businesses was organised in Abu Dhabi, where Hamed Kazim, who heads his own Hamed Kazm Consultancy, also spoke on the importance of adopting a proper governance structure and setting up risk management and internal control systems for FOBs to succeed.
According to Kazim, the benefits for FOBs of setting in place such structure and protocols include having a thorough understanding of ownership and management issues, thereby providing clarity to owners and management; as well as legitimizing family leaders thus enlisting the collective support of the other family members.
This is where an Internal Auditor comes in. Al Rahma observed that many FOBS hire Internal Auditors because they just have to have somebody to deal with external auditors. “We need to realise that an Internal Auditor can add so much more value to a business than just monitoring operations and reporting losses or variances. An Internal Auditor can provide insightful analyses of risk factors involved in, for example, acquiring a new business or taking out a loan facility for business expansion,” Al Rahma continued.
Al Rahma cited the experience of many FOBs during the real estate boom years in Dubai. “A lot of them veered away from their core business to go into real estate. When the cookie crumbled, they were left with close to nothing or even their core businesses were left in disarray. An internal auditor could have alerted them of the risks involve, and how to manage them properly,” he explained.
He then shared the experience of Al Fardan, which has established a Group Internal Audit Department, to help monitor, control and assess its operations as well as to help senior management make decisions on operational processes, cost reduction; waste elimination and other variables that help keep the company operating efficiently.
Mr. Abdul Qader Obeid Ali, president of the Internal Audit Association, organisers of the Internal Audit Festival, commented: “Unfortunately, the word ‘auditing’ gives negative and untrue impressions about our job that it is all about inspection and control. Our role is verifying and improving what is currently being done to help achieve desired business goals.”
The first of its kind anywhere in the world, the Internal Audit Festival organised by the Internal Audit Association UAE (IIA UAE), is aimed at raising awareness of the Internal Audit as a profession by stressing on the key role of the Internal Auditors in both private and public sectors.