Examining Family Business Corporate Governance

Examining Family credit line Corporate presidential boundaryThis utterance circumscribes forbidden a teaching of the family pedigrees in somaticd g everyplacenance, addressing the kin amongst the haveers and the precaution. Family cable linees constitute a wide spectrum of enterprises, from sm each(prenominal) family have and managed companies to a double internation entirelyy operating family controlled corporations. in that respect atomic number 18 several definitions illustrates the family take in short letteres, hitherto the absolute volume agree that Nebauer Lank definition illustrate the family stemma in a simple way and puts it as A firm stub be regarded as a family chore if a inclined family nominates the voter turn give away control of the firm (Nebauer Lank, 1998).This address argues that, addicted the duality of the frugal and non-economic goals family firms postdate and the complexity of the stake standers coordinate, family firm s need boldness mental synthesis that matches the complexity of their constitutes stakeholders. According to that a better inquiry and empirical soul as how family firms argon goerned is needed. In this battleground the con centrate on go away be on assessing the level of down the stairsstanding of the bodied presidential terminal figure concept oer altogether and the enciphers bidd by the Capital market place placeplace Authority (CMA), the Capital market Authority in Oman focal pointing on t sensation up the family owned line of credit by in centimeives them to go semi usual. The CMA is just late in the process to create a merged brass instrument to benef numberor the Family crease to be prep atomic number 18d to do so. In this contr function, the focus leave alone be to create an on a lower floorstating and military service to create a better code to help the family vexation sustain in the future. On the different slip away on that point o rdain be an evaluation of the place theory and how the family owners bankers toleration of this model. Furthermore a investigate by McKinsey quarterly shows that 95 per cent fails to succeed the extension payable to the inadequacying of succession planning and roles defining, accordingly the dissertation pull up stakes be evaluating the practice and preparation if each on how the existing owner prepargon follows succession planning rules and codes to come aboutover their responsibilities to their successors.In this adjudge the focus pull up stakes be on the family worryes in Sultanate of Oman, a verdant in the Arabian Gulf with a fledgling swell market. Oman has prove signifi weedt efforts to improves the level of corporate regime, particularly in the controversyed companies and now the keen market would like to expand its corporate governance codes to the family owned traffic organizati whizzs to streng past the chances of the sustainability of its growth.A ims And ObjectiveThis dissertation volition focus on the unique corporate governance ch on the wholeenges that each family occupancy faces and propose structures and practices that shadower mitigate these challenges and hold back the viability of the lineage. The detailed objectives that guide the dissertation process atomic number 18To review and prove relevant theoretical, and an an opposite(prenominal)(prenominal), streams of writings that focus on corporate governance and family vexationAnalyzing the practice of the existing code of corporate governance that applied by the CMA and if it fit to be follow throughed in the family fear companies.Asses the pass on power structure and polices in the companies and testing the theory of the possession and control separation.Asses the long term planning by the social club owners and how the successor is been appointed.To assess the signifi bearce, reliability, and validity of the turn outs to sell the theoretical, em pirical, and practical implications of the findings to assess the limitationsThe impact of corporate governance in family businesses consummation. field of the dissertationThe ease up study addresses the governance of family firms, focusing on the record of various governance mechanisms and how they affect firm proceeding. Family businesses provide a prolific research context to study corporate governance callable to leave out of governance research in the ara and the distinctive characteristics of family firms. The family business context, especially, enables the study of how aspects of formal and social control vary according to characteristics of monomania structure. look Approaches and methodThe methods to gather the mandatory data ordain be a qualitative, where the participations allow be selected base on their history and age of the company in practice. The research leave al ace be analyzing their policies and corporate governance practice. Interviews pass on be placed with the owners and senior managers of the companies to get all the data demand for the findings and results.Structure of the dissertationChapter 1 IntroductionThis chapter implyd the background of the study, the aim, think of the study, research questions and limitation of the study and it impart apply the structural mannequin of the study.Chapter 2 Literature ReviewThis chapter will review the historical perspective, theories and connect studies of corporate governance, family business and connect theories to corporate governance. This chapter will allow in the secondhand data which will be used in debateing the findings.Chapter 3 methodological summaryChapter describes the methodology and procedures that were used to carry out this study. Furthermore, this chapter will review the creation and participants of the study, instruments and data collection procedures.Chapter 4 Results and FindingsThis chapter will set out the data and findings think to to the res earch questionsChapter 5 Data Analysis and DiscussionThis chapter expresss the data abridgment and the discussion of the finding.Chapter 6 ConclusionIn this chapter, the researcher will present a summary of the study and the findings, conclusion and recommendation.The structural simulation of the dissertation is illustrated in Figure 1.FigureLiterature ReviewIntroductionA growing number of studies have been d ace on the family business self-possession and perplexity separation or combination in the past slightly years and what is the linkage in the midst of the performance and these two elements. In this chapter we will be presenting the theories and the studies that be related to it and selecting a frame work that will be the base of the evolution of the practice we examine in the family businesses.Family possess backupFamily enterprises or family owned businesses represent the oldest form of businesses in the world. The family owned businesses constitutes more than 70 pct of all business in to the highest degree of the third world countries and in several(prenominal) developed countries (IFC, 2009). In the IFC research Family Businesses Corporate Handbook shows that family owned businesses ar the higher contributor in any rural growth in harm of economic suppuration and employment. In Spain, for example, about 75 part of the businesses be family-owned and contribute to 65 percent of the countrys GNP on average. Correspondingly, family businesses contribute to about 60 percent of the cumulative GNP in Latin America (IFC, 2009). in supplement to, accordingly to recent researches that 95% percent of employment in the pose East and especially in the Arabian Gulf Peninsula is in the family owned businesses. in that location be several definitions that explains the family business corporations, the IFC define it as a company where the take majority is in the hands of the controlling family including the founder(s) who guess to pass the bu siness on to their descendants, in another words is A business actively owned and/or managed by more than integrity member of the same family. There are two clays that control the family businesses which are the family schema, and the prudence organization, the two system overlap due to the dual roles that any family member take, like a family member whitethorn be a manger or an employee in the business and here where the conflict arise. The family system is ground on emotional, love and care. The family system is based on the family relationship in the family and they take close to of these reputes to the business. Where in the business system is the professional nurses are the edge of the decision. (Managment Resources, 2010)To define a family business need to understand the environment from one to another, here are proclivity of family business definitions that do by researcher past the year that regale the family business from different view but reserving the conce pt.Table Family business DefinitionsA company is considered a family business when it has been closely identified with at least(prenominal) two propagations of a family and when this link has had a mutual influence on company policy and on the interests and objectives of the family. (Donnelley, 1964 1988 428).Controlling ownership rested in the hands of an individual or of the members of a single family. (Barnes Hershon, 1976 106).Organizations where one or more extended family members influence the direction of the business through the physical exertion on kinship ties, counsel roles, or ownership rights. (Tagiuri Davis, 1982 1996 199).It is the interaction among the two sets of organization, family and business, that establishes the basic character of the family business and defines its uniqueness. (Davis, 1983 47).What is usually meant by .family business.is each the occurrence or the anticipation that a younger family member has or will assume control of the business from an elder. (Churchill Hatten, 1987 52).We define a family business as one that will be passed on for the family.s next generation to manage and control. (Ward, 1987 252).A business in which the members of a family have good control over ownership. (Lansberg et al., 19882).A family business is be here as an organization whose major operating decisions and plans for leadership succession are influenced by family members serving in steering or on the board. (Handler,1989b 262).Firms in which one family holds the majority of the shares and controls perplexity. (Donckels Frhlich,1991 149).A business where a single family owns the majority of stock and has total control. Family members alike form part of the attention and make the most essential decisions concerning the business. (Gallo Sveen, 1991 181).A business firm whitethorn be considered a family business to the extent that its ownership and counseling are intemperate within a family unit, and to the extent its members stri ve to achieve, maintain, and/or increase intraorganisational family-based relatedness. (Litz, 1995 78).A business governed and/or managed on a sustainable, potentially cross-generational, basis to regulate and perhaps conform to the formal or implicit vision of the business held by members of the same family or a small number of families. (Sharma et al., 1997 2).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 Lank, 1998 8).Family businesses share some common characteristics, heavy(p)ly due to the interacting and overlapping domains of family, ownership and management (Tagiuri Davis, 1982). Family firms have a complex stakeholder structure that involves family members, top management, and a board of directors. Family members, who are a good deal significant owners, usually play quadruple roles in managing and governing the firm (Tagiuri Davis, 1982). This booking promotes loyalty and as well cargo to long-term value creation (Dyer Handler, 1994) and reduces problems that arise from separation of ownership and control, as experienced in large, public corporations (Jensen, 1989). Also, family businesses may enjoy a combative advantage due, for example, to remaining entrepreneurial in character and having a toughened sense of responsibility to society (Neubauer Lank, 1998), fast verbal and nonverbal communication, aid by a shared identity and common language of families (Gersick, Davis, McCollom Hampton Landsberg, 1997), family members. Business expertise gained during early childhood onward (Kets De Vries, 1996), and a brawny organisational culture contributing to external adaptation and internal integration (Schein, 1983). even, the familys involution in governing the firm may induce a focus on business and non-business goals, possibly leading to inefficiency (Schulze, Lubatkin, Dino Buchholtz, 2001). If the owner family is not on a regular basis informed about the companys affairs, differing visions of the companys future may develop amid management and the family. The resulting feuds among family factions may distract managements attention from value-creating activities and so reduce their lading to strategic decisions. Owner-managers also may act opportunistically by satisfying their own needs at the expense of the companys performance and long-term survival. Entrenched owner-managers may not share their powers with others, especially not with the companys board.Furthermore the common characters of all family businesses are illustrated in the diagram below.FigureThe individual represent the family members who are directly involved in daily bases with the mental process, the family symbolizes the whole family where in some family businesses called the family counsel and the management dimension represents the family managers and non-family managers.McKinsey quarterly stated in the reinvigo ratedspaper keeping the family in business that altogether 5 percent will continue to create shareholders value after the third generation. Moreover the IFC also mentioned in the family business hand book, while the third generation takes over 95 percent of all family businesses will not survive the ownership around. These consequences might be a result to the lack of shipment and right business education of handling the business demands. In summation, the survival of family firms is oft challenged by dictatorial rule, resistance to change, lack of professionalism in management capabilities, wonder in family and business roles, rivalry and enlarged human emotions among family members, conflicts amid interests of the family and the business, and a low rate of investment in business maturement (Donnelley, 1964 Gersick et al., 1997 Kets De Vries, 1993). every the definitions are focusing on the shareholders and their power in voting and management and these two points are actua lly the core strength and flunkes of any family business. still at that place are other dimensions that a family business can be measured of its strength and weaknesses likeCultureOwnership and governance duration planningFamily involvementThis dissertation will be reflected somehow in the culture dimension due to the strength of the factor here in the Arabian Gulf Countries and Oman. Different researcher came up with different definitions of the family business barely, the definitions imply six themes for clarifying the boundaries of the domain of family business (1) ownership, (2) management, (3) generational transfer, (4) the familys aspiration to continue as a family business, (5) family goals, and (6) interaction between the family and business. These themes are uniform to those found in the extant lit. For example, Handler (1989a) categorized family business definitions under four headings ownership and management, interdependent subsystems, generational transfer, and four-fold conditions.The extant literature on family business research has largely neglected the definition of the family itself. By modifying Winter.s, Fitzgerald, Heck, Haynes Danes (1998) definition of the family, the present study defines it as a kinship conclave of people related by blood or marriage or comparable relationship. This definition allows a multigenerational view of an extended family.Family Business in OmanAccording to the family firm institute (FFI) the around the 75% of Omans private companies are family owned, with their firms creating 70% of the country employment. There are 12 top families who are controlling around 75% of the contribution over all in Oman. The family owned business also control 90% of commercial practise according to Tharawat (Fortunes) Magazine. Oman is a part of the GCC Region where in the region is estimated that family businesses expense more than 1 trillion dollar, that is ready to be handled to the next generation. only(prenominal ) family owned business share same characteristics as mentioned above, even the strengths and the weakness are standardised to some extant in all family businesses. However, the family business can be categorized to two categoriesListed family businessesNon-listed family businessThe listed family businesses are set to fulfill the listed companies corporate governance code as per the CMA regulation, but the non-listed are not treated that way whats so ever the size or the unconscious processs are. The CMA in Oman are concentrating nowadays to establish an attractive market and safe to all sizes of family businesses, the CMA is concentrating on converting the family closed family business to go public by Initial Public Offering(IPO) offering them a less hard rules and requirements to commence the IPO as the Head corporate governance centralize declared.Furthermore there are different points that might affect the operation of any family businesses such asfamily relations affect the assignment of the managementfamily indirectly runs the companymajor family influence/dominance of the management (in harm ofstrategic decisions)significant proportion of the enterprises senior managementmost principal(prenominal) decision made by the familyfamily control of the management of the enterpriseat least 2 generations having had control over the enterpriseThese points might be arm the family business in the initial stages of the operations but there must be some kind of governance or policies on whom can make a decisions and how is not.Corporate arrangementCorporate governance is a topic that has been a subject of significant debate since 2001 Enrons and other US companies crashed. Some analyst say lack of corporate governance was the main reason behind the crash (International Swaps and Derivatives Association, 2002). The international Swaps and Derivatives Association shine up that the failure was due to interests that extended certain managers at the expense of th e shareholders. turn the United States capital market where busy analyzing the reasons behind the crash of Enron and dry land Com, Sultanate of Oman has also experienced its share of corporate trouble affecting not only large companies such as Rice Mills SAOG and Oman bailiwick Investment Company Holding SOAG but also dozens of little companies, which have had to turn to the government for assistance (Dry, 2003). The year 2002 was the birth of the in the altogether corporate governance standards from the Capital Market Authority (CMA), but it was only covering the list companies in the Muscat Security Market only. Since therefore the CMA rivet on upgrading this standards and code and refine it to be in a worldwide acceptable standards and to include the best practice for the companies. The standards have been overhaul since 2002 on the listed companies and the closed shared ones but nothing was mentioned on the family business side. In 2009 the CMA established the corporate governance center to help the companies follow through the codes of corporate governance and to regulate the practice and monitor it, in access to create a new standards to fit the family businesses practice. Till today the CMA and the contract did not establish a full concept on how they can produce a set of codes to be acceptable to the share holders of these businesses due to the lack of reading on the family owned businesses in Oman.Theoretical exemplar related to Corporate Governance.The corporate governance model did not came from one simulation or a certain theories, but I was make up on different practices and theories which results of different frameworks that today any economic system can customized to suit the needs to regulate the market.There are certain theories that been always associated with corporate governance practice which is set out the relation between the principle (shareholder) and the agent (management)The action theoryStewardship schemeStakeholder theoryThe chest of drawers surmise chest of drawers theory having its roots in economic theory was exposited by Alchian and Demsetz (1972) and further developed by Jensen and Meckling (1976). self-assurance theory is outlined as the relationship between the principals, such as shareholders and agents such as the company executives and managers. Agency theory argues that in the unexampled corporation, in which share ownership is widely held, managerial actions depart from those postulate to maximize shareholder returns (Berle and Means 1932 Pratt and Zeckhauser 1985). Since Jensen and Meckling (1976) proposed a theory of the firm (Agency Theory) based upon conflicts of interest between various contracting parties shareholders, company managers and debt holders a big literature has been developed in explaining both aspects of these conflicts. Jensen and Meckling (1976) further specified the founding of effect be which arise owing to the conflicts either between managers an d shareholders ( performance be of equity) or between shareholders and debtholders (assurance be of debt). Financial markets capture these agency be as a value loss to shareholders.The agency theory argues that an agency relationship exists when shareholders (principals) hire managers (agents) as the decision makers of the corporations. The agency problems arise because managers will not solely act to maximize the shareholders wealth they may cherish their own interests or seek the goal of maximizing companies growth kind of of earnings while making decisions. Jensen and Meckling (1976) suggested that the inefficiency may be reduced as managerial incentives to take value maximizing decisions increased. Agency cost are arising from divergence of interests between shareholders and company managers. Agency be are defined by Jensen and Meckling as the sum of monitor costs, stick to costs and equilibrium loss.(1) Monitoring CostsMonitoring costs are expenditures paid by the princ ipal to measure, observe and control an agents behavior. The economic impact of asymmetric data also results in various corporate agency problems. Firm managers (insiders) get along more about their firm than shareholders and debt financiers (outsiders). When outsiders are unable to judge over the firms performance, they tend to qualify a firms performance as moderate. A result of this asymmetric information is that shares of a firm with a great performance are undervalued and vice versa. More specifically, information asymmetries between shareholders or bondholders and corporate executive management creates the necessity of supervise (costs) and complications for the structuring of financial contracts. They may include the costs of preparing reliable accounting information and audits, writing executive earnings contracts and even ultimately the cost of replacing managers.Denis, Denis, and Sarin (1997) contended that effective observe is re unbendinged to certain separates or individuals. Such monitors must have the demand expertise and incentives to full monitor manager. In access, such monitors must provide a credible threat to managements control of the company.(2) Bonding CostsTo besmirch supervise costs, managers tend to set up the principles or structures and try to act in shareholders best interests. The costs of establishing and adhering to these systems are get along as soldering costs. They may include the costs of additional information disclosures to shareholders, but management will obviously also have the benefit of preparing these themselves. Agents will incorporate incurring soldering costs when the marginal reduction in monitoring equals the marginal increase in bonding costs.As suggested by the agency theory, the optimal bonding contract should aim to entice managers into making all decisions that are in the shareholders best interests. However, since managers cannot be made to do everything that shareholders would wish, bonding p rovides a means of making managers do some of the things that shareholders would like by writing a less than perfect contract.(3) Residual Loss condescension monitoring and bonding, the interest of managers and shareholders are still unlikely to be to the full aligned. Therefore, there are still agency losses arising from conflicts of interest. These are cognise as symmetricalness loss, which represent a trade-off between as well constraining management and enforcing contractual mechanisms designed to reduce agency problems.There are some other types of agency costs as quest(4) Agency Costs of DebtThere are three groups of participants in a firm, suppliers of equity, debt suppliers and firm managers. It is logical that they would try to achieve their goals with different measures. Suppliers of equity, or shareholders, are interested in high dividend ratios and high share prices. Debt suppliers, on the other hand, are interested in interest and debt repayments, whereas firm manag ers would be think on their financial remuneration. These conflicts of interest give rise to opportunity costs (whereby best strategies are often not adopted) and real costs (e.g., revue costs). These costs decrease the market value of a firm.Kim and Sorensen (1986) investigated the presence of agency costs and their relation to debt policies of corporations. It is found that firms with higher insiders (managers) ownership have great debt ratios than firms with lower insider ownership, which may be explained by the agency costs of debt or the agency costs of equity.(5) Agency Costs of Free Cash period of timeThe excess cash flow theory presumes that there are big conflicts of interest between shareholders and stakeholders. This implies that managers decisions do not always maximize the value of a firm (Jensen, 1986).Jensen (1986) also emphasized the continuous agency conflicts between top managers and shareholders. These conflicts are especially severe in firms with large mel t cash flows. A free cash flow is the balance of currency a company is left with when all projects are financed. If top managers hold more cash than profitable investment opportunities, they may overspend funds on organization inefficiencies or invest it in projects with net present value (NPV) less than zero. The logic has it that higher debt levels reduces free cash flows and hence increases the value of the company.Examining Family Business Corporate GovernanceExamining Family Business Corporate GovernanceThis dissertation sets out a study of the family businesss corporate governance, addressing the relationship between the owners and the management. Family businesses constitute a wide spectrum of enterprises, from small family owned and managed companies to a large internationally operating family controlled corporations. There are several definitions illustrates the family owned businesses, however the majority agree that Nebauer Lank definition illustrate the family busine ss in a simple way and puts it as A firm can be regarded as a family business if a given family holds the voting control of the firm (Nebauer Lank, 1998).This dissertation argues that, given the duality of the economic and non-economic goals family firms pursue and the complexity of the stakeholders structure, family firms need governance structure that matches the complexity of their constitutes stakeholders. According to that a better research and empirical spirit as how family firms are governed is needed. In this study the focus will be on assessing the level of understanding of the corporate governance concept overall and the codes provided by the Capital Market Authority (CMA), the Capital Market Authority in Oman focusing on strengthen the family owned business by incentives them to go public. The CMA is just of late in the process to create a corporate governance to help the Family business to be prepared to do so. In this study, the focus will be to create an understati ng and help to create a better code to help the family business sustain in the future. On the other hand there will be an evaluation of the agency theory and how the family owners acceptance of this model. Furthermore a research by McKinsey quarterly shows that 95 per cent fails to succeed the generation due to the lacking of succession planning and roles defining, thusly the dissertation will be evaluating the practice and preparation if any on how the existing owner prepare companys succession planning rules and codes to handover their responsibilities to their successors.In this study the focus will be on the family businesses in Sultanate of Oman, a country in the Arabian Gulf with a fledgling capital market. Oman has made significant efforts to improves the level of corporate governance, particularly in the listed companies and now the capital market would like to expand its corporate governance codes to the family owned businesses to strengthen the chances of the sustainabilit y of its growth.Aims And ObjectiveThis dissertation will focus on the unique corporate governance challenges that any family business faces and propose structures and practices that can mitigate these challenges and date the viability of the business. The detailed objectives that guide the dissertation process areTo review and break down relevant theoretical, and other, streams of literature that focus on corporate governance and family businessAnalyzing the practice of the existing code of corporate governance that applied by the CMA and if it fit to be implemented in the family business companies.Asses the ownership structure and polices in the companies and testing the theory of the ownership and control separation.Asses the long term planning by the company owners and how the successor is been appointed.To assess the significance, reliability, and validity of the results to discuss the theoretical, empirical, and practical implications of the findings to assess the limitations The impact of corporate governance in family businesses performance. telescope of the dissertationThe present study addresses the governance of family firms, focusing on the constitution of various governance mechanisms and how they affect firm performance. Family businesses provide a fruitful research context to study corporate governance due to lack of governance research in the area and the distinctive characteristics of family firms. The family business context, especially, enables the study of how aspects of formal and social control vary according to characteristics of ownership structure.enquiry Approaches and methodThe methods to gather the inevitable data will be a qualitative, where the participations will be selected based on their history and age of the company in practice. The research will be analyzing their policies and corporate governance practice. Interviews will be placed with the owners and senior managers of the companies to get all the data required for the f indings and results.Structure of the dissertationChapter 1 IntroductionThis chapter included the background of the study, the aim, project of the study, research questions and limitation of the study and it will present the structural framework of the study.Chapter 2 Literature ReviewThis chapter will review the historical perspective, theories and related studies of corporate governance, family business and related theories to corporate governance. This chapter will include the lower-ranking data which will be used in discussing the findings.Chapter 3 methodological analysisChapter describes the methodology and procedures that were used to carry out this study. Furthermore, this chapter will review the nation and participants of the study, instruments and data collection procedures.Chapter 4 Results and FindingsThis chapter will present the data and findings related to the research questionsChapter 5 Data Analysis and DiscussionThis chapter presents the data analysis and the dis cussion of the finding.Chapter 6 ConclusionIn this chapter, the researcher will present a summary of the study and the findings, conclusion and recommendation.The structural framework of the dissertation is illustrated in Figure 1.FigureLiterature ReviewIntroductionA growing number of studies have been done on the family business ownership and management separation or combination in the past a few(prenominal) years and what is the linkage between the performance and these two elements. In this chapter we will be presenting the theories and the studies that are related to it and selecting a frame work that will be the base of the evolution of the practice we examine in the family businesses.Family possess BusinessFamily enterprises or family owned businesses represent the oldest form of businesses in the world. The family owned businesses constitutes more than 70 percent of all business in most of the third world countries and in some developed countries (IFC, 2009). In the IFC res earch Family Businesses Corporate Handbook shows that family owned businesses are the higher contributor in any country growth in terms of economic development and employment. In Spain, for example, about 75 percent of the businesses are family-owned and contribute to 65 percent of the countrys GNP on average. Correspondingly, family businesses contribute to about 60 percent of the cumulative GNP in Latin America (IFC, 2009). in addition to, accordingly to recent researches that 95% percent of employment in the spunk East and especially in the Arabian Gulf Peninsula is in the family owned businesses.There are several definitions that explains the family business corporations, the IFC define it as a company where the voting majority is in the hands of the controlling family including the founder(s) who set to pass the business on to their descendants, in another words is A business actively owned and/or managed by more than one member of the same family. There are two systems that control the family businesses which are the family system, and the management system, the two system overlap due to the dual roles that any family member take, like a family member may be a manger or an employee in the business and here where the conflict arise. The family system is based on emotional, love and care. The family system is based on the relationship in the family and they take most of these values to the business. Where in the business system is the professional values are the edge of the decision. (Managment Resources, 2010)To define a family business need to understand the environment from one to another, here are list of family business definitions that made by researcher past the year that cover the family business from different view but reserving the concept.Table Family business DefinitionsA company is considered a family business when it has been closely identified with at least two generations of a family and when this link has had a mutual influence on compan y policy and on the interests and objectives of the family. (Donnelley, 1964 1988 428).Controlling ownership rested in the hands of an individual or of the members of a single family. (Barnes Hershon, 1976 106).Organizations where one or more extended family members influence the direction of the business through the consumption on kinship ties, management roles, or ownership rights. (Tagiuri Davis, 1982 1996 199).It is the interaction between the two sets of organization, family and business, that establishes the basic character of the family business and defines its uniqueness. (Davis, 1983 47).What is usually meant by .family business.is either the occurrence or the anticipation that a younger family member has or will assume control of the business from an elder. (Churchill Hatten, 1987 52).We define a family business as one that will be passed on for the family.s next generation to manage and control. (Ward, 1987 252).A business in which the members of a family have good cont rol over ownership. (Lansberg et al., 19882).A family business is defined here as an organization whose major operating decisions and plans for leadership succession are influenced by family members serving in management or on the board. (Handler,1989b 262).Firms in which one family holds the majority of the shares and controls management. (Donckels Frhlich,1991 149).A business where a single family owns the majority of stock and has total control. Family members also form part of the management and make the most important decisions concerning the business. (Gallo Sveen, 1991 181).A business firm may be considered a family business to the extent that its ownership and management are knockout within a family unit, and to the extent its members strive to achieve, maintain, and/or increase intraorganizational family-based relatedness. (Litz, 1995 78).A business governed and/or managed on a sustainable, potentially cross-generational, basis to physique and perhaps pursue the formal or implicit vision of the business held by members of the same family or a small number of families. (Sharma et al., 1997 2).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 Lank, 1998 8).Family businesses share some common characteristics, largely due to the interacting and overlapping domains of family, ownership and management (Tagiuri Davis, 1982). Family firms have a complex stakeholder structure that involves family members, top management, and a board of directors. Family members, who are often significant owners, usually play multiple roles in managing and governing the firm (Tagiuri Davis, 1982). This involvement promotes loyalty and also committal to long-term value creation (Dyer Handler, 1994) and reduces problems that arise from separation of ownership and control, as experienced in large, public corporations (Jensen, 1989). Also, family businesse s may enjoy a competitive advantage due, for example, to remaining entrepreneurial in character and having a strong sense of responsibility to society (Neubauer Lank, 1998), fast verbal and nonverbal communication, aided by a shared identity and common language of families (Gersick, Davis, McCollom Hampton Landsberg, 1997), family members. Business expertise gained during early childhood onward (Kets De Vries, 1996), and a strong organizational culture contributing to external adaptation and internal integration (Schein, 1983). However, the familys involvement in governing the firm may induce a focus on business and non-business goals, possibly leading to inefficiency (Schulze, Lubatkin, Dino Buchholtz, 2001). If the owner family is not regularly informed about the companys affairs, differing visions of the companys future may develop between management and the family. The resulting feuds between family factions may distract managements attention from value-creating activities and so reduce their commitment to strategic decisions. Owner-managers also may act opportunistically by satisfying their own needs at the expense of the companys performance and long-term survival. Entrenched owner-managers may not share their powers with others, especially not with the companys board.Furthermore the common characters of all family businesses are illustrated in the diagram below.FigureThe individual represent the family members who are directly involved in daily bases with the operation, the family symbolizes the whole family where in some family businesses called the family counsel and the management dimension represents the family managers and non-family managers.McKinsey quarterly stated in the theme keeping the family in business that only 5 percent will continue to create shareholders value after the third generation. Moreover the IFC also mentioned in the family business hand book, while the third generation takes over 95 percent of all family businesses will not survive the ownership around. These consequences might be a result to the lack of commitment and square-toed business education of handling the business demands. In addition, the survival of family firms is often challenged by dictatorial rule, resistance to change, lack of professionalism in management capabilities, discombobulation in family and business roles, rivalry and enlarged human emotions among family members, conflicts between interests of the family and the business, and a low rate of investment in business development (Donnelley, 1964 Gersick et al., 1997 Kets De Vries, 1993). any the definitions are focusing on the shareholders and their power in voting and management and these two points are actually the core strength and weaknesses of any family business. However there are other dimensions that a family business can be measured of its strength and weaknesses likeCultureOwnership and governance while planningFamily involvementThis dissertation will be reflected somehow in the culture dimension due to the strength of the factor here in the Arabian Gulf Countries and Oman. Different researcher came up with different definitions of the family business however, the definitions imply six themes for clarifying the boundaries of the domain of family business (1) ownership, (2) management, (3) generational transfer, (4) the familys designing to continue as a family business, (5) family goals, and (6) interaction between the family and business. These themes are similar to those found in the extant literature. For example, Handler (1989a) categorized family business definitions under four headings ownership and management, interdependent subsystems, generational transfer, and multiple conditions.The extant literature on family business research has largely neglected the definition of the family itself. By modifying Winter.s, Fitzgerald, Heck, Haynes Danes (1998) definition of the family, the present study defines it as a kinship group of people related by blood or marriage or comparable relationship. This definition allows a multigenerational view of an extended family.Family Business in OmanAccording to the family firm institute (FFI) the around the 75% of Omans private companies are family owned, with their firms creating 70% of the country employment. There are 12 top families who are controlling around 75% of the contribution over all in Oman. The family owned business also control 90% of commercial operation according to Tharawat (Fortunes) Magazine. Oman is a part of the GCC Region where in the region is estimated that family businesses price more than 1 trillion dollar, that is ready to be handled to the next generation. totally family owned business share same characteristics as mentioned above, even the strengths and the weakness are similar to some extant in all family businesses. However, the family business can be categorized to two categoriesListed family businessesNon-listed family businessThe listed family businesses are set to fulfill the listed companies corporate governance code as per the CMA regulation, but the non-listed are not treated that way whats so ever the size or the operations are. The CMA in Oman are concentrating nowadays to establish an attractive market and safe to all sizes of family businesses, the CMA is concentrating on converting the family closed family business to go public by Initial Public Offering(IPO) offering them a less strict rules and requirements to commence the IPO as the Head corporate governance center declared.Furthermore there are different points that might affect the operation of any family businesses such asfamily relations affect the assignment of the managementfamily indirectly runs the companymajor family influence/dominance of the management (in terms ofstrategic decisions)significant proportion of the enterprises senior managementmost important decision made by the familyfamily control of the management of the enterpriseat least 2 gene rations having had control over the enterpriseThese points might be strengthen the family business in the initial stages of the operations but there must be some kind of governance or policies on whom can make a decisions and how is not.Corporate GovernanceCorporate governance is a topic that has been a subject of significant debate since 2001 Enrons and other US companies crashed. Some analyst say lack of corporate governance was the main reason behind the crash (International Swaps and Derivatives Association, 2002). The international Swaps and Derivatives Association highlighting that the failure was due to interests that extended certain managers at the expense of the shareholders. man the United States capital market where busy analyzing the reasons behind the crash of Enron and beingness Com, Sultanate of Oman has also experienced its share of corporate trouble affecting not only large companies such as Rice Mills SAOG and Oman subject Investment Company Holding SOAG but a lso dozens of little companies, which have had to turn to the government for assistance (Dry, 2003). The year 2002 was the birth of the new corporate governance standards from the Capital Market Authority (CMA), but it was only covering the list companies in the Muscat Security Market only. Since then the CMA focused on upgrading this standards and code and refine it to be in a worldwide acceptable standards and to include the best practice for the companies. The standards have been advancedised since 2002 on the listed companies and the closed shared ones but nothing was mentioned on the family business side. In 2009 the CMA established the corporate governance center to help the companies implement the codes of corporate governance and to regulate the practice and monitor it, in addition to create a new standards to fit the family businesses practice. Till today the CMA and the effect did not establish a full concept on how they can produce a set of codes to be acceptable to t he share holders of these businesses due to the lack of information on the family owned businesses in Oman.Theoretical framework related to Corporate Governance.The corporate governance model did not came from one framework or a certain theories, but I was reinforced up on different practices and theories which results of different frameworks that today any economic system can customized to suit the needs to regulate the market.There are certain theories that been always associated with corporate governance practice which is set out the relation between the principle (shareholder) and the agent (management)The agency theoryStewardship TheoryStakeholder theoryThe agency TheoryAgency theory having its roots in economic theory was exposited by Alchian and Demsetz (1972) and further developed by Jensen and Meckling (1976). Agency theory is defined as the relationship between the principals, such as shareholders and agents such as the company executives and managers. Agency theory argues that in the modern corporation, in which share ownership is widely held, managerial actions depart from those required to maximize shareholder returns (Berle and Means 1932 Pratt and Zeckhauser 1985). Since Jensen and Meckling (1976) proposed a theory of the firm (Agency Theory) based upon conflicts of interest between various contracting parties shareholders, company managers and debt holders a gigantic literature has been developed in explaining both aspects of these conflicts. Jensen and Meckling (1976) further specified the existence of agency costs which arise owing to the conflicts either between managers and shareholders (agency costs of equity) or between shareholders and debtholders (agency costs of debt). Financial markets capture these agency costs as a value loss to shareholders.The agency theory argues that an agency relationship exists when shareholders (principals) hire managers (agents) as the decision makers of the corporations. The agency problems arise becaus e managers will not solely act to maximize the shareholders wealth they may entertain their own interests or seek the goal of maximizing companies growth rather of earnings while making decisions. Jensen and Meckling (1976) suggested that the inefficiency may be reduced as managerial incentives to take value maximizing decisions increased. Agency costs are arising from divergence of interests between shareholders and company managers. Agency costs are defined by Jensen and Meckling as the sum of monitoring costs, bonding costs and residual loss.(1) Monitoring CostsMonitoring costs are expenditures paid by the principal to measure, observe and control an agents behavior. The economic impact of asymmetric information also results in various corporate agency problems. Firm managers (insiders) know more about their firm than shareholders and debt financiers (outsiders). When outsiders are unable to judge over the firms performance, they tend to qualify a firms performance as moderate. A result of this asymmetric information is that shares of a firm with a great performance are undervalued and vice versa. More specifically, information asymmetries between shareholders or bondholders and corporate executive management creates the necessity of monitoring (costs) and complications for the structuring of financial contracts. They may include the costs of preparing reliable accounting information and audits, writing executive stipend contracts and even ultimately the cost of replacing managers.Denis, Denis, and Sarin (1997) contended that effective monitoring is restricted to certain groups or individuals. Such monitors must have the essential expertise and incentives to fully monitor manager. In addition, such monitors must provide a credible threat to managements control of the company.(2) Bonding CostsTo besmirch monitoring costs, managers tend to set up the principles or structures and try to act in shareholders best interests. The costs of establishing and adhe ring to these systems are known as bonding costs. They may include the costs of additional information disclosures to shareholders, but management will obviously also have the benefit of preparing these themselves. Agents will reveal incurring bonding costs when the marginal reduction in monitoring equals the marginal increase in bonding costs.As suggested by the agency theory, the optimal bonding contract should aim to entice managers into making all decisions that are in the shareholders best interests. However, since managers cannot be made to do everything that shareholders would wish, bonding provides a means of making managers do some of the things that shareholders would like by writing a less than perfect contract.(3) Residual Loss despite monitoring and bonding, the interest of managers and shareholders are still unlikely to be fully aligned. Therefore, there are still agency losses arising from conflicts of interest. These are known as residual loss, which represent a tra de-off between as well constraining management and enforcing contractual mechanisms designed to reduce agency problems.There are some other types of agency costs as spare-time activity(4) Agency Costs of DebtThere are three groups of participants in a firm, suppliers of equity, debt suppliers and firm managers. It is logical that they would try to achieve their goals with different measures. Suppliers of equity, or shareholders, are interested in high dividend ratios and high share prices. Debt suppliers, on the other hand, are interested in interest and debt repayments, whereas firm managers would be focused on their financial remuneration. These conflicts of interest give rise to opportunity costs (whereby best strategies are often not adopted) and real costs (e.g., superintendence costs). These costs decrease the market value of a firm.Kim and Sorensen (1986) investigated the presence of agency costs and their relation to debt policies of corporations. It is found that firms wi th higher insiders (managers) ownership have greater debt ratios than firms with lower insider ownership, which may be explained by the agency costs of debt or the agency costs of equity.(5) Agency Costs of Free Cash campaignThe free cash flow theory presumes that there are frightful conflicts of interest between shareholders and stakeholders. This implies that managers decisions do not always maximize the value of a firm (Jensen, 1986).Jensen (1986) also emphasized the continuous agency conflicts between top managers and shareholders. These conflicts are especially severe in firms with large free cash flows. A free cash flow is the balance of bills a company is left with when all projects are financed. If top managers hold more cash than profitable investment opportunities, they may overspend money on organization inefficiencies or invest it in projects with net present value (NPV) less than zero. The logic has it that higher debt levels reduces free cash flows and whence incre ases the value of the company.