The case for professionalising governance early
The strongest argument for early professionalisation comes from Michael Jensen and William Meckling’s foundational 1976 analysis of agency costs. Their argument is that separating ownership from control creates costs — costs which, they show, are a structurally unavoidable consequence of the principal-agent relationship, not a symptom of bad management. The relevant implication for a growing family or founder business is the inverse: as a business grows, brings in outside capital, hires senior non-family executives, or extends decision-making to people who are not owners, the agency-cost dynamics Jensen and Meckling describe begin to apply whether or not formal governance has caught up — and a governance structure that has not been built in advance means those costs surface as unmanaged risk rather than a deliberately accepted trade-off.
Paul Rogers and Marcia Blenko’s research on decision rights adds a further argument. Their Bain-based survey of executives at more than 350 global companies found that only around 15% reported having an organisation that helps the business outperform competitors — and identified unclear decision rights, rather than unclear strategy, as a primary bottleneck. In a family or founder business where decision rights are held informally, by relationship and trust rather than by defined role, that ambiguity does not disappear as the business scales — it becomes harder to see, because the people who understand the informal system are themselves part of it.
The practical version of this case: build clear decision rights, and some degree of independent oversight, ahead of the point where external investors, lenders, or a generational transition require it — because retrofitting governance under external pressure is a more disruptive and higher-stakes process than building it proactively.
A further consideration specific to this position: the cost of unmanaged agency risk in a family or founder business does not stay static as the business grows. Jensen and Meckling’s framework predicts that agency costs rise as the number and diversity of people with a stake in decisions — non-family senior hires, external lenders, minority investors — increases, even where formal ownership has not changed. A business that has quietly accumulated several such stakeholders without a corresponding governance structure is, on this account, already carrying agency costs it has not measured, whether or not anyone inside the business currently experiences them as a problem.
The case for preserving concentrated ownership control
The strongest argument against premature professionalisation comes from the same governance research applied differently. Laura Empson’s work on power and governance in partner-led and professional firms observes that concentrated decision-making authority, where it sits with people who have deep, direct knowledge of the business, can make investment and strategic decisions faster and with better-calibrated risk judgement than a more formally governed structure would produce — precisely because the decision-makers are not required to build consensus across parties with less direct knowledge of the business’s specifics.
Edith Penrose’s argument about managerial capacity reinforces this. If a founder or family group’s capacity to direct the business — not a governance gap — is genuinely the constraint on its next phase of growth, then building formal governance structure ahead of need consumes exactly the scarce managerial attention Penrose identifies as the actual bottleneck, on a problem (external oversight) the business does not yet have.
There is also a market-specific version of this argument. Family and founder ownership remains a common and, on the Dubai Economic Survey’s own account, structurally significant feature of the emirate’s private sector — meaning concentrated ownership here is not an anomaly requiring correction but an established, locally embedded ownership model that has coexisted with substantial economic growth for decades. The case for preserving it rests on the observation that the model itself has not been shown, by any source in this pool, to be a barrier to growth in this market specifically.
A further consideration specific to this position concerns succession itself. Where a family business’s governance model is deeply tied to the relationships and trust built over years between specific individuals, imposing a generic external governance structure prematurely can weaken exactly the informal mechanisms — mutual trust, shared judgement built through experience together — that made concentrated decision-making effective in the first place, without yet having built the formal mechanisms to replace what was lost. On this account, governance transitions are more likely to succeed when they are built around the business’s actual succession timeline, rather than imposed on a generic schedule unrelated to it.
Why the disagreement persists — and what it means for a leader
The disagreement persists because the two positions are answering different questions about the same trade-off. The case for early professionalisation is fundamentally about risk: agency costs and decision-rights ambiguity accumulate whether or not they are visible, and building governance ahead of an external trigger is safer than retrofitting it under pressure. The case for preserving concentrated control is fundamentally about speed and judgement quality in the near term: formal governance, imposed ahead of genuine need, has a real cost in scarce managerial attention and in the loss of the fast, well-informed decision-making that concentrated ownership can provide.
Neither research tradition claims the other’s underlying mechanism is wrong. Jensen and Meckling do not claim concentrated ownership is worse in every respect — only that it carries specific, describable costs. Penrose does not claim governance investment is never worthwhile — only that managerial capacity is a genuinely scarce and easily misallocated resource. What the evidence does not provide is a rule for which cost a specific family or founder-led business should prioritise avoiding, and any source claiming a universal answer — always professionalise by a certain size, or never fix what isn’t broken — is overstating what the research supports.
A near-term consequence worth naming for whichever direction is chosen: the decision is rarely made once and then settled. A business that professionalises governance early may find, several years later, that the formal structure it built no longer fits a business that has grown, diversified, or changed leadership in ways the original structure did not anticipate — at which point the governance question resurfaces in a different form. A business that defers professionalisation may find the external trigger, when it arrives, requires governance changes on a timeline dictated by the counterparty (an investor’s requirements, a lender’s covenants) rather than one the business would have chosen for itself. Neither path removes the need to revisit the question; it changes when and on whose terms that revisiting happens.
For a Dubai business specifically, the practical stakes of this trade-off are shaped by two local factors the research above doesn’t directly address but that a leader should weigh alongside it: the likelihood of an external trigger arriving (outside investment, generational succession, expansion into a jurisdiction with more formal governance expectations) and how much of the business’s current advantage genuinely depends on the speed and judgement that concentrated decision-making provides, versus how much is a matter of habit.
Where this shows up
Written for organisations in Dubai. See the Dubai market page for related reading, or browse the other hubs on the Markets page.
Related advisory: family office consulting.
Questions worth considering
- Are the business’s current decision rights explicit enough that a person outside the immediate ownership circle could describe who decides what, and how?
- Is the business’s current pace of decision-making a genuine competitive advantage of concentrated ownership, or an assumption that has not been tested?
- What external trigger — investment, succession, market expansion — is most likely to force this question, and how much runway exists before it does?
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