By Saleh Fareed
JEDDAH – Investment is a two-way process. Whoever is investing capital needs to be sure that the investment opportunity is watertight, has the potential for long-term growth and has the potential to reap the expected rewards. And likewise, when a company opens up to outside investment, it needs to be convinced that the new investment partner – who will often be rewarded with decision making powers and responsibility for company strategy – is the right fit for the company itself.
If you are a private, retail investor, it is largely up to you to decide on how you invest. If it is your personal money, you are free to invest in the manner you want and are free to do as much – or little – due diligence research as you want to do. Whether you simply rely on company reputation and are happy with a fleeting glance over the recent company financial performance, or you are more methodical and in-depth, preferring to see full company plans for the future, details of its management structure, lists of assets and debtors, etc. – when you are a private investor, the choice is largely yours alone. However, if you are a large company looking to invest a substantial amount of capital into another company, this capital will often be the pooled resources of a large amount of people. Therefore, for such a company, investing money will require a very deep level of research, legal checks and due diligence, often going into the details of a company’s balance sheet, delving deeply into its assets and future growth plans and ensuring all avenues are explored.
In Saudi Arabia especially, where the Kingdom’s economy is based around family-owned and managed businesses, how do these companies ensure they have the experience needed to make these potentially huge decisions, the results of which could easily change the underlying way these companies operate?
The establishment of a solid, working, corporate governance structure is key for any company looking to invest in a portfolio of different opportunities. A strong corporate governance structure ensures that family owned businesses, which may previously have been governed solely by family members all with the same family name, are opened up to outside influence and decision makers who will look at all opportunities from a practical perspective, with all decisions being taken for the good of the company itself. The very basis of decision making will often refocus from ensuring the shorter term wishes of the family are met, to ensuring all decisions are taken factually for the good of the long-term success of the company, including maintaining or increasing its profitability, mitigating risks while at the same time operating in line with the overall corporate vision and goals.
SEDCO Holding, a well-established Saudi family business with global investments across a wide range of sectors and industries, understands the profound changes such companies need to go through. Since 2010, SEDCO has embarked on a transformational journey centered on corporate governance, efficiency and transparency and has drastically changed its structure and operations to become a world-class corporate institution and a role-model for other companies with similar ambitions.
Anees Moumina, CEO of SEDCO Holding Group, said: “SEDCO Holding has a full corporate governance structure in place, it underlines everything we do. We strongly believe that this is the natural way to make investment decisions free from emotion, personal gratification or short-term gains. This is especially true for family businesses looking to make investments. A family-owned or managed business needs to ensure it is making the right, long-term decisions and not just the decisions which seem right at the time. We strongly believe they should ensure their corporate governance is watertight before even going out and looking for investment opportunities”.
SEDCO’s vision is to expand investments and continue operating as the trusted investment partner of companies it acquires or buys a stake in.
Issam Hamid, CIO of SEDCO Holding Group, said “SEDCO invests in companies in multiple jurisdictions in multiple sectors. It goes without saying that these decisions are not taken lightly. Decisions on which companies to include in the portfolio are huge decisions to take and we know that the vetting and research process we have in place, based firmly around the corporate governance approach, is the very best system to use for such important decisions”.
In line with global standards and corporate governance best practices, there are certain structures that family businesses should look at implementing. The corporate development department within SEDCO Holding has two teams with separate mandates: managing existing portfolios and actively pursuing deals and opportunities to invest in. Extensive systems and controls are in place to identify, measure, monitor, and manage investment risks. The specially created risk management committee ensures risk culture and guidelines are being implemented. Such structures ensure stronger investment governance, rapid decision-making and effective implementation in accordance with Board approval.
When a company has a reputation for its strong corporate governance mechanisms, it gains an attractive reputation in its sector and is more likely to attract businesses who are looking for investors. It becomes known as a company that puts its long-term profit and loss sheet before anything else, and before any immediate interests that are focused on short-term gains rather than long-term opportunities.
Anees Moumina believes that “not only will a solid corporate governance structure ensure a company has the ability to analyze investment opportunities properly, it will also carve out a reputation as a company that takes its governance obligations very seriously and as a company that is doing everything possible to maximize long term profits for all shareholders and investment partners. Ultimately, such a company is the ideal partner for businesses looking for investors and capital”.