Corporate Governance for Family Companies: Why it Should no Longer be an Option

Introduction

In a global context in the wake of the financial crisis there has been an increasing emphasis on Corporate Governance. In the Middle East there have been developments such as the introduction of the Bahrain Corporate Governance Code (the Bahraini Code). The Bahraini Code keeps the Middle East in line with European developments such as the publication last month by the Institute of Directors in London of "Corporate Governance Guidance and Principles for Unlisted Companies in Europe" (the Guidance) as an initiative of the European Confederation of Directors. The Guidance sets out best practice recommendations for unlisted companies, including start-ups, single owner-manager companies, family businesses, private equity-owned companies, joint ventures and subsidiary companies, as well as state-owned companies and social profit organisations.

The Bahraini Code was launched on the 16 March 2010 in an effort to improve Bahrain's business and investment environment. It is Bahrain's first corporate governance code and follows eight years of consultation with Bahrain's private sector leaders, government officials and local business associations. The development of the Bahraini Code represents Bahrain's increasing effort in the Gulf to become more competitive in the global market.

The Bahraini Code applies to all companies which are incorporated under the Bahraini Commercial Companies Law whose shares are listed under the Bahrain Stock Exchange. The Bahraini Code can also function as a model and reference framework for all other companies including unlisted Bahraini Companies and foreign companies doing business in Bahrain and it is highly recommended for that purpose. It is expected that the Bahraini Code will be extended to include such companies in the future with some modification.

It is accepted that most unlisted companies will not be concerned with corporate governance in the same way as listed entities i.e. transparency between the board and its external shareholders, although this will be important for the private equity owned companies, joint ventures and state owner/social profit organisation. Notwithstanding this, establishing a framework of company processes and governance can add value to the business of any unlisted company, help build its reputation and ensure its long term continuity.

Corporate Governance Principles

The Guidance sets out fourteen principles, nine of which are applicable to all unlisted companies and an...