Mishal Kanoo is tired. Asked if he is having a busy day, the chairman of century-old Gulf conglomerate the Kanoo Group inhales deeply on his cigar and responds: “Twenty four hours in a day is not enough. If you sleep too little, it’s miserable, and if you sleep too much, there’s not enough time.”
It has been more than two years since Kanoo Group instigated a restructuring to “professionalise” the business – removing some family members from management roles and bringing in outsiders to head up a newly organised group.
The changes were necessary, Kanoo says, and followed the death of his cousin, the former group chairman Yusuf Bin Ahmed Kanoo, in 2014. Bahraini businessman Yusuf had turned the company, founded in Bahrain in 1890, into one of the largest family-owned businesses in the Gulf. Buoyed by the region’s shipping, oil and travel trades, Kanoo Group was estimated to be worth around $6bn when Arabian Business last interviewed the chairman in April 2015.
But the changes have taken longer than many envisaged and Kanoo is weary. Family relationships are complex at the best of times, and wrestling power from people close to you is bound to make things more difficult. The process has been anything but smooth. “Smooth?” he repeats, incredulous. “No! It’s never going to be smooth. And the reason it’s never going to be smooth is because it’s to do with humans.”
Humans, he says, have their own agendas and ideas, reeling off a list of a list of common foibles. “Some will be on board, some won’t be on board; some will be passive, others are aggressive; some will be upfront; some will think it’s the best thing since sliced bread, others…” he tails off. “It’s hard to say it’s been a smooth transition.”
Still, he insists progress has been made. “We have [new senior executives], most members of the family have taken a back seat; it’s still a struggle, but we have managed to ‘change the guards’. That shift towards trying to professionalise the business has happened, but the results will take a while to settle down.”
For all that, Kanoo is thin on the details. During our interview at his office in Bur Dubai, he reveals that the group has hired a new CEO and CFO, but clarifies afterwards that the CFO is still being recruited and the CEO cannot yet be named. However, steps have been taken to create new ventures to underpin the next chapter of growth.
In September, Maurice Ghattas was appointed CEO of a new entity within the group, KAAF Investments. Ghattas, who joined from Aban Investments, part of UAE conglomerate Ghobash Group, was previously group CEO of Kanoo Group between 2013 and 2014. He tells Arabian Business he is “thrilled to be re-joining Kanoo Group and working with Mr Mishal again”.
The new venture is set to be launched later this year. KAAF Investments will focus on “strategic operational investments” in healthcare, education and other socially orientated sectors, Ghattas says. This may include investment in special educational schools, for example, for children with autism. Ghattas says unlike the private equity model whereby investors buy an asset then “flip” it two to three years later, KAAF Investments will seek to make long-term investments of 10-15 years plus.
It is hoped the entity will complement another new venture, Kanoo Capital. This has been established to “professionalise our investment arm”, the chairman says. It is headed up by chief investment officer Kevin Murphy, who was appointed to the group around two years ago, and will aim to make investments in the conventional private equity space.
“The idea is to look at our current portfolio, weed out investments we don’t want and build up a war chest to go and acquire new assets that fit our strategy going forward,” Kanoo says. Kanoo will not say how big a fund the group has, and says planned investments will be vetted by a dedicated committee.
Old roots, new beginnings
Kanoo Group has enjoyed almost continuous growth since it was established in Bahrain in 1890 by Haji Yusuf Bin Ahmed Kanoo. It expanded to Saudi Arabia in the 1930s, followed by the UAE, and now also has offices in Oman, the UK, France and India, with more than 4,000 employees and another 6,000 under its joint ventures. Real estate, travel, shipping, machinery, logistics, energy, industrial chemicals and retail all come under its vast empire.
But now it is at a crossroads. The new investment ventures could see Kanoo Group pulled in different directions based on the best performing sectors in the years ahead. But Kanoo does not wish to predict what these will be.
“It’s hard to pinpoint,” he says. “I define the world as two worlds right now: the old world and the new world. The old world being FMCG, oil and gas, retail, and the new world being anything to do with IT.
“It’s hard to choose which ones as it’s questionable whether the main players in the old world will survive or not, or whether those in the new world will still be the kings of that world five years down the line.”
Kanoo is also reluctant to divulge further details about the restructuring, saying it is taking time to bed down. “I can’t tell you [when it will complete], because I don’t know,” he says, becoming impatient. “It’s moving towards the end, but when the shift will reap its benefits… could be months, could be years. Because you are talking about human nature.”
He is grappling with a lot of uncertainty, he says, compounded by huge external disruption in the form of companies, technologies and industries that were not in the market before.
“The biggest misconception people have is that you flip on a switch and the light comes on. It doesn’t work like that in business. You are talking about a change in culture.”
Fitting for the head honcho of a 125-year-old family business, Kanoo uses the metaphor of a parent-child relationship to explain his outlook. Referring to the complex shifts the group has undergone in recent months, and its reticence to predict the future, he says:
“Think of it as a child growing up. You can try to explain to a five-year-old what will happen to them when they get married, and they look at you like a deer in the headlights thinking, ‘What are you talking about?’ because they are not prepped for it. It takes a while but eventually there will be an inflection point at which they have understood and absorbed.”
Continuing the family metaphor, he adds: “Right now, it’s like the rush that happens with an expectant mother and father going to the hospital waiting for the baby to come. He is out of his mind not knowing what to expect, and she as a first-time mother knows the pain, but does not know exactly what is going to happen. Hopefully, if everything goes right, a beautiful baby comes out, but you have to wait and see.”
Changing of the guard
Kanoo Group is not the only family business in flux. A study by McKinsey & Company and the GCC chapter of the Family Business Council in March estimated that between $1.2 trillion to $1.3 trillion – without considering offshore assets – is set to pass from parents to their millennial heirs within the next decade. But, according to the research, only 15 percent of those family businesses will succeed.
JP Morgan’s private banking division commented soon afterwards that the biggest challenge facing GCC family businesses was the transition to the third generation. In the GCC, between 70 to 80 percent of the private sector belongs to the family business category, it said, making family-run enterprises the backbone of regional economies.
Yet, with tougher global regulations and an increasingly competitive business environment, family firms are under pressure to smarten up their act – even if it means recognising that some family members are not best placed to head up its operations.
In an interview with Arabian Business in October this year, Essam Al Tamimi, founder of UAE law firm Al Tamimi & Company, revealed that his firm’s family business work (including litigation, restructuring and advisory) has grown a staggering 40 percent over the last 18 months. He said: “This area of practice has grown a lot because the younger generation, many of whom are well educated and worldly, starts seeing bad examples around them of families getting into internal conflict. They don’t want to get into that.”
Kanoo says reaching out to lawyers should be the last thing families should do: “Ideally, you want to fix things internally,” he says. But he agrees involving outside professionals in the future of the business is not only preferable, but crucial. “Sometimes, if a person is too emotionally attached to the business, they need to go.”
His parent-child analogy returns. “Look at it from a parent’s point of view. If you strongly believe in your child, then no matter what decision the child takes, the response is going to be, ‘No, he didn’t do a bad thing’, which is not what the child needs to experience. They need to know that they made a mistake and should learn from it.
“If the parent defends the child all the time, they never learn from [their] mistake. Ideally, you have a mix of both. I want to be emotionally attached to the business in terms of being the cheerleader to push it forward, but I want to be objectively looking at the business so I can correct where things go wrong.”
At Kanoo Group, such a compromise is being made in that the family members are still “the front face” of the firm. “We are heavy on the PR and strategy side,” Kanoo states. “And that’s the ideal position for family members to be in. You decide where you want to take the firm, and let the professionals execute it.”
The group may be undergoing structural and emotional shifts, but Kanoo insists this move will not impact its performance. “Without a doubt, we will still see growth,” he says. “This is because it is being fuelled by two things. Number one: the regional under-30s population is massive, it’s expanding, and they want things. Whether it’s food, clothing, buildings or cars, they want things, so there’s going to be growth.
“Number two: fiscal reform from the GCC governments, who have plans to create new projects and new ideas that will spur growth. So you have growth coming from both downward pressure and upward decisions.”
Dubai’s push to host the biggest world expo ever, in 2020, is a big part of this. Kanoo predicts that the UAE economy will accelerate from the end of 2017 as construction projects advance in the run-up to the event. “It’s happening and it’ll have a knock-on effect,” he says. “We’re seeing companies gearing up for this and, really, if you can’t make money in 2018 and 2019, you really shouldn’t be in business at all.”
Saudi Arabia’s Vision 2030 will be another growth driver for Kanoo Group, which has infrastructure-related activities there. The Saudi government plans to develop new tourism and entertainment projects and to do this, “you need buildings, roads, waterworks, piping – all that stuff that goes in the background that people don’t see. That’s where my business benefits,” Kanoo says.
However, one change he is sceptical about – and has been since it was mooted – is the planned GCC value added tax (VAT). He told Arabian Business in 2015 it would “hit the wrong people”, and his views remain the same. “I’ve never been a fan of VAT and I never will be,” he says, claiming the tax “will punish the poor”.
“Speaking specifically about Dubai, Dubai built itself on being a tax haven. If it starts bringing in VAT, people will start saying, ‘Oh, this is the start of [other taxes]’.
“In a country like the UAE, which has a small national population and high income, does it necessarily need it? Impose taxes if you have a need for it. Do not impose taxes because some third party has suggested that in order to join a club [of mature economies], you have to do it.”
The chairman is nothing if not outspoken, and during the course of our interview our conversation swings wildly between personal revelations and macroeconomic observations. There is lots more to talk about, but with our time up, we shake hands and he is left alone in his majlis-style office – surrounded by a veritable museum collection of daggers, model aircraft, gold watches and stuffed falcons.
If anyone embodies the complex contradictions of old and new, it is Mishal Kanoo.
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