The case for a Family Business Act is not always fully appreciated. Why, the sceptics ask, should a family business be treated any differently to any other business?

The reasons were made amply clear earlier this week when a committee set up in September 2013 presented its recommendations, which will now be considered by Cabinet before a White Paper is issued.

There are still a lot of blanks to be filled in, not the least of which are any fiscal incentives, clearly outside the remit of the committee.

The main task faced by the committee was to establish the criteria for what will be considered an eligible family business. Since they run the whole gamut from the leading family-owned empires encompassing dozens of companies, to the sole operator of a small factory or shop, this is no small job.

When coming up with the criteria, the committee kept in mind the point behind having a Family Business Act in the first place: ensuring that the transition from one generation to another goes smoothly and successfully.

Commercially-owned companies do not have the same limitations. Shareholders do not have any sentimental attachment to the company and there is little emotion involved when it comes to appointing its executives. On the other hand, a company whose shareholders are there for a return on their investment is unlikely to hold out indefinitely when it runs into the red. A family business is far more likely to.

But although 83 per cent of family-businesses want it to be transferred to the next generation, according to the National Statistics Office, only 30 per cent do, and only 10 per cent make it to the third generation.

Lawyer Max Ganado pointed out that the act should encourage consolidation, rather than the all-too-familiar fragmentation. His point is worth noting. In far too many cases, too many family members are appeased with roles, irrespective of their capability but also irrespective of the need for more and more layers of management, with its resulting crowding out of non-family members.

It is not easy. The founder naturally finds it hard to pick and choose between his or her spouse, children, their spouses and so on. Many of them bury their heads in the sand and do nothing, leaving it until they retire or die, without anointing a clear successor.

Are they doing their successor – and their company – a great disservice? One leading businessman recently said that he had not appointed a successor “to keep all the potential candidates on their toes” but is that truly the best way to handle such a complex situation? Is it the best way to motivate, to lead, to ensure that everyone knows what is expected of them? Wouldn’t it be better to let them concentrate on success rather than on undermining each other and trying to gain an advantage over their rivals?

A speaker from the European Commission, Marko Curavic, said that business succession should ideally be phased over 10 years.

To qualify for any benefits under the Family Business Act, companies will have to present their shareholding, voting rights, executive roles and more. The committee said it hoped that this process would force them to step back and take a dispassionate look at the situation – and come up with a succession plan, as well as all the other recommended frameworks, such as family councils and dispute resolution mechanisms.

Family businesses in Malta employ 40,000 and they have been instrumental in helping the economy ride out the storm. Anything that can be done to help them survive and flourish can only be a good thing.

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