Sunday, 19 December 2021

IDH and CIRA: How two family businesses became institutions

IDH and CIRA: How two family businesses transformed themselves into publicly-traded institutions: In the past two weeks, we looked at how Egyptian family businesses fared in the covid era — and what they need to do to be ready for the challenges ahead. Now, it’s time we hear from people who’ve actually taken the leap. Today, we speak to the leaders of two top Egyptian companies about the lessons they’ve learned as they’ve transitioned from family-run operations to leading players in their respective markets.

Hend El Sherbini is CEO of Integrated Diagnostics Holdings (IDH), a London- and EGX-listed consumer healthcare business that is the leading provider of diagnostic services in Egypt, Jordan, Sudan, and Nigeria. It’s best known in Egypt for its Al Borg and Al Mokhtabar brands, the two largest players in the market.

Mohamed El Kalla is CEO of CIRA, the EGX-listed K-12 and post-second education platform known for brands including Mavericks, Futures and BCCIS that serve lower-middle through high-income segments and teach from Canadian, British, US and Egyptian national curricula. It also owns and operates the Badr University brand.

Enterprise: Give us a bit of background about when and how your company was founded.

El Sherbini: The business was started by my mother in 1979 as a one-doctor lab — which was normal then. Over time, she added more doctors and specialties to the lab. I started working with her in 2001.

El Kalla: The Kalla family, along with close friends and colleagues, decided to start a venture to provide education to the middle class. When the founding family members reached their 50s, they started to look at bringing the second generation on board.

E: Why did you choose to corporatize?

El Sherbini: When I joined, I thought we had to open more branches and add more specialties. If you want to grow while maintaining your standards, you need the structure that corporatizing brings. We became a company, called Al Mokhtabar, in 2004. That’s when we built a back office, and created positions including a chief financial officer and a human resources department.

El Kalla: Corporatizing is essential, especially in Egypt. Look back as far as the 1930s, and you see rising family businesses that crumbled because they couldn’t create an institutional structure and then a weak generation took over. Without an institutional structure, you risk relying on a family that could have diversified interests, weak capabilities or be too immersed in luxury to take care of the business. If you want institutional investors or foreign funds, you have to address this. Why should they work with you if you’re going to disappear at some point? The Rockefellers and the Fords built conglomerates because they had an institutional structure.

E: How did you convince the family to take the leap?

El Sherbini: You’re trying to change the mindset of a family business — which is more or less a one-man show — and turn it into a business with accountability, functions, managers, and governance. Even the doctors that worked with us used to do things at their own pace. Having the patient at the center of the business, and everyone else revolve around them, became essential.

El Kalla: I was lucky because most of our circle consisted of visionary people who worked with international institutions, so they weren’t very opposed to the idea. Fortunately, we had the first generation on board, so the second generation automatically followed. If we’d started corporatizing in the second generation, it would have been much tougher. Because our founders were tightly knit, they decided to bring in an international entity to help hold potentially sensitive discussions about growing old and attracting future generations to the business. The International Finance Corporation was invited by the board, and they helped a lot with the transition stage.

E: How has your company benefited from corporatization?

El Sherbini: Simply put, you can’t expand, serve more people, or keep adding value without being corporatized. Corporatization allowed us to introduce new tech to serve more patients, and to attract investors with sound financials and structure.

El Kalla: If you look at CIRA’s institutional structure, you’ll see that of our 30 senior management roles, only four are filled by family. Outside the family, 70% of our investors are global institutions. These investors will only work with well-governed institutions, with rigorous systems and accountability.

E: How did you choose your board of directors?

El Sherbini: We wanted members with good business knowledge in the regions we work in, experience in the medical sector, and financial expertise. Most are non-executive, independent directors, which is also a requirement of the London Stock Exchange (LSE).

El Kalla: We looked for public figures with a very strong track record of ethics and accountability. Industry and business expertise were also important considerations. Our board is set up to ensure that if all independent members, 50% of our board seats currently, vote against a decision, the family members will be blocked. And our audit committee is completely made up of independent members.

E: How was the corporatization on the more operational front?

El Sherbini: Strong accreditation has helped sustain our quality amidst expansion. We were the first healthcare entity in Egypt to be accredited. We got ISO accreditation in 1998, then sought more lab-specialized accreditation from the College of American Pathologists. To this day, we’re the only lab in Egypt accredited from there. We turned functional roles into departments, creating a financial department, a sales and marketing department and a call center.

El Kalla: The process included setting codes of ethics and performance systems and ensuring everyone adheres to them. We also identified who out of the second generation would run the business, and created our own accountability system, family governance code and Swan System.

E: How did your employees react to the change of pace and structure?

El Sherbini: Our new structure helps us support our employees to provide a better service. The doctors that worked with us used to work at their own pace, but putting the patient at the center of the business — with everything else revolving around them — is essential. Our 5k employees benefit from a profitsharing plan, healthcare and ins. — which we couldn’t offer as a family business.

E: Does corporatization make the company more attractive to future generations?

El Kalla: Today, CIRA is an industry brand, and younger family members are interested in joining it. The more your corporation has a strong story and global presence, the more attractive it is. And when you work with global investors to expand your business, you create a structure that inspires investor confidence. These investors open doors everywhere, so you end up with a virtuous cycle of growth.

E: Which downsides did you have to endure?

El Kalla: There are more expenses when you institutionalize. You pay lawyers and advisors to create systems, there’s board remuneration for independent members, and you have the cost of registering all contracts and agreements. All this means more investment and accountability, but ultimately it brings a better yield. The speed of company operations is also affected because corporatizing requires more approvals and processes. But these things also mitigate risk. Finally, if you publicly list, you have to comply with public regulations — a complicated process requiring auditors, expertise and additional costs.

Your top stories on future trends for the week:

  • The European Bank for Reconstruction and Development approved a USD 15 mn equity commitment to Algebra Ventures’ second tech fund, which is targeting a USD 60 mn first close.
  • AIM Technologies closes Sequence Ventures-led seed round: Cairo-based AI customer management platform AIM Technologies has raised an undisclosed amount during a seed round led by local VC Sequence Ventures.
  • Innoventures is looking to deploy EGP 30 mn into local startups during 2022, which will be distributed across 20 companies with an average ticket size of EGP 1–2 mn.
  • Dubai-based VC Global Ventures is nearing a USD 100 mn target for its new fund, after attracting liquidity from Abu Dhabi and Saudi Arabia's state funds, ins. company Bupa Arabia, and unnamed US investors.

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