Kanoo Group finds balance between boring and exciting, chairman says

Boring may not be the first thing that comes to mind when thinking of growing a business.

But it does play an integral part of the thinking of the Kanoo Group, one of the UAE’s biggest family conglomerates that is grooming itself for expansion and getting a professional management to run the business while family members take care of shareholder issues.

“In any business you need exciting and you always need boring,” says chairman Mishal Kanoo, a fourth generation member of the family.

“Boring is sustainable. Boring is consistent. Boring is doing the same thing but getting it right again and again. It is that boring that keeps you in business. It is what is exciting and pleasurable or painful that does not keep you in business.”

That’s not to say that the Kanoo Group is not embracing new technologies as it steers the family into the future with the entry of fifth generation members into the company’s board.

“I am all for new technology because that’s where the world is going to move to anyway,” he says

“But I want to make sure the old boring business that we have functions because that old boring business pays for that new technology to come in.”

Mr Kanoo believes that technology and innovation, being adopted rapidly in the UAE, will transform the economy and family businesses as well, but should be embraced gradually.

“I want incremental innovation. Disrupting all the time will create chaos,” says Mr Kanoo.

“Those are the sustainable changes that will actually work in any business and an any economy.”

The make-up of Kanoo Group’s business is anything but boring. Its interests range from oil and gas services to travel and tourism, with over 120 joint ventures in its portfolio.

The group, which was established in 1890 in Bahrain, finds its roots in the wood and coal trade in the island kingdom. The conglomerate expanded into Saudi Arabia in the 1930s and then into the UAE in the 1960s.

Now the company employs nearly 10,00 employees, who work in the parent company and across various joint ventures.

As a sign of the changing times, the Kanoo Group may opt to sell shares in some of its units in the future and is currently sifting through its assets, an exercise that may lead to divestments as early as this year, says Mr Kanoo. The group, may also make acquisitions or beef up existing businesses, depending on the needs of the conglomerate.

With such a vast business and roster of staff, the company is preparing smoothly for succession, a hot topic among the region’s family groups. Putting in place a new structure of management is part and parcel of the transition process.

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The conglomerate appointed a chief executive officer, a chief financial officer and other senior executives in the last few years to run day-to-day operations and leave the family members in charge of shareholder affairs.

“We are trying to remove family succession from the operation and try to bring it into the boards and shareholder side,” says Mr Kanoo.

“We are hopping the impact will be nullified simply by having different family members of different ages on the board.”

Succession planning is important because the group needs to make sure they have enough old hands to take care of the business and younger members who come up with new ideas, he adds.

This formula has teething problems, but still is an “adventure” the group is embracing, according to Mr Kanoo.

“It is tough because there will be times when the professional manager wants to move in a direction the family does not want to move into because the family can’t understand what is happening,” he says. “There will be times when the manager does not understand what the family wants and then there will be a clash. This is an adventure. Some managers are spot on, a lovely balance of understanding and what the family needs and what the family wants in comparison with what the business needs. Then there are others who are focused purely on the business and do not care about the family.”

According to a 2017 survey by advisory KPMG, 95 per cent of polled family groups said they see a benefit in having non-family executives within the business and that is clearly something which should be addressed.

Also the survey found that 88 percent of respondents believed that preparing and training the next generation is crucial for the businesses' survival and success.

Family groups do not have the same level of preparation for family succession, according to Mr Kanoo.

The majority of these groups are first and second generation and will face hurdles in passing on the reigns to the next generation, unlike the other older groups.

“Those who have third, fourth, and fifth generation they usually have a good sustainable model,” says Mr Kanoo. “It will shift and will change but they will have passed through the hardest stages. It is the first generation and second generation that we don’t’ know what is going to happen to them.”

Besides the intricacies of succession planning, family groups are grappling with new issues, such as the introduction of 5 per cent VAT in Saudi Arabia and the UAE in January this year.

According to the KPMG survey, the top concern for GCC family groups is increased competition, followed by war for talent, decline in profitability, and changes in regulations and taxation.

“The biggest challenge is always getting the right people because all the people who are working with you represent you and that is always the hardest part of any business,” says Mr Kanoo.

Taxation in the form of VAT is also a concern, but the Kanoo Group needs more time to assess its impact on its various business units.

“Until we have a year or two or three under our belt in order to have a more sustained look at the impact of VAT, I don’t know if it’s good or bad, it might be good in one aspect,” he said. “You need to have a bit more data in order to analyse this.”

But Mr Kanoo is overall bullish about the state of economy in the UAE, the second biggest market for the group after Saudi Arabia, which generates more than half of its revenue.

“Usually I am the person who holds the red flag but looking into the future in the next few years with the projected infrastructure spend that is going to be done within the region, this region will have I won’t say a boom but a mini boom,” he says. “Those who position themselves to take advantage of this will do very well.”

The forecast boom in the region means the group is unlikely to expand beyond its current footprint, which includes Qatar, Oman, India, Egypt, UK and France.

“The next few years should be very prosperous years, so for us to look outside the region doesn’t make much sense,” he says. “The main focus and concentration is on our area of expertise and knowledge which is this region.”

Saudi Arabia, Oman, the UAE and Kuwait are boosting spending to propel growth that languished last year with low oil prices and fiscal consolidation measures that curtailed non-oil GDP. In Dubai, the government announced its biggest budget ever for 2018, with an uptick in infrastructure spending in the run-up to Expo 2020. Saudi Arabia likewise revealed a record budget for 2018 anchored by a stimulus plan and monthly bonuses granted to public sector employees to help the economy expand this year after contracting 0.7 per cent in 2017.

And so far 2018, it is expected to be much better than 2017, which was hard at the start but improved toward the end of the year, says Mr Kanoo.

"Because we focus on the infrastructure business, we can see that businesses will start to really heat up and that’s a positive thing,” said Mr Kanoo.

But political events still cloud the region’s outlook.

“The question now is what’s the situation with Syria, Yemen, Iran?,” queries Mr Kanoo. “How will they impact our day-to-day economy. Some of them might be very positive, some of them might be very negative. I don’t know.”