Ep. 93: Loutfi Echehade - Maneuvering Business following Crisis

Contact Loutfi Echehade:
https://www.linkedin.com/in/loutfi-echhade-5b3601/


FULL EPISODE TRANSCRIPTAdam: (00:00)
 Hi everyone. Thanks for listening to another episode of
Count Me In. I'm your host Adam Larson, and this is the 93rd
episode in our series. Today's conversation is between my cohost
Rouba, and IMAboard member and financial advisor, Loutfi
Echehade. Loutfi is a seasoned financial advisor to family
businesses in Saudi Arabia and the region and joins Count Me In
to talk about the implications of COVID-19 and the current
economic landscape. For advice and how such owners can maneuver
their businesses. During these times, keep listening as we go to
their conversation now.

Rouba: (00:42)
So, let’s get straight into it. I’m excited to get your insights
on the family business segment in the region. So analysts and
economists consider family businesses to be the lifeblood of the
Middle East region, and crucial to the region’s economic
prosperity and stability. Why do you think that is?

Loutfi: (00:59)
Well I mean, you know, family businesses, as you indicated, I
mean it represent at least 80 percent, some statistics say 85 to
90 percent of the economy is driven by family businesses. In our
region, the largest family businesses are the most critical. They
play e a critical factor not only in employment and number of
employment, but in contributing to the local economies. So, they
drive the whole business, you know, and this is not only in our
region. Globally, family businesses really are the main drivers
of economic developments, in most of the world.

Rouba: (01:46)
According to the Middle East family survey conducted last year,
they found that 78 percent of family businesses report economic
environment as their top challenge. How does such a limitation
play out when you are facing one of the biggest challenging
moments in the economic history since the 1930s, COVID-19?

Loutfi: (02:09)
Family businesses are just like any other businesses. They go
through, of course, cycles and they face these kinds of
challenges every once in a while. We had a financial crisis in
2007 and in 2008, before that we had the September 11 events, and
before that there were a lot of events and major developments in
the world. Family businesses, just like any other business, they
were able to sustain and maintain their structure and business,
primarily because they have certain features that allow them to
do that. The flexibility, transparency, level of commitment, long
term commitment. But still, they face external pressure, just
like everybody else. I work on a number of family businesses in
the region, particularly in Saudi Arabia, and the pandemic,
COVID-19 has a significant impact on their operations. So they
face the same thing just like any other business. If they are one
structure, they can manage to go through these events, major
events, and heavy burdens in the future, you know.

Rouba: (03:34)
How equipped are regional family businesses for this huge task
and what are some of the best practices you have noticed from
your practice?

Loutfi: (03:44)
By their nature, family businesses are family-oriented,
family-directed. They have a clear strategic planning, they
commit to the family values, the family culture. So there weree
ups and downs for most of their lives, business lives. They go
through a lot of turmoil, roadblocks, headaches, pressures. If
they are really well managed, and have proper structure, and
that’s where comes family governance. If they really have proper
family governance, that unites them, that puts them together. As
I said, they are not like the corporate world, like businesses
for profit. They don’t focus just on the short term, they focus
on the long term. There is also the level of loyalty. In family
businesses you find a lot, of course, a lot of family members
being united and being committed, but at the same time, there a
lot of non-family members aligned, committed and work
aggressively, even sometimes more than the family members. So,
you have that combination of commitment to the long term, not to
focus on the short term, the willingness, the desire, the
interest, and the commitment to continue to the following
generation. And then they have the loyalty part which also drives
them into the future, and into the long term. The way I see
family business, just to give you an example, there are a lot of
companies now in our region and globally they are firing people
of course. They put people on furloughs or extended long leaves
and they cut salaries. The family businesses that I deal with
face the same problems, but they manage, you know, in a way, to
keep these employees with them because they have been with them
during tough times, difficult times, as well as in good times. So
they look at them as really part of their commitment not only to
their employees but to the society in a whole to the community.
And that is a little different from directional-wise, different
from other businesses.

Rouba: (06:24)
You noted governance, which was going to be my next question.
You’ve been providing advisory to family businesses in the region
for many years, how committed are they to governance and do they
value it? What has been your experience wit this essential aspect
of the sector, as you have mentioned as well?

Loutfi: (06:44)
We are on a journey. In the Middle East, you know, of course you
know, if you talk about governance, corporate or family
governance, not many people will understand, not many people will
really decipher it, if you wish.  Everyone will give you
different. It did not really have a lot of meaning. But you know,
things have changed, I would say in the last decade, in the last
10-15 years, things have changed. In the corporate side,
governance regulators have put governance regulations, protocols
to ensure that corporations have proper structures to maintain
their operations as well to really ensure that they provide right
and correct information. On the other hand, the family governance
is also something that is a process, a set of protocols.. Most
family businesses they have hurdles they understand it, but if
you are to tell me, are they committed to implementing it, that’s
still, we still have a long way to go. I know a well-known large
number of family businesses, well known family businesses. They
have already proper structures, proper family governance
structure. They have what we call a family constitution that
defines roles and responsibilities of family members who share on
the corporate side, either as board members or on the C-suite
level. They also have what we call certain committers to ensure
that there is proper alignment between the corporate side and the
family side, and also defines who can be employed in the company
and who cannot, the matter of dividend, conflict resolution
issues, succession planning, all these are critical components of
ensuring a successful and easy and smooth transition into the
following generations.

Rouba: (08:59)
With a GPD contribution of more than 60 percent, workforce
contribution of 80 percent, a broad range of sectors including
food and drink, manufacturing, construction, education and
health, and trillions of dollars in revenue, how will the current
situation impact employment within the family business segment in
the region, and what are governments doing to support and to
mitigate this impact?

Loutfi: (09:25)
Of course, you know, the pandemic, COVID-19, as we said earlier,
has significant impact on all businesses, all over the world. In
the US, we have unemployment reaching over 14 percent. Although I
don’t have statistics on the Middle East, like in Saudi Arabia
and the GC, but I see a lot of compani...