Challenging days for GCC business leaders

Who would want to be a Gulf CEO? The cozy business environment in which they have thrived for so long is being swept away at an alarming pace.

For years, Gulf companies have made huge profits thanks largely to the strong arm of government protection. Exclusive distribution rights have made many Gulf importers dollar billionaires; tough foreign investment laws have deterred all but the most aggressive overseas entrepreneurs; and the common practice of granting monopolies has seen many utilities become bloated cash cows.

Today, all that is changing. In Kuwait, MPs have approved plans to welcome foreign banks to their shores for the first time in decades. Across the waters in Bahrain, lawmakers have made similar moves in the telecom sector. Ditto Saudi Arabia and Qatar. This pattern is being repeated - to a greater or lesser extent - in every sector in every country across the Gulf.

For regional business leaders, it adds up to the greatest challenge of their professional lives. 'Regional CEOs are going to have to adapt to playing by the same rules as the rest of the world,' warns Jihad Nader, dean of the Business School at the American University in Dubai (AUD).

He adds, 'Until now, the playing field has not been level, but the World Trade Organization is changing that. When most of the Gulf countries joined in the mid-1990s, they were granted 10-year grace periods [before they had to scrap protection]. Those grace periods are now expiring.

For CEOs in this part of the world, it is particularly important to have the ability to rise to the challenge of change and uncertainty.'
Arif Rahimi, consulting partner at BDO Jawad Habib, one of Bahrain's leading professional services firms, says that the ability to react to these changes is arguably the single most important quality demanded of today's Gulf CEO. 'I think it is an important issue - maybe not in the immediate short term, but it will definitely bring challenges. Companies and CEOs will have to be prepared for that.'

The bad management habits of the past will not work in the new era of competition. 'CEOs will have to be prepared,' warns Rahimi. 'And they will have to be aware of what is happening in their industry. They will have to be more in touch with endusers and customers than they have typically been. There will be a move towards a customer-oriented strategy. That is different from the previous 20-30 years. In the past, this region has been mostly supply-driven. You bring products and then think about how to sell them, rather than structure your business around the customer. With increasing competition, that will change.'

Rahimi says CEOs will have to adopt an increasingly regional perspective if they are to resist the threats - and grasp the opportunities - of globalization. 'I would say that so far, typically companies and CEOs have focused on their own countries, with the exception of a few businesses that you could call regional.

'We are seeing a trend with companies going regional as opposed to just being in their own country. Part of the reason is that they're thinking about globalization issues such as the World Trade Organization. On the other hand, I think the World Trade Organization can bring opportunities. The whole market will expand. Competition typically does increase the market size. It creates opportunities.'

Headhunters report that the ability to effect change is emerging as a top priority when Gulf companies set out to find a new CEO. 'Perhaps the most important issue is: are they capable of implementing change?' says Lema Shanti, director of executive search at Bayt, a Dubai-based recruitment consultancy.

'Change management is important in this region at the moment because many organizations are changing from family partnerships to corporations. When recruiting a CEO or general manager, you need to know whether this is a man who can plan change and implement change through the ranks.'

Clearly, managing change is one of the key attributes that a Gulf CEO requires in today's rapidly changing corporate climate. But it is by no means the only quality they need. What are the vital ingredients that make a successful Gulf business leader?

Shanti stresses that there is no magic formula. 'Companies vary in terms of their priorities. For one general manager position we recently filled, the main priority was charisma. The previous general manager had been technically excellent, but he had failed to win the respect of the team.

'On a more general level, we look at a whole range of characteristics: intellectual, personal, interpersonal, professional competence, strategic planning, risk taking, organizational skills, judgment, managerial skills, coaching, implementation, vision.'

She says that at the executive levels just below CEO and general manager, companies tend to have specific demands, such as language, age, background and education. But for leadership posts, these issues are secondary to finding people with the right drive and vision.

'Arabic is often a requirement, but not always. At the CEO and general manager level, it is rare for a company to specify that they want someone from a certain background - say from the US, the UK or Arab world. What is more important at this level are the skills and the vision.

'Business education is also less important at the CEO and general manger level than track record. Clearly, there is no substitute for an MBA from a top school such as Harvard, INSEAD or London Business School. But far more important for a CEO or general manager are their recent successes, achievements and coups.'

People skills come up time and again when discussing the qualities of a winning Gulf CEO. The multicultural nature of business in the Gulf means that the regional CEO has to be all things to all men. They have to manage relationships with a broad range of clients, staff and - perhaps most challenging of all - owners.

'The CEO in this region has to lead people from so many different backgrounds; that is a very special challenge,' says AUD's Nader. 'It goes back to people skills. Given the diverse demographics, a major challenge for a CEO in this region is the absence of some kind of corporate culture that you can fit into, in a way that you have in the West or in Japan. For the CEO, the challenge is awesome. It is the make or break of the CEO.'

Rahimi at BDO Jawad Habib echoes this view: 'People management is even more important in the Gulf than elsewhere. In the Gulf, there is a huge reliance on expatriate human resources. You have issues of nationality. You have issues of motivating your people. There are different motivating factors for expatriates and nationals. What makes them tick is slightly different.

'The other side of people management is managing upwards. You have to manage the board of directors. You have to understand the issues that go around these boards. In many cases you see family issues coming in because of a large number of family businesses. The majority of businesses in the region - as in many other part of the world - are family businesses. Many other companies in this part of the world are at least partly government owned. You have a different ownership structure. A good CEO would have to understand the background of the owners and the relationships between them.'

Corporate governance is an increasingly pressing issue for regional CEOs, for a number of reasons. First, the global clamor for increased transparency and better business ethics is reverberating around the Gulf as much as in any other region of the world. Second, the regional move towards converting companies from private ownership to publicly listed companies demands far higher levels of exposure and shareholder accountability than was the case even three years ago.

In some quarters, the Gulf has an unenviable reputation for issues such as insider trading, money laundering and bribery in the awarding of major contracts. These practices, which were once commonplace in the region, are gradually being stamped out.

High-profile international prosecutions of fallen executives - such as Dennis Kozlowski at Tyco, Calisto Tanzi at Parmalat and Jeff Skilling at Enron - have sent a powerful message to their counterparts in the Gulf that they shoulder a heavy burden of personal responsibility.

Arif Rahimi at BDO Jawad Habib says it would be wrong to overstate the extent of corruption in the Gulf: 'These issues [of corruption] are all over the globe; they are not just here.' But he says that the global push for improved corporate governance - and the increasing number of initial public offerings in the Gulf - is already forcing Gulf CEOs to make their companies more open. 'We have seen [greater transparency and accountability] becoming a priority for a lot of shareholders in the region.'

Change management; people management; corporate governance. These are all issues that today's Gulf CEOs have to face - and, typically, these CEOs are expatriate appointments. But what does the future hold? Is there a pipeline of emerging, indigenous talent that will take over the reins in 10-15 years time? Encouragingly, most observers answer with a resounding 'yes.'

Jihad Nader at AUD says he has been pleasantly surprised by the local talent he has seen graduate from the Business School since it was established just five years ago. 'Twenty percent of all our students are UAE nationals. That is encouraging, because they have come here by choice, even though they have to pay to come here, and I think our courses are particularly demanding. But they want to learn.'

Lema Shanti at Bayt agrees that there is a growing number of rising stars among young Gulf national candidates. 'There is some real talent coming through, certainly among UAE nationals. Not enough to satisfy the demand for nationals, but there are some real rising stars that we are seeing.'

'As yet, Gulf CEO positions remain the near-exclusive preserve of men. I'd love to see more women general mangers in this region, but the reality is there are very, very few. It is definitely more of a supply-side issue. I would love to find more, but it is rare to find women candidates.'

Looking to the future, though, here are signs that this could be changing. 'We see some real high-achievers; women as much as men,' says AUD's Nader. 'I can think of a number of UAE women from this university who have made it in multinational companies. They have been appointed to positions that will eventually lead to management. I know these companies have their eyes on these people as high-flyers. The future is bright in terms of the pool of future managers.'

Rahimi agrees that there are some bright young stars emerging - although he warns that the real talent is almost exclusively to be found in the financial services arena. He cautions that, in other industries, there are some young managers with excellent industry skills, but too few with general management and leadership skills. This is partly thanks to the traditional reluctance of Gulf CEOs to delegate - without delegated responsibility, how can today's junior managers learn to become tomorrow's senior managers and business leaders?

So much for the future. Back in the present, it is clear that today's CEOs face a difficult time in coming years - especially with ambitious young stars waiting in the wings to take their place if they slip up. Against this challenging background, who would want to take the job? In reality, there is no shortage of takers: Bayt reports that it received more than 2,000 applications for one general manager position it advertised recently.

Executive pay is clearly a major incentive. The starting salary for a CEO is around $120,000, plus benefits including free housing, schooling and car. Most earn far more. Increasingly, though, Gulf CEOs have to earn their corn. Sophisticated, target-based packages are more and more common, and Gulf companies are now quick to show the exit door to under-performing leaders. It's tough at the top in the Gulf today - and it's only going to get tougher.