| Lebanon | Sep 21, 2019
Most businesses in Lebanon's private sector are family owned, presenting challenges to overcome and unique opportunities to seize.
For the last 3,500 years, at least, Lebanon has been greater than the sum of its parts. The ancient Phoenicians maintained a network of family, friends, and alliances across the Mediterranean. In the 21st century, that network still exists, but spans the entire globe.
Global, family-owned and operated businesses give Lebanon a unique edge compared to other countries and should give investors good reason to have long-term optimism in the country’s future, despite current financial and political challenges.
But keeping a business in the family itself can be difficult. Children may not want to follow in their parents’ footsteps. Rivalries that start outside of the boardroom can turn toxic inside of it, making investors wary of getting caught in the middle of a family feud.
In other words, you can fire your employees, but you can’t fire your family. Research suggests that the best way of growing a family business, in Lebanon or anywhere else, is by combining the benefits of inherited expertise with the predictability of corporate governance. Doing so can give clients peace of mind. If a family-owned business ever decides to go public, these fail safes will also give investors a reason to buy shares.
“In Lebanon, family businesses are considered the base of the economy, constituting around 90% of the private sector. One aspect of family businesses is that they are short-lived, and only around 10% transfer to the third generation,” Lynn Idriss Bechara, a master’s student at the American University in Beirut wrote in 2013 as an abstract for a thesis ‘Corporate governance in Lebanese family-owned businesses.’
“In most cases, this failure to transfer across generation is attributed to a lack of solid corporate governance structure,” Bechara added. “However, given the complexity of family businesses and the overlapping family, business, ownership, and management systems, standard corporate governance principles cannot be readily applied. Policymakers, public organizations, the banking sector, and family businesses themselves must collaborate and make changes in order to reform corporate governance practices.”
The diaspora is one of Lebanon’s most valuable advantages, just like its location. There is hardly a country without a Lebanese community in it, and in many of them Lebanese have risen to positions of power and prominence in the private or public sectors. Part of the reason for this exodus was the civil war, which made life for many untenable in their home country. The US, Brazil, and Europe became new homes for Lebanon’s entrepreneurial spirit.
During the immense tragedy of the Lebanese Civil War, departures from the country surely seemed like a grim prognosis for Lebanon’s future. But with the end of the war and the rebuilding of Lebanon, as well as the rise of cheap and simple international communication, the exodus of Lebanese that seemed like a curse in the 1980s became a blessing by 2019.
Lebanon’s families do not present any extra liabilities to business than any other, but in some senses may offer extra benefits, thanks to their wide geographic distribution. Brazil is home to more than 6 million Lebanese, and the US is next, with 2 million, followed by Argentina, Venezuela, Colombia, Mexico, Australia, France, Canada, Saudi Arabia, and Syria. These diaspora communities are often multilingual, speaking Arabic, English, French, and Spanish.
Although it is difficult to discern distinct trends in globalization, one of the most unmistakable changes between the 20th century economy and the 21st century economy is the importance of information and its transformation into a sort of currency of its own. Countries that are monolingual are at a disadvantage.
Unless they have some kind of commodity to trade, a process that requires few if any words, entrepreneurs and businesses unable, or unwilling, to learn or speak different languages will struggle to navigate foreign cultures and thrive in far flung markets, with loyalty to family name and legacy acting as a force multiplier for Lebanese entrepreneurs, both among the diaspora and in Lebanon itself.
The family-based structure of Lebanese firms presents challenges that can be overcome by adopting corporate governance practices from publicly traded companies on transparency and accountability. Although not a simple task, such reforms are possible to achieve, and doing so will let Lebanon’s human assets realize their full potential.