Numerous family businesses do not have formal structures governing employment, education and even remuneration of family members, an informal survey has found.

Collated from answers to a questionnaire by 60 participants at the second annual family business conference in January, the findings will be presented at a seminar organised by family firm consultants FBS2M, the Malta Chamber for Commerce, Enterprise and Industry, and Chetcuti Cauchi Advocates at the Chamber's Exchange Buildings in Valletta on Tuesday.

Sixty-three per cent of respondents admitted they did not have policies relating to the employment of family members; 52 per cent had no rules governing the education of relatives; and 56 per cent did not have structures for family members' salaries.

The backbone of Malta's commercial community, family businesses have an inherent weakness - succession. Statistics have shown as many as 70 per cent of first-generation family businesses fail to make it to their second generation. Just 10 per cent evolve to their third.

"It is no surprise that there is widespread litigation within family businesses," FBS2M managing consultant Mario Duca told The Times Business. "All these issues are predictable and there are measures firms can take to pre-empt them."

The questionnaire results reveal telling traits of Maltese family concerns: firms in their first generation are more focused on growing their business rather than formulating succession structures despite declared ambitions to hand over the reins to siblings or children.

While 89 per cent of owner-managers intended to pass on their business to the next generation, almost all did not have a documented succession transfer plan; 70 per cent of respondents said they envisaged handing over their business in the next two to 10 years.

"When owner-managers set up shop they are focused on the growth of their firm," Mr Duca explained. "They are certainly not looking at letting go of their business, often believing there are no candidates within the family to run the company as diligently as themselves. The question they need to ask themselves is whether they have invested the energy and the effort in ensuring there is capability in their successors. They might also need to find the courage to admit that they need to let go. These issues are often pre-empted in second- and third-generation firms where there are formal family business agreements."

Data on Malta's family businesses is relatively scarce.

The participants at January's event represented a cross-section of Malta's family businesses from all sectors, in various stages of succession. Size varied from micro-enterprises to groups employing over 250 people - the latter made up 30 per cent of respondents to the survey. Annual turnovers ranged from under €1 million to over €10 million. More than half - 59 per cent - came from family businesses in their second generation and beyond.

"Since its formal establishment last year, FBS2M has made information gathering on family businesses a foremost priority," Mr Duca said. "Family businesses' importance within the local economy is not always given the attention it merits. Like all businesses, family firms go through changes, particularly as both the family and the business grow. The challenges they face are more pronounced because of the family factor. The two can never be separated if the objective is to provide patrimony to the next generation."

Respondents to the survey included 42 per cent who had one company; the rest had between two to over 10. Larger groups in their third or fourth generation owned the most companies. In spite of growth, most said they had an active board which reflected the size of the business.

Mr Duca said the questionnaire found a direct indication that success was enjoyed mainly by family businesses which planned for succession and which had some form of governance.

He pointed out that some findings were in conformity with characteristics pertaining to family businesses overseas. Answers to the questionnaire revealed that the older the business the more new generations realised the importance of passing it on to successors and studied procedures to prepare for the transition.

FBS2M is a foremost local consultancy dedicated to family business issues, including family business agreements, governance, succession and strategic restructuring. Under a partnership between 2M of Pietà and FBS of Scotland, the firm can tap in-house expertise and is lining up a programme of seminars and training programmes aimed at family business leaders.

Mr Duca said FBS2M plans to hold the third annual family business conference next February by which time it would have undertaken scientific studies relating to Maltese family firms.

Tuesday's seminar, entitled The Succession Process: The Litmus Test For Current Owners will be addressed by Malta Chamber director general Ray Muscat, Mr Duca and FBS2M consultant Ken McCracken, Dr Priscilla Mifsud Parker and Dr Jean Philippe Chetcuti.

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