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All in the family

Despite the fact that a large number of local businesses are family-owned, very few actually embark on a formalised and structured process of succession planning. Mario Duca offers some valuable insight to Veronica Stivala.

It is estimated that between 55 and 65 per cent of all registered and active businesses in Malta are family businesses. They employ around 45 per cent of the gainfully employed and generate around €4bn. These figures confirm the important role that family businesses play in the Maltese economy.

Mario Duca, managing partner at FBS2M Family Business Solutions, provides these informal statistics. According to Minister for the Economy, Investment and Small Business Dr Chris Cardona, when speaking at a Family Business Act Workshop organised by the Malta Association of Family Enterprise, this figure rises even further to 70 per cent, when taking into consideration businesses run but not necessarily owned by families.

It must be noted that unfortunately, as yet, we do not have scientifically collated data but this should hopefully be resolved once the Family Business Act is enacted.

Government is currently working on the Family Business Act which, when enacted, will make Malta unique among EU states. This law will allow family businesses to be able to continue to exist.

Unfortunately, the reality is that very few family businesses make it to the second generation. Some 30 per cent of family businesses make it to the second generation, while only 10 per cent make it to the third. No formal information is available on this – however, based on Mr Duca’s experience of working and assisting family businesses, very few actually embark on a formalised and structured process of succession planning.

“Most of the succession planning that is being currently undertaken relates to the development of wills, shareholder agreements, buy-sell agreements and family employment policies,” he notes.

“Although this is a start, the actual process of succession planning involves more than this.”

The current approach strives to provide some semblance of regulation among the current owners, when in actual fact one has to first better understand what family wishes are in relation to the business and what the intentions and expectations of all family members are in relation to the business.

Mr Duca stresses how a common mission and vision for the family which is converging with the needs of the business needs to be established. Otherwise, if the interests of the business and the family diverge, then this will only lead to conflicts between the family members and the business.

Essentially, a family in business needs to develop a common set of agreements known as a family charter or a family constitution through which the governance of the family, business and ownership are clearly set out and the necessary structures set up.

If this process is not professionally developed, it will lead to both the families involved and the business having problems and facing potential demise. We have many such similar cases in Malta, notes Mr Duca.

What advice does he have for family businesses planning to pass on their businesses to the next generations?

The key is to start planning as early as possible, even if they perceive that their family has no problems. Families should develop good communication channels and start discussing, through the assistance of experienced family business advisers, the development of the governance structures that the specific family is ready to accept to abide with since there is no one-size-fits-all solution that meets the needs of different family businesses.

One also has to keep in mind that providing advice to families in business has to be undertaken in a holistic approach. Hence, bringing in a team of specialists is the most recommended option.

Simply requesting advice from your lawyer or your tax or financial advisers will only provide a family with specialist advice from a legal, tax or accounting perspective. This would leave out the most important issues of how to manage and organise the family dynamics that are continually at play within a family business environment.

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