The economic output and employment generated by the family business sector is substantial. Not only do family enterprises provide a launchpad for start-ups, but many family businesses have developed into successful multi-generational organisations, generating various forms of government revenues.
Family enterprises typically enjoy greater loyalty from staff- Mario Duca
Family businesses have flourished in several sectors locally, including agri-business, auto-motive, construction and engin-eering, financial services, food processing, hospitality and leisure, manufacturing, techno-logy and transport and distribution. Such businesses have some advantages over non-family-owned businesses through familial involvement and dedication towards their enterprise.
Family enterprises typically enjoy greater loyalty from staff. A higher proportion of employees in family firms, as opposed to non-family firms, feel a larger extent of loyalty to the family enterprise. There is a larger inclination for family firms to make long-term investments, focusing on long-term returns rather than short-term profits. It has been proven that family businesses tend to grant smaller salaries and dividends, allowing for more profits to be re-invested into the enterprise.
Family members may be more willing to wait longer than other investors for a return on the capital they invested, a concept known as patient capital. They are more likely to contribute to the business in hard times, such as by making financial sacrifices like receiving less or deferring remuneration to ensure liquidity, or dedicating more time and sensitivity to a situation at hand to ensure prompt and responsive decision-making.
Family businesses represent 65 to 80 per cent of all companies in the EU, which translates into around 40 to 50 per cent of all jobs in Europe. Yet the infrastructure and policy initiatives relative to the family business sector differ significantly in the member states. The EU actively promotes the adoption of measures to improve the environment for family businesses. Some prominent aspects include the transmission of family values and entrepreneurship, the culture of responsibility due to continuous reinvestment of profits and the choice of equity over debt, and long-term prospects in the interest of the whole business.
Comparative and accumulative data are essential in order to draft policies and legislative documents. Malta does not have structured and scientifically-researched sources of information that relate to the economic and social contributions made by family businesses in accordance with their specific characteristics, challenges and requirements.
By virtue of the Malta National Statistics Office and Malta Financial Services Authority, the first step on the road to a family-friendly business environment is the development of systematic statistical data on this sector. This is blatantly inexistent –EU statistics show that Malta does not present any data for this field. The lack of data is not surprising: up to now the NSO, MFSA and other local agencies have not considered families in business as intrinsically distinct entities which have their specific needs for the growth, expansion and continuance across the gener-ations and their effects on the national economy.
To begin any data collection or research, a clear definition of the term “family” in the context of the family business and the term of “family business” need to be developed. The Malta Association of Family Enterprises intends to take this in hand hopefully in collaboration with Government.
One reason that quantitative research has not been accomplished is the difficulty in defining who is family for the purpose of a family in business, and what is a family business.
The definition of “family” should represent current and prospective socio-demographic trends such as unmarried couples (also pursuant to the Co-Habitation Bill being discussed, married couples not sharing the same family name, civil partnerships, same-gender partnerships, etc.).
Retaining a traditional and perhaps obsolete term of the family would not provide today’s families with access to the proposed incentives. The clarification of “family” must guarantee a holistic coverage of societal trends and developments in the family business sector.
The foremost corollary of a family business is the influence that family members have on the enterprise’s ownership, governance and management participation. At the outset, the term “family business” brings to mind the notion of a sole trader, where a company is owned and operated by a single person, or a small father-and-offspring business. This cannot be further from the truth.
Maltese family businesses permeate all sectors of the economy, from the sole trader set-up and the small parent business through to SMEs, large family enterprises and also, although few, public family enterprises.
They vary significantly in size and age, with the vast majority in their first generation, being mainly micro or small enterprises. Yet one also finds a sector of family enterprises which are moving to the second generation, and a smaller group that have evolved through their third, fourth or fifth generation.
Compromising the growth and development of the sector, however, is the lack of a clear-cut definition of a family business under Maltese law.
The definition proposed in this position paper is the result of a study carried out by an expert group within the European Commission, Directorate-General for Enterprise and Industry. It origin-ates from the Finnish definition created by the Finnish Working Group on Family Entrepreneurship, set up by the Ministry of Trade and Industry of Finland in 2006.
The definition reads: “A firm, of any size, is a family business if: (i) the majority of decision-making rights is in the possession of the natural person(s) who established the firm, or in the possession of the natural person(s) who has/have acquired the share capital of the firm, or in the possession of their spouses, parents, child or children’s direct heirs; (ii) the majority of decision-making rights are indirect or direct; (iii) at least one representative of the family or kin is formally involved in the governance of the firm; (iv) listed companies meet the definition of family enterprise if the person who established or acquired the firm (share capital) or their families or descendants possess 25 per cent of the decision-making rights mandated by their share capital.”
This reflects a commonly-accepted definition developed by The Family Entrepreneurship Working Group established by the Finnish Ministry of Trade and Industry in 2004.
Definitions that apply in other EU member states often include the requirement of either share ownership or management of the business by family members. The German definition relates to enterprises where the owner or a member of the owner family also manages the enterprise, while the French definition includes enterprises in which a family (or several) has a significant control of both the property and the management.
Mr Duca is president of the Malta Association of Family Enterprises.