From Informal Trust to Binding Legal Charter:

Family Business Governance in Saudi Arabia and the United States

Omar Adnan Alshiha

Shafiqul Hassan

 

Abstract: This study undertakes a comparative legal analysis of family business governance frameworks in Saudi Arabia and the United States, focusing on unlisted firms. Employing a doctrinal method, it explores how formal legal instruments and informal norms shape ownership structures, board authority, and succession planning. The findings reveal a structural divergence: the United States relies on decentralised, enabling statutes and a specialised judiciary that supports contractual governance, while Saudi Arabia is transitioning from informal, trust-based arrangements to codified instruments, notably legally binding family charters. Despite differing institutional contexts, both systems face persistent challenges in succession discipline. The study proposes a hybrid governance model for Saudi firms that integrates enforceable company law mechanisms with culturally legitimate family governance bodies. Key recommendations include embedding family constitutions within company instruments, adopting early and rule-based succession protocols, enhancing independent oversight, and implementing tiered dispute resolution mechanisms that respect the Shari’ah principles. These reforms aim to strengthen transparency and resilience while preserving socio-emotional wealth (non-financial value that family owners attach to their firm),1 thereby aligning family firm governance with the strategic objectives of Vision 2030.