Board evaluation in family companies: honest reviews without family fallout

Family-owned businesses sit at the centre of the Kingdom's private economy. The chairman of the National Center for Family Businesses said in January 2021, as reported by Argaam, that family businesses represent 63% of private-sector entities in Saudi Arabia, account for 66% of private-sector gross domestic product and provide 76% of private-sector jobs. These are dated figures and should be read as indicative of scale rather than as current statistics.

Arab News reported in 2022 that the new Companies Law aimed to enhance the sustainability of more than 538,000 family establishments, and cited a study by the National Center for Family Enterprises putting their contribution at approximately SR810 billion ($215.8 billion). The law was designed with family firms in mind, including provisions on family charters and agreements, which signals that policy-makers regard their governance as an economic matter.

The next decade tests this base. PwC estimates about $1 trillion will pass to the next generation across the Middle East within a decade, and a Lombard Odier report published in September 2025 puts over $1 trillion on the transfer by 2030. A family company approaching a generational handover needs a board that can discuss succession, capital and control candidly, and that capacity has to be built before the handover rather than during it.

For a non-executive director or independent chair, the implication is that evaluation is not a compliance exercise but a way of preparing the company for transition. A board that has already practised hard conversations about its own performance is far better equipped to hold them about leadership, dividend policy and the entry of the next generation. The question is how to start when the stakes are personal.

A practical first step is to ask whether the board has ever been formally assessed, by whom, and what changed as a result. If the answer is never, or only informally by the chair, you have a baseline. Record it, because you will want to compare it with the position after the first externally facilitated review.

What to do: write a one-page baseline of the board's governance today. List the number of directors, how many are independent, how many are family members, when committees last met, and whether any assessment has taken place. The exercise takes an hour, costs nothing, and gives the chair a factual starting point for the conversation with the family about why an outside review is worth commissioning.

Saudi governance rules already set a clear direction. Article 39 of the Capital Market Authority's Corporate Governance Regulations, as amended in 2023, requires the board to develop mechanisms to annually assess the performance of the board, its members and committees and the executive management, and to obtain an assessment from a competent third party every three years. Non-executive directors assess the chairman periodically.

The independent-director requirement supports that process. Article 16 states that independent directors shall be not less than two members or one-third of the board, whichever is greater. Al Tamimi's summary of the separate regulations for non-listed joint stock companies describes the same pattern: a third party should evaluate board performance every three years, one third of members should be independent, and independent members should assess the chairman.

These provisions bind listed and certain non-listed companies, not every family firm, but they define what investors, lenders and prospective partners will regard as normal. A family company planning an IPO, a sale of a minority stake or a joint venture with an international partner will find that the third-party review it avoided becomes a due-diligence request. It is easier to run one voluntarily than to explain its absence.

The same standard is spreading internationally. Under the UK Corporate Governance Code, according to Forvis Mazars, FTSE 350 chairs should commission an externally facilitated board performance review at least every three years, with the 2024 Code applying to accounting periods beginning on or after 1 January 2025. Family firms with UK or European partners will see familiar expectations in their counterparties' governance questionnaires.

The implication for the board is to adopt the three-year external cycle voluntarily. Schedule the first outside review within twelve months, run light annual self-assessments in between, and put both in the board calendar with a named sponsor. That sequencing meets the spirit of the Saudi regime even where the letter does not yet apply to your entity form.

What to do: map your company against the three tiers of expectation. Listed companies follow the CMA rules directly; certain non-listed joint stock companies follow equivalent rules; family limited companies and holdings follow nothing but the standards their stakeholders expect. Decide which tier you want to be measured against, and set the evaluation cycle accordingly, rather than waiting for a trigger event to set it for you.

The weakness of standard evaluation is not confined to family firms. PwC's 2025 Annual Corporate Directors Survey found that 78% of directors reported assessments do not capture the full picture, and over half, 55%, said at least one of their colleagues should be replaced. Nearly three-quarters said their boards skip individual reviews altogether. Directors know where the problems are, but the process does not surface them.

Spencer Stuart's 2025 US Board Index shows the same gap between form and depth. It found that 99% of S&P 500 boards reported some form of performance evaluation, yet only 48% disclosed individual director evaluations, an increase from 38% a decade earlier. Of nominating and governance committee chairs surveyed, 29% believed one or more directors should be replaced. Evaluation is near-universal; candid evaluation of people is not.

Independent facilitation is rising, though from a low base. Spencer Stuart reports that 27% of S&P 500 boards engaged an independent third party for their evaluation processes, a substantial rise from 9% six years earlier, and many retain an outside adviser every other or every third year rather than annually. The pattern suggests large public boards have concluded that insiders alone cannot test themselves.

Skills and refreshment are the practical consequences. PwC reports only 32% of executives believe their boards have the right skills mix, and 88% of directors say they can take personal steps to improve effectiveness. The latter figure is encouraging: most directors are willing to improve if the process gives them clear, specific and safe feedback. The task is to design for that willingness.

If public-company directors with professional norms of independence find evaluation shallow, a family board with overlapping loyalties faces a harder test. Treat these surveys as a floor. Your evaluation should go beyond a generic questionnaire to ask about individual contribution, the chair's handling of family members and the quality of discussion on the topics people avoid.

What to do: ask your own directors the PwC questions in a short, confidential form: does our assessment capture the full picture, and should any colleague be replaced? You may not like the answers, but you will know whether your process is credible. If the proportions resemble the survey results, you have a design problem, not a people problem, and the remedy is a better process.

Four features of a family board explain why internal evaluation struggles. First, roles overlap: a director may also be an executive, an owner and a relative. Second, authority is personal, so a junior family member rarely criticises a senior one. Third, loyalty and face matter, and public disagreement can carry costs beyond the boardroom. Fourth, the board has few independent voices to balance these effects.

The data on family governance in the region are consistent with that picture. The Lombard Odier report, as covered by Khaleej Times in September 2025, found that fewer than 16% of family businesses have formal governance frameworks, that fewer than one in five respondents have a comprehensive succession plan, and that half of surveyed families have postponed succession discussions. Postponement is the signature of topics that are too personal to raise.

A self-completed questionnaire collected by the company secretary does not solve this. Respondents know who will read the answers, and they moderate what they say. Even when anonymity is promised, a small board makes attribution easy: five people cannot easily hide the author of a distinctive comment. The design question is how to collect candour without exposing the person who offers it.

Three design choices help. Use an outsider to hold the raw responses and aggregate them into themes. Combine interviews with a short written survey, so people can explain what a score means. And report at the level of the board and the chair, with individual feedback delivered privately by the facilitator to the person concerned. These choices respect hierarchy while still letting information flow upwards.

For directors, the practical test is simple: could a younger family member or a non-family director tell the chair that the meetings are poorly run, or that a dominant shareholder is overriding discussion, without consequence? If not, the process is not yet safe, and the board is not getting the information it needs. That is the case for outside facilitation.

What to do: before commissioning anything, hold a short discussion at the board on what could not be said in the last twelve months. Ask each director to write down one topic they avoided, and have the company secretary count the themes without attribution. Where themes cluster around succession, dividends or a senior family member, you have identified the scope for the facilitated review.

An external facilitator changes the nature of the information. Comments that would be a personal criticism from a cousin become a theme reported by a neutral third party, with other themes alongside. The facilitator can also draw on experience of other boards, indicating whether the issue is typical, and can frame the finding as a design problem to be solved, not a failing to be assigned.

The review must be independent in fact and perception. Choose a facilitator with no commercial relationship to the company or family, agree terms of reference with the chair and a non-family director, and publish the scope to all directors before work starts. Avoid the chair alone selecting and briefing the facilitator, which would reintroduce the problem the review is meant to solve.

Confidentiality needs to be explicit. Tell directors what will be shared, with whom and in what form. Agree that raw interview notes remain with the facilitator and are destroyed after the report, that no verbatim quotation will identify an individual, and that individual feedback is private. These commitments encourage frankness, and breaching them even once would damage trust in future reviews.

The facilitator should also address the interface between the board and the family. In a family business, many of the sharpest governance issues arise where family assembly, shareholders and board overlap: who sets dividend policy, who decides on family employment, how a conflicted director recuses. A review that covers only board mechanics will miss the questions that cause real disputes.

Make the process repeatable. A first review establishes a baseline and a vocabulary; the second, two or three years later, shows whether the board acted. Pair it with a light annual self-assessment that uses the same dimensions. Over time directors learn that candid input leads to visible action, and the willingness to speak honestly rises.

What to do: shortlist three facilitators and interview them with a non-family director present. Ask how they protect confidentiality, how they handle a dominant shareholder, what their reports look like and how they would deliver difficult individual feedback. Choose on judgement and independence, not price, since a review that fails to produce honest findings is the most expensive option of all.

A good evaluation separates questions that families tend to blur. The first concerns the board as a body: its agenda, the quality of information, its strategic oversight and the effectiveness of its committees. The second concerns the family-business interface: roles, decision rights, succession and conflicts. The third concerns individuals: contribution, preparation, independence of thought and behaviour in the room.

Not all questions carry the same sensitivity. Meeting quality and information flow are easy to discuss and often produce quick wins. Succession, related-party dealings and the behaviour of a senior family member are the topics where an outsider adds most value and where the risk of conflict is greatest. The exhibit below maps typical topics by sensitivity and impact to help the board decide where facilitation matters.

Individual assessment deserves care. PwC found that nearly three-quarters of directors say their boards skip individual reviews, and Spencer Stuart finds only 48% of S&P 500 boards disclosing them. In a family company, individual feedback is both the most valuable and the most delicate. We suggest it is delivered privately by the facilitator, focused on behaviours and contribution, and linked to development rather than to ownership rights.

The chairman's performance needs separate treatment. Saudi rules provide that the chairman's performance should be evaluated by independent or non-executive members, which is sound practice because the chair controls the agenda and the evaluation itself. If the chair is a founder or senior family member, a non-family director should lead that part of the process with the facilitator's help.

Finally, define success before the review begins. Boards that treat evaluation as an audit see it as a threat; boards that treat it as preparation for the next five years use it. Agree two or three outcomes the board wants, such as clearer succession planning, a stronger independent voice, or better use of committee time, and design the questions around them.

What to do: prepare a one-page scope that lists the questions under each of the three headings, the sources of evidence for each, and who will lead the discussion of the findings. Share it with every director before work begins. Early clarity about what will and will not be assessed removes much of the anxiety that makes family directors defensive about the process.

An evaluation that produces a report and no change is worse than none, because it teaches directors that candour is pointless. Within a month of the review, the chair should present the findings to the full board, agree three to five priorities, assign each an owner and a date, and record them in the minutes. The facilitator can attend that session to answer questions and keep the discussion on themes.

Link the action plan to the structures that make change stick. If the review finds weak independent voice, review the composition against the one-third benchmark in the Saudi rules. If it finds that meetings are not leading to decisions, revisit the calendar, since a board of between three and eleven members that meets at least four times a year has limited time. If succession is avoided, create a separate working group.

Protect the process from retaliation. Make clear that no director will be disadvantaged by what they said in confidence, and that family members who receive difficult feedback will have an opportunity to respond. Where the review exposes conflict between family branches, escalate to the family council or assembly, which is a better place than the boardroom to resolve questions about family roles.

Report progress. Six months after the review, ask the facilitator or the company secretary to give a short update on the action plan to the board. Twelve months later, repeat the light self-assessment on the same dimensions and compare. This creates a visible track record that investors, lenders and the next generation can trust, and it demonstrates that the board holds itself to account.

Finally, link evaluation to the wider roadmap for governance. A board that has reviewed itself honestly is in a better position to adopt a family charter, define dividend policy, appoint independent directors and plan the transition to the next generation. Evaluation is not the end of governance work but the diagnostic that tells the family which investments will matter most.

What to do: put the evaluation cycle in the board calendar for the next three years, with the external review in year one, a light self-assessment in year two and a refreshed external review in year three. Assign a named sponsor for each stage. A calendar commitment turns a one-off exercise into an institutional habit and reassures lenders and partners that governance is being maintained.

Karter McKinley supports family-controlled boards in designing and sponsoring an independent review, from terms of reference and facilitator selection to the action plan and follow-up. Our strategy and transformation work connects the findings to succession, governance design and the next stage of growth. We provide process support and do not give legal or regulatory advice, which remains with qualified advisers.