Blood is thicker than water
Owning and managing a family-owned business has numerous inherent difficulties. Faced with the challenge of earning day-to-day income leaves little time to think about and plan for the immediate and medium terms, let alone the long-term complications...
Owning and managing a family-owned business has numerous inherent difficulties. Faced with the challenge of earning day-to-day income leaves little time to think about and plan for the immediate and medium terms, let alone the long-term complications in relation to succession issues.
Let's look at some issues that affect family-owned businesses. When family members work together, emotions may interfere with business decisions. Conflicts may arise as relatives could see the business from different perspectives. Family members who are partners could well see capital expenditure and other investments as foregone profit distribution.
In some family companies, daily operations are hampered by family conflicts which may result in a high turnover of non-family personnel. This makes the role of the manager much more complicated as the conflicts between relatives must be reconciled for the benefit of the business.
The issues are not all negative. If proper structures are in place, family businesses provide some very important advantages (if properly handled) over other businesses. You and your family are more likely to share the same work ethics and beliefs as to how things should be done. This will give the owner-manager an extra sense of purpose and the business a competitive edge.
Building a lasting family business enterprise means that you and the other family members are also more likely to put in the extra effort and hours required to make the business a success.
Strong personal and family ties result in a situation where you and your family members will be more likely to stick together in hard times and show the determination needed for the business to succeed. Finally, family members might be more willing to make financial sacrifices for the sake of the business's success, for example, through accepting lower pay than they would normally get elsewhere, or deferring wages during cashflow bottlenecks.
Many misunderstandings and potential areas of dispute in family businesses can be avoided if one ensures that good communication channels are in place. If not, some of the following conflicts could and will one time or another arise:
● family members will assume that they know what the other family members feel or want;
● personal ties, in many instances, constrain honest opinions from being expressed;
● the business instigator, who many a time is the family head, will automatically assume control of the business, even though he or she might not possess the best business skills;
● in a number of situations, one family member might end up dominating the business;
● in other times, personal resentments become business issues and resentments, which create a lot of stress within the company even for non-family-related employees.
These pitfalls could be avoided by fostering an atmosphere of openness and clear operational structures such as:
● having all business-related discussions at work or at any other place deemed fit - and prohibiting any such discussions at home;
● creating mechanisms for providing constructive communication, especially with non-family staff members. This will eliminate the feeling of being uninvolved and demotivated;
● arranging for occasional away days from work so as to discuss the company's business strategy and future direction - but not at home;
● appointing an experienced advisor or non-executive director/s to the board, so as to provide an impartial viewpoint and help prevent emotions from clouding business issues.
It is very important, as with any enterprise, for a family business to have a clear mission statement, objectives and goals. In this regard, a family business must from the outset have a clear chain of command and lines of authority for decision-making. Also, a clear plan is needed of how the goals are to be accomplished over time and a good communication structure set up between family members and with non-family employees.
Finally, a succession plan must be in place at least five to 10 years before the managing family member is planning to retire. Once this date is set, there must be no going back as this will be seen as a sign of hesitation or, even more dangerously, a lack of trust in the family member selected to take over the reins of the company.
The vast majority of family-owned SMEs were set up during the past 30 years and in the vast majority of cases the head of the family had very little formal training. This has now changed and in the past few years, more and more companies are being set up by young entrepreneurs - including women - who are highly qualified.
Family businesses are taking in this new generation, who are very conversant with the latest ICT gadgetry and who find themselves having to operate in businesses which still run the same way they were before computers were available. Younger family members come in with ideas and concepts that could clash with the owner-manager's way of doing business.
The older generation has a range of options. They could take on the new ideas, implement and integrate change into the business culture and operate the business under totally new conditions for them, that is, re-engineering the business processes. Or they could decide to stick with their old ways of doing things and risk losing their families, with the possibility that the business would stagnate.
In such scenarios it is very important for the owner-manager to take stock of the situation and involve a qualified consultant to help him/her map out the best strategy. Another important issue to settle should be that related to the pay and benefits for family members.
Unfortunately, there are many examples of relatively-high salaries paid to low or unproductive family members, which will definitely create conflict at one time or another. The solution is to have a clear remuneration strategy which is consistent, fair and open.
This will eliminate any conflicts between family and non-family staff and also eliminate conflict with family shareholding members, who might question uncontrolled remuneration packages. In developing such a remuneration package, keep in mind that
● an individual's pay should be based on their value to the company rather than on personal need of the individual;
● family members should not be brought into the business with inflated salaries;
● phantom jobs should not be created for the sake of accommodating a family member, otherwise conflicts will arise with both other family and non-family-related employees;
● non-family employees doing the same work as family members should receive the same salary conditions and package.
Another key characteristic of family businesses is that family members are generally represented in senior management and new recruitment. Although this might be a potential benefit for the family business in terms of lower recruitment and human resources costs, the reality is that for many family businesses, this is potentially damaging as these managers may not always possess the appropriate skills nor be the best possible candidates for the position.
Remember that a characteristic of family businesses is that they are not solely profit maximisers but they also pursue other important objectives such as maintaining or enhancing the lifestyle of the owners, and providing employment for family members in the management team.
As a result, in some family businesses there is a potential conflict between financial and non-financial objectives. The pursuit of such non-financial objectives (family issues) may potentially impede the performance of the company.
Also note that in the case of family businesses staff performance is not necessarily viewed as being linked to or assessed on the basis of individual work achievement but is often related to the performance of the firm as a whole. This might promote more flexible work practices among the employees of family businesses, or result in higher employee wages with a resulting increase in firm performance.
Unfortunately, family businesses are performing much worse than management-led companies. Businesses have to adapt to change, whether proactively or reactively. Yet only a small percentage of family-owned businesses are planning to launch new products or services over the coming years. This is due to the local closed mentality of most family businesses that believe that since their business has done well up to now, there is no reason to look at something new and risk losing what they have.
It is only recently that, prodded by the Government and Malta Enterprise, companies are embarking on research and development. R&D requires a structured approach towards quality procedures and systems, not often found in family-owned businesses.
The same applies when it comes to cooperation and the internationalisation of businesses. Family businesses very rarely cooperate with other firms and are even less prone to embark on internationalising their business. This is unfortunately related to the closed mentality prevalent in most of the local family-owned businesses. The main stumbling blocks for this scenario could be related to a lack of knowledge, a lack of resources or the perceived risk.
Again, the solution is to seek assistance from an experienced consultant and/or Malta Enterprise.
• Mr Duca is the managing director of 2M Management Consultancy Ltd and holds directorships in a number of other companies.
Let's look at some issues that affect family-owned businesses. When family members work together, emotions may interfere with business decisions. Conflicts may arise as relatives could see the business from different perspectives. Family members who are partners could well see capital expenditure and other investments as foregone profit distribution.
In some family companies, daily operations are hampered by family conflicts which may result in a high turnover of non-family personnel. This makes the role of the manager much more complicated as the conflicts between relatives must be reconciled for the benefit of the business.
The issues are not all negative. If proper structures are in place, family businesses provide some very important advantages (if properly handled) over other businesses. You and your family are more likely to share the same work ethics and beliefs as to how things should be done. This will give the owner-manager an extra sense of purpose and the business a competitive edge.
Building a lasting family business enterprise means that you and the other family members are also more likely to put in the extra effort and hours required to make the business a success.
Strong personal and family ties result in a situation where you and your family members will be more likely to stick together in hard times and show the determination needed for the business to succeed. Finally, family members might be more willing to make financial sacrifices for the sake of the business's success, for example, through accepting lower pay than they would normally get elsewhere, or deferring wages during cashflow bottlenecks.
Many misunderstandings and potential areas of dispute in family businesses can be avoided if one ensures that good communication channels are in place. If not, some of the following conflicts could and will one time or another arise:
● family members will assume that they know what the other family members feel or want;
● personal ties, in many instances, constrain honest opinions from being expressed;
● the business instigator, who many a time is the family head, will automatically assume control of the business, even though he or she might not possess the best business skills;
● in a number of situations, one family member might end up dominating the business;
● in other times, personal resentments become business issues and resentments, which create a lot of stress within the company even for non-family-related employees.
These pitfalls could be avoided by fostering an atmosphere of openness and clear operational structures such as:
● having all business-related discussions at work or at any other place deemed fit - and prohibiting any such discussions at home;
● creating mechanisms for providing constructive communication, especially with non-family staff members. This will eliminate the feeling of being uninvolved and demotivated;
● arranging for occasional away days from work so as to discuss the company's business strategy and future direction - but not at home;
● appointing an experienced advisor or non-executive director/s to the board, so as to provide an impartial viewpoint and help prevent emotions from clouding business issues.
It is very important, as with any enterprise, for a family business to have a clear mission statement, objectives and goals. In this regard, a family business must from the outset have a clear chain of command and lines of authority for decision-making. Also, a clear plan is needed of how the goals are to be accomplished over time and a good communication structure set up between family members and with non-family employees.
Finally, a succession plan must be in place at least five to 10 years before the managing family member is planning to retire. Once this date is set, there must be no going back as this will be seen as a sign of hesitation or, even more dangerously, a lack of trust in the family member selected to take over the reins of the company.
The vast majority of family-owned SMEs were set up during the past 30 years and in the vast majority of cases the head of the family had very little formal training. This has now changed and in the past few years, more and more companies are being set up by young entrepreneurs - including women - who are highly qualified.
Family businesses are taking in this new generation, who are very conversant with the latest ICT gadgetry and who find themselves having to operate in businesses which still run the same way they were before computers were available. Younger family members come in with ideas and concepts that could clash with the owner-manager's way of doing business.
The older generation has a range of options. They could take on the new ideas, implement and integrate change into the business culture and operate the business under totally new conditions for them, that is, re-engineering the business processes. Or they could decide to stick with their old ways of doing things and risk losing their families, with the possibility that the business would stagnate.
In such scenarios it is very important for the owner-manager to take stock of the situation and involve a qualified consultant to help him/her map out the best strategy. Another important issue to settle should be that related to the pay and benefits for family members.
Unfortunately, there are many examples of relatively-high salaries paid to low or unproductive family members, which will definitely create conflict at one time or another. The solution is to have a clear remuneration strategy which is consistent, fair and open.
This will eliminate any conflicts between family and non-family staff and also eliminate conflict with family shareholding members, who might question uncontrolled remuneration packages. In developing such a remuneration package, keep in mind that
● an individual's pay should be based on their value to the company rather than on personal need of the individual;
● family members should not be brought into the business with inflated salaries;
● phantom jobs should not be created for the sake of accommodating a family member, otherwise conflicts will arise with both other family and non-family-related employees;
● non-family employees doing the same work as family members should receive the same salary conditions and package.
Another key characteristic of family businesses is that family members are generally represented in senior management and new recruitment. Although this might be a potential benefit for the family business in terms of lower recruitment and human resources costs, the reality is that for many family businesses, this is potentially damaging as these managers may not always possess the appropriate skills nor be the best possible candidates for the position.
Remember that a characteristic of family businesses is that they are not solely profit maximisers but they also pursue other important objectives such as maintaining or enhancing the lifestyle of the owners, and providing employment for family members in the management team.
As a result, in some family businesses there is a potential conflict between financial and non-financial objectives. The pursuit of such non-financial objectives (family issues) may potentially impede the performance of the company.
Also note that in the case of family businesses staff performance is not necessarily viewed as being linked to or assessed on the basis of individual work achievement but is often related to the performance of the firm as a whole. This might promote more flexible work practices among the employees of family businesses, or result in higher employee wages with a resulting increase in firm performance.
Unfortunately, family businesses are performing much worse than management-led companies. Businesses have to adapt to change, whether proactively or reactively. Yet only a small percentage of family-owned businesses are planning to launch new products or services over the coming years. This is due to the local closed mentality of most family businesses that believe that since their business has done well up to now, there is no reason to look at something new and risk losing what they have.
It is only recently that, prodded by the Government and Malta Enterprise, companies are embarking on research and development. R&D requires a structured approach towards quality procedures and systems, not often found in family-owned businesses.
The same applies when it comes to cooperation and the internationalisation of businesses. Family businesses very rarely cooperate with other firms and are even less prone to embark on internationalising their business. This is unfortunately related to the closed mentality prevalent in most of the local family-owned businesses. The main stumbling blocks for this scenario could be related to a lack of knowledge, a lack of resources or the perceived risk.
Again, the solution is to seek assistance from an experienced consultant and/or Malta Enterprise.
• Mr Duca is the managing director of 2M Management Consultancy Ltd and holds directorships in a number of other companies.