News & Opinions

Please Mind the Gap!

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Reputation is linked to confidence, and when confidence falters, reputation takes a hit. This is very true right now of how the Middle East markets are perceived, in the region and globally. Major stock markets fall when oil prices fall, as they perform in lockstep with crude prices. The correlation between oil prices and Gulf equity markets will continue, because the major names that drive GCC financial markets such as KSA’s Tawadul and the UAE’s Dubai Financial Market (DFM) are strongly anchored in the petrochemicals industry. This correlation means that falling oil prices are having a direct effect on Gulf economies, on government spending, and thence on both investor and consumer confidence.

Gulf stock bourses are particularly at the mercy of volatility in Asian markets, and faltering confidence in China’s economy has had a dramatic effect on these markets. Gulf countries in recent months have been battered by economic storms, and there is a lack of certainty which is filtering through to many areas. There is a need for the region to get sentiment back to a more neutral position, and play a more active role in expressing confidence in the long-term. There are many economic modernisation and investment programmes being implemented by Gulf governments which all need to be communicated and presented as part of an overarching plan to build strong economic foundations and a diversified path away from reliance on oil. Resistance to reform however is a problem, and there are many obstacles in its way.

In the UAE, the conversation around business reform has lately been very much on SMEs – and how the country can promote a more favourable climate in terms of lending and insolvency regulation. Many business leaders believe there has to be a greater cultural acceptance of failure, and more tangible help for businesses to get back on their feet and for entrepreneurs to try again. The media often features stories of business men jailed for fraud in Dubai, after writing cheques that bounce – a sure deterrent to anyone considering taking on the risks inherent in starting up a business.

The wheels of reform by Gulf governments are now quite relentlessly set in motion by the bite of deep budget deficits, and by the very real attractions of outward investment and economic growth not rooted in hydrocarbons. If reform is a must-have, not a nice to have, then it does not serve to paper over the cracks in an existing system – it reboots and redesigns the system from the inside out. Change is more rapid and far-reaching. Reforms currently underway by Kuwait and Saudi Arabia have seen concrete structural changes to licensing, corporate tax, foreign direct investment promotion and public-private partnerships. Subsidy cuts might propel us forward towards a new dawn in free-market economics in the region.

Any look at market economics in the Middle East however has to take in the role of the family, which as a concept for many is indistinguishable from the idea of a business. According to EY, 90% of companies in the Middle East are family-owned businesses, and two per cent of the world’s top 250 family businesses are situated in the Middle East. Family is undoubtedly at the heart of reputation management in the region, bringing a host of different concerns when it comes to managing reputation.

The Authenticity Gap, a methodology devised by FleishmanHillard to help companies understand and proactively manage the gap between audiences’ expectations and actual experiences with a company or brand, analyses nine key drivers of authenticity; those attributes that most shape audiences’ perceptions and beliefs about a company. The drivers are tracked over time to monitor the organization’s current authenticity and momentum against key competitors.

It is interesting to look at these drivers through the lens of the family, which does not just characterise the roots and identity of commercial ventures in the Middle East, but also governments and public bodies. Just as there is little definition between the private and the public in the interplay in a family business between individual agents and the company as a whole, so too is there often little clear definition in Middle East countries between the government and the commercial interests owned by that government. Topmost in considering the implications of privatising the many state owned assets in the Middle East would be the impact on organisational structure, culture and, fundamentally, corporate identity.

To pick just one of the nine drivers of authenticity; employee care, gives rise to some interesting thoughts about what constitutes employee care in a family run business. If the business only employs family, then is the company in business solely to support the family, or does it serve a higher purpose? If it employs non-family members, then does the organisation seek to treat all equally?

Two other drivers of authenticity; consistent performance and credible communications, can be hampered by the fact that many family run businesses may create ownership models that are inflexible and lack transparency. If the board are all brothers and uncles, then how can the company successfully convince external stakeholders that the right people are at the helm for the right reasons?

Public listings of family run businesses are becoming more popular in the Middle East, perhaps because the reach and size of many families means they are well placed to raise funding, but also perhaps because the strength of the family name and therefore reputation gives confidence to financial backers. The family can be an almost tangible asset that bolsters reputation when times are well, but it must be remembered that it can also be a source of reputational damage when things go wrong.

In terms of assessing a company’s situation and its state of crisis preparedness, the status of the family and personalities of each of its members have to be assessed and audited just like any other facet of the business. Strengths, weaknesses and vulnerabilities are all complexly woven together in any family, where the private and public faces are intertwined, and this has to be taken into account when conducting an assessment and scenario planning audit as part of the steps taken to be better prepared for a crisis. Whereas in a non-family owned business, an issue with a senior executive’s performance or personal actions might be easier to manage, close ties in a family business mean it might not be. If an accident happens, with the public demanding to know if the person responsible was properly qualified to be doing the job they were doing when the accident took place, and it emerges that they were not, then what strain does that place on a company that has given roles of responsibility to its family members?

When it comes to operational safety, careful auditing of each element of the supply chain might mean due diligence is done to ensure that products and services are safe for consumers. However, if the family has business interests in another company that is part of the supply chain, this might call into question the credibility of those audits. With many family owned businesses operating a range of diversified holdings and business interests, how can governance and due diligence be preserved when the right hand might not know what the left is doing?

In the Middle East, concepts of reputation and family are tightly bound. The concept of family is not just focused on home and hearth but also plays out at a more extended tribal and national level. The process of mapping the internal and external stakeholders that any organisation must engage with in order to build goodwill, engage authentically and prepare for any crisis is bewilderingly complex, due to the relationship interplays and intricate reciprocal ties. Stepping forward and actively taking steps to resolve a problem when it happens, and post-crisis planning, can be a fraught and tentative process when there are many different strong voices that want to be heard, for example, in a family run management board. When something goes wrong for a company, the natural desire to find an explanation and have someone or something to blame can find it hard to light on a single isolated cause when responsibility is collectivist and diffused, as it often is in a family run organisation.

To succeed in an environment where organizations and management are under increasing scrutiny, understanding expectations is fundamental. Companies must align what they say and how they behave (the brand) with the shared perceptions of others (the reputation). The pressure to bring brand and reputation together is driving the evolution of a new model, where the intersection of brand and reputation offers executives a new, single view of their organization.

When it comes to investor and consumer confidence in the Middle East region, businesses and governments alike must be acutely aware of the delicate link between reputation and confidence.  They need to be steadily and surely work to build confidence in their actions, whether that is through communicating the many exciting reforms taking place, which are sweeping away old norms, or profiling their senior leadership – whether these people are at the helm of companies or government bodies and ministries. They must also be sensitive to the interplay between family and reputation, and not hesitate to do the housekeeping and behind the scenes work needed to be able to confidently shine a light on all aspects of their organisations – whether government or private.

 

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