Transcript SAUDI FAMILY FIRM GOVERNANCE An Investigation of the

SAUDI FAMILY FIRM GOVERNANCE
An Investigation of the Applicability of the
Stewardship Theory
Abdullah AlZamil
LCCGE Seminar
15 April 2011
Abdullah AlZamil, 15 April 2011
Content
I.
Introduction
II.
Saudi Arabia
III. Family Businesses
IV. Stewardship Theory
V.
Hypotheses
I.
Methodology
II.
Contribution to Theory and Practice
III. Next Steps
Abdullah AlZamil, 15 April 2011
Content
I.
Introduction
II.
Saudi Arabia
III. Family Businesses
IV. Stewardship Theory
V.
Hypothesis
VI. Methodology
VII. Contribution to Theory and Practice
VIII. Next Steps
Abdullah AlZamil, 15 April 2011
I. Introduction
The aim of this research is to investigate the
stewardship theory as a basis for the governance of
large Saudi family firms. This is done by
investigating the presence and level of stewardship
in the organisations.
This takes the discussion of family firm governance
to it’s theoretical roots.
The results should provide families and their
businesses with a better understanding of their
relationship.
Abdullah AlZamil, 15 April 2011
Content
I.
Introduction
II.
Saudi Arabia
III. Family Businesses
IV. Stewardship Theory
V.
Hypothesis
VI. Methodology
VII. Contribution to Theory and Practice
VIII. Next Steps
Abdullah AlZamil, 15 April 2011
II. Saudi Arabia
Saudi Economy: A Timeline
1932: Creation of the Kingdom of Saudi Arabia
1938: Discovery of Oil
1948: Oil Exports Began
1960: Government income grows from $16m in 1946 to
$333m
1961: Introduction of Saudi Riyal Banknote
1974: Oil Boom (or Crisis?)
1991: Gulf War
Abdullah AlZamil, 15 April 2011
II. Saudi Arabia
Saudi Economy: 2003 Onwards
 Rapid growth in the Saudi economy over the past few years due to rise in oil
prices.
 This growth manifested itself in the form of increased government spending
benefiting from budget surpluses.
 Stock market boomed, growing over 830% in the period between March
2003 and February 2006.
 Capital Market Authority was established in 2004.
 Interests rates were low, confidence in the economy was high, and so was
lending.
 In 2006 things turned ugly. The stock market crashed, and signs on inflation
started to show.
 Demand on goods and services began to exceed supply and a worldwide
wave of high prices.
Abdullah AlZamil, 15 April 2011
Content
I.
Introduction
II.
Saudi Arabia
III. Family Businesses
IV. Stewardship Theory
V.
Hypothesis
VI. Methodology
VII. Contribution to Theory and Practice
VIII. Next Steps
Abdullah AlZamil, 15 April 2011
III. Family Businesses
Definitions of Family Businesses
“..those controlled by a family having at least one of the
following characteristics: three or more family members
involved in the business; or two or more generations of the
family having control in the business; or the current owning
family intends to pass on ownership to its future generations”
– Kenyon-Rouvinez and Ward (2005)
“A family enterprise is a proprietorship, partnership,
corporation or any form of business association where the
voting control is in the hands of a given family” – Neubauer
and Lank (1998)
“..one that, quite simply, is influenced by a family or by a
family relationship, and it perceives itself to be a family
business” – Leach(2007)
Abdullah AlZamil, 15 April 2011
III. Family Businesses
Significance of Family Firms
 50-90% of GDP in all free market economies (Kenyon-Rouvinez and Ward,
2005)
 Examples of family businesses:
Ford Motor Company, 4th generation
Wal-Mart, 2nd and 3rd generations of Walton family
Others
include
Cargill,
BMW,
Porsche,
and
Hermes
 All family businesses in the Middle East with 5000+ employees were
established in the 1960s and constitute 21% of all family businesses. 17% have
revenues above USD 500 million. (Ernst & Young, 2008)
 Constitute of 98% of all commercial activity in GCC countries, including Saudi
Arabia (Welsh and Raven, 2006)
 300 families in Saudi Arabia contribute 25% of GDP. (Kawach, 2009)
Abdullah AlZamil, 15 April 2011
III. Family Businesses
Models of Family Firms
 Two-circle model
Family
Business
(Beckhard and Dyer 1983; Lansberg 1983)
Ownership
 Three-circle model
(Taguiri and Davis, 1982)
Family
Business
Business
 Developmental model
(Gersick, et. al. 1997)
 Three-circle and tie model
(Neubauer and Lank, 1998)
Abdullah AlZamil, 15 April 2011
Ownership
Family
III. Family Businesses
Interactions in a Typical Corporation
Roles:
1. Just management/employees
2. Just owner
2
Owner
3. Just board of directors
5
4. Management – board of directors
5. Management – owner
6. Owner – board of directors
1
Management
Employees
7
3
7. Management – owner – board of
directors
(Neubauer and Lank, 1998)
Abdullah AlZamil, 15 April 2011
6
4
Board of
Directors
III. Family Businesses
Interactions in a Typical Family Company
Roles:
2
Owner
1. Just management/employees
2. Just owner
3. Just board of directors
5
4. Just family
11
5. Family – owner
6. Family – management
7. Family – board of directors
8. Family – management – board of directors
9. Family – owner – board of directors
12
10
1
6
Management/
employees
9
3
Board
of
directors
15
13
8
14
7
10. Family – owner – management
11. Owner – management
12. Owner – board of directors
4
Family
13. Owner – board of directors - management
14. Management – board of directors
15. Family – owner – management – board of
directors
Abdullah AlZamil, 15 April 2011
(Neubauer and Lank, 1998)
13
III. Family Businesses
Family Firm Governance
“the structures, systems, and processes
that provide direction, control and
accountability for an enterprise. For family
businesses, I would add the responsibility
to assure unity and commitment to
ownership.”
(Ward, 2005)
Abdullah AlZamil, 15 April 2011
Content
I.
Introduction
II.
Saudi Arabia
III. Family Businesses
IV. Stewardship Theory
V.
Hypothesis
VI. Methodology
VII. Contribution to Theory and Practice
VIII. Next Steps
Abdullah AlZamil, 15 April 2011
IV. Stewardship Theory
 The agency theory strongly influenced organizational theory and
business policy.
 It assumes an inherent conflict of interest between the agent and
principal, both of whom seeking to maximize their own economic
utility.
 The stewardship theory describes situations where economic
value is not the sole motivator, but rather individual goals stemming
from higher order needs.
 Davis, Schoorman and Donaldson (1997) explain the difference
between the two theories examining the basic assumptions and then
examining the psychological and situational foundations.
Abdullah AlZamil, 15 April 2011
IV. Stewardship Theory
Agency Theory vs. Stewardship Theory
Stewardship Theory
Basic assumption
Assumes inherent conflict of
interest between managers’
behaviours and interests and the
interests of principals.
Assumes alignment of the
behaviours of managers and the
interest of principals.
Model of man
Economic, self-serving
Self actualising, collective serving
Motivation
Lower order (economic) needs –
Extrinsic
Higher order needs – Intrinsic
Identification
Low value commitment
High value commitment
Use of power
Institutional
Personal
Management
philosophy
Control oriented
Risk orientation; control
mechanism
Time frame; short term
Objective; cost control
Involvement oriented;
Risk orientation; trust
Time frame; long term
Objective; Performance
Culture
Individualism – high power
distance
Collectivism – low power distance
Situational factors Psychological
factors
Agency Theory
(Davis, et. al., 1997)
Abdullah AlZamil, 15 April 2011
Content
I.
Introduction
II.
Saudi Arabia
III. Family Businesses
IV. Stewardship Theory
V.
Hypothesis
VI. Methodology
VII. Contribution to Theory and Practice
VIII. Next Steps
Abdullah AlZamil, 15 April 2011
V. Hypothesis
Hypothesis
The main hypothesis argues the suitability of the stewardship theory in
large Saudi family businesses.
H1: Large Saudi family businesses provide an environment
that fosters the growth of stewardship relationships.
Proving this statement requires testing the hypothesis against the reality
of large Saudi family businesses.
This is achieved by investigating the different behaviours and interactions
of the individuals within those organisations.
Six measures have been derived from literature that indicate the presence
and level of stewardship within a family business.
Abdullah AlZamil, 15 April 2011
V. Hypothesis
Sub-Hypotheses
Six sub-hypotheses were developed to address six different
elements to be used to measure stewardship.
H1a: The degree to which managers get their motivation from higher order needs
is positively associated with the level of the stewardship relationship.
H1b: The extent to which managers define themselves in terms of their
organisation is positively associated to the level of the stewardship relationship.
H1c: The use of authority and personal power is positively associated with the
level of the stewardship relationship.
H1d: Value commitment in large Saudi family businesses is positively associated
with stewardship.
H1e: Trust in large Saudi family businesses is positively associated with
stewardship.
H1f: Perception of agency is negatively associated with stewardship.
Abdullah AlZamil, 15 April 2011
Content
I.
Introduction
II.
Saudi Arabia
III. Family Businesses
IV. Stewardship Theory
V.
Hypothesis
VI. Methodology
VII. Contribution to Theory and Practice
VIII. Next Steps
Abdullah AlZamil, 15 April 2011
VI. Methodology
Methodological Construct
 Mixed methodology relying on the collection of both qualitative and
quantitative date
 A stepwise approach has been chosen as the best methodology for
data collection.
 Literature review for theoretical development
 Reliance will be on primary data to insure credibility, accuracy and
consistency. Challenges include cost and logistical concerns, candidate
identification, and access concerns.
 Questionnaires
 Focus Groups
 Interviews
o
Abdullah AlZamil, 15 April 2011
VI. Methodology
Qualitative vs. Quantitative Methodologies
Qualitative
Quantitative
Captures meaning
Tests hypotheses
Concepts as themes and
generalisations
Concept as distinctive variables
Measures are ad hoc and context
dependant
Measures systematic and
standardised
Data as words and observations
Data as numbers
Theory often inductive
Theory mostly deductive
Procedure particular and rarely
replicated
Procedure standard and
replicable
Analysis aims to create a picture Analysis using statistics, tables
using themes and generalisations and charts
(Neuman, 2003)
Abdullah AlZamil, 15 April 2011
VI. Methodology
Sample Population and Data Collection Instruments
Family members
Questionnaires
Board
Members
Owners
Next
Generation
Top
Management
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
Focus Groups
Interviews
Abdullah AlZamil, 15 April 2011
Non-family
✔
Middle
Management
Content
I.
Introduction
II.
Saudi Arabia
III. Family Businesses
IV. Stewardship theory
V.
Hypothesis
VI. Methodology
VII. Contribution to Theory and Practice
VIII. Next Steps
Abdullah AlZamil, 15 April 2011
VII. Contribution to Theory and Practice
 Filling a gap in literature.
Raising the awareness of the crucial importance of
governance for family businesses.
Providing advisors and practitioners with much needed
insight into the theoretical foundations of governance of
Saudi family businesses.
Abdullah AlZamil, 15 April 2011
SAUDI FAMILY FIRM GOVERNANCE
An Investigation of the Applicability of the
Stewardship Theory
Abdullah AlZamil
LCCGE Seminar
15 April 2011
Abdullah AlZamil, 15 April 2011