Adopting corporate governance standards in family businesses is an uphill struggle. Sherine Nasr finds out why Transparency, fairness and accountability are integral components of business ethics; they are at the very heart of corporate governance. Applying these principles has become a major challenge for companies which want to retain their customers, attract new ones, and survive in an increasingly challenging international market. But if implementing corporate governance standards in joint venture companies has proven to be difficult, trying to apply them to family businesses is an even more difficult task. This is because such businesses are more about family than they are about business. "The problems and difficulties inherent in managing and owning a family company are more about human nature, and more relationship- oriented, than they are technical and money- oriented," explained the first Corporate Governance Manual for Family Businesses, released last week by the Egyptian Junior Business Association (EJB). The manual -- a joint effort by EJB, Egyptian companies and banks -- is considered to be the first guide in Egypt and the Middle East for family companies seeking growth, continuity and sustainability for their business. Family businesses dominate economic activity in Egypt, and "some brand names started prior to the 23 July Revolution and have managed to continue through the different eras," comments Minister of Investment Mahmoud Mohieddin. But a family which has been successfully running a business for decades is unlikely to want to submit to strict rules which are certain to reduce its free hand in decision-making. "To most, the governance issue is complicated and not worth pursuing, especially if it means delegating authority and decentralising decision- making," noted EJB Executive Director Ayman Salah. But economists stress the fact that the 21st century promises to be the age of corporate governance. According to Minister of Foreign Trade and Industry Rachid Mohamed Rachid the process incorporates great challenges: "Applying rules of meritocracy and financial risk-discipline is a far more complicated issue among family members than it is in a joint-venture company." It is a question of culture rather than compliance. "Rules can be set, but people can bend them." said Rachid who added that it is crucial that company leaders strictly abide by rules of corporate governance; "It is the only way for these companies to survive." President and CEO of ACME Corporation Mustafa Hegazy concurs. "Family businesses in Egypt and worldwide have arrived at a crossroads," Hegazy opined. "Applying the principles of corporate governance is a question of 'to be or not to be' for companies which seek to survive this century." Corporate governance principles were originally developed in 1998 by the Organisation for Economic Cooperation and Development (OECD) when its council sought to develop -- in conjunction with national governments, relevant international organisations and the private sector -- a set of corporate governance standards and guidelines. Since these principles were agreed upon a year later, they have formed the basis of corporate governance initiatives in both OECD and non- OECD countries. These principles are now the basis of the corporate governance component of the World Bank and International Monetary Fund reports on the Observance of Standards and Codes. At the core of these standards lies a set of principles that form the ethical value of any company. For example, companies applying corporate governance rules will protect and facilitate the exercise of shareholders' rights, which include the right to secure methods of ownership registration and the right to obtain relevant and material information on the company on a timely and regular basis. Other principles ensure the equitable treatment of all shareholders, including minority and foreign shareholders, and ensure transparency and accurate disclosure on all matters related to the company. These include the financial situation, performance, ownership and governance of the company. On the national level, Egypt adopted a draft Egyptian Corporate Governance Code in 2005 for companies listed on the Cairo and Alexandria Stock Exchange, financial institutions, companies that use the banking system as a financing source and large non-traded family firms. "Egypt has recognised the urgent need for effective corporate governance mechanisms that would serve the business community, not only in Egypt but in the Middle East and North Africa region as well," noted Prime Minister Ahmed Nazif. He added that applying corporate governance is crucial in helping the country attract modern investment and modernise infrastructure. While applying the Egyptian code was a voluntary decision at first, now it has become a prerequisite for companies to be listed on the Egyptian Stock Exchange. Moreover, the Capital Market index for actively-traded companies will take into account the observance of corporate governance standards by companies. Companies applying corporate governance have already reaped concrete results. According to CEO and Chairman of EFG-Hermes Yasser El-Mallawani, these principles are not a luxury but a necessity. "Corporate governance protects executives, shareholders, consumers and the market as a whole," asserted El-Mallawani. He noted that it is an ongoing process that improves the company's access to financing locally and from international sources. "International investors take corporate governance as a prerequisite to conclude a deal," stated the company's CEO. Turning the capital of EFG-Hermes from $100 million to a whopping $2.6 billion in six years is a model success story. El-Mallawani added that EFG-Hermes managed to obtain a licence in Saudi Arabia and attract a contract worth $0.5 billion in Lebanon during the war, because of its excellent record.
