Family business issues are focus of enterprise council

Family businesses will be the focus of the June 20 meeting of the Enterprise Consultative Council, the recommendatory body seeking to foster effective communication between regulators and commercial sectors, Small Business Minister Jason Azzopardi told the third annual Family Business Conference on Thursday.

Values guarantee success, not material wealth

The development is a major achievement for the year-old Malta Association of Family Enterprises in its efforts to put family firms on the authorities’ agenda. MAFE chairman Mario Duca was delighted that the association’s proposals could be considered for next year’s Budget, but reminded participants that more needed to be done. There was still not a single law governing family business succession in Malta, he stressed.

At the conference organised by family business consultants FBS2M in collaboration with MAFE at Sliema’s The Palace hotel, Dr Azzopardi said he was keen to support measures – including the implementation of “proper fiscal incentives” – to ensure family businesses’ successful and smoother transitions from one generation to the next.

The minister was replying to a question about whether the government would be willing to consider deferring stamp duty payment if businesses intended to continue as before under a new generation’s leadership. He added that through the Better Regulation Unit within the Office of the Prime Minister, efforts were being made to reduce bureaucracy for small businesses by a further 15 per cent.

A number of family businesses, including some of Malta’s larger firms, were represented at the conference, themed ‘Working with multi-generational families: governing family wealth, shared assets, and human capital’.

Chaired by Alex Aquilina, chairman of clothing manufacturers Eagle K-Wear, participants heard how parenting, trust, values, strategic and assertive decision-making, and awareness of the legal and tax realities were key to sound succession and growth.

Occupational psychologist Roberta Fenech described how parenting practices influenced later entrepreneurial behaviour and leadership. It was parents’ duty to teach commitment and motivation, and children were to be given opportunities to talk about their careers. Rather than conveying a sense of entitlement, parents had to demonstrate that wealth was a result of effort and good fortune, and teach the principles of merit.

Trudy Marie Attard of law firm Chetcuti Cauchi, outlined proposals submitted to the authorities to lessen tax burdens. Dr Attard said authorities had requested another meeting to discuss the recommendations which would hopefully apply to family firms of all sizes.

Among the proposals is an extension of the definition of family members to include blood relatives or those in a stable relationship; considerations for payments by instalments; a capital gains tax referral; and reduced rates of stamp duty paid by children on both immovable property and shares.

MSV Life’s chief officer for sales, Stuart Fairbairn, led a role play involving two shareholders of a family business and the widow of a third to illustrate the risks the parties and the firm faced upon the death of key member.

“What happens to the business when you die?” Mr Fairbairn urged participants to ask. “Check your legal documents. What is fair value of shares? What happens when heirs do not want to be a part of the business, when they want to retain shares and want a say, or when they want or need to sell their shares?

“You need a plan that will protect the business and the family. Widows and relatives need to know what their inheritance is worth.”

PKF Malta senior partner George Mangion outlined the provisions of the Small Business Act, tax credits, opportunities for funding, and the reduction of red tape.

He said government units and legislators were making headway but there was more work to be done for the ‘think small first’ philosophy to continue to improve competitiveness among family businesses and increase their risk appetite.

Mr Duca, managing consultant at FBS2M, explained how strong family leadership came from the heart through consensus, not from the head of the table. Leaders engaged the whole family and asked the right questions about the family legacy and managing risk.

Family wealth, whether inherited or generated, provided opportunities but many pitfalls, and it was essential that the philosophy that the family held towards it was made clear. Were they custodians – stewards of the family assets to preserve and extend the legacy for the next generation – or value out-owners who wanted to maximise their current level of return on the investment in the family business now and in the future?

Charles Camilleri, managing director of C. Camilleri and Sons Ltd, described how the descendants of founder Calcendio Camilleri had grown the business to its fourth generation over 170 years.

Mr Camilleri was the first of four brothers (who later bought out their sisters, mother, and uncle) to learn the ethos of the family business from the age of 13 – that the Camilleris “were obliged to succeed”. As more siblings joined the fold after the death of their father Anthony at 55, the firm ventured into outside catering and retail as franchisees for BHS, Mothercare, and Golden Point.

In 2009, the firm began to internationalise and have since opened two BHS stores in Tripoli and have just inaugurated another in Benghazi.

The business risks losing its leadership and experience

“We are mindful of the future and we are passing on the values we learnt from our own parents to our children as the fifth generation begins to join the business,” Mr Camilleri explained.

“Values guarantee success, not material wealth.”

Demajo Group chief executive Pier Luca Demajo, who leads a diversified group in which members of the family’s second, third and fourth generation are actively involved, had some sobering thoughts for his peers. He warned wealth preservation was not possible without business continuity, and urged business leaders to plan well ahead, consult their legal and tax advisers, find the right structure for their firms, and implement it.

“The inevitable will happen and nature will ensure succession,” he said. “It could happen suddenly at a time when the family will not be focused on the business. Taxes will be paid by heirs and they will not be prepared. The business risks losing its leadership and experience when they could have easily been transferred earlier.”

Ken McCracken, managing partner of Family Business Solutions of Glasgow, advised seniors to consider how their decisions would hold back or advance the next generation too quickly, and to think carefully about appointing 21-year-old managing directors. They should be wary of imposing their dreams and understand that young people needed to explore their options.

Mr McCracken also warned how fiduciaries could keep families away from their wealth and that trusts could cause tension.

“Do you trust your family with its wealth?” he encouraged leaders to ask themselves. “The discussion about the transfer of wealth is never easy. Have knowledge and empathy, seek advice, and have a good sense of humour.”