Last Updated on Thursday, 29 February, 2024 at 8:59 am by Andre Camilleri
Family businesses are very important vehicles for wealth creation, however, sustaining a family business for multiple generations is a continuous challenge. At times, family business leaders encounter the dilemma of either focusing on maximising the business’ value for a potential sale or maintaining ownership within the family to foster its growth for the benefit of future generations.
Many family business founders would prefer the latter because of the emotional attachment they have to their business. These sentiments are understandably true and real. As the chairperson of the family business committee, within the Malta Chamber, and a holistic family business consultant, that has been around for some time and devotes his time to really help family businesses on the ground, the below are my 10 commandments which I feel are key to ensure that family business leaders are able to successfully hand over the business from one generation to another.
- Successful family businesses diversify their portfolios. The best family businesses are those that take risk management and resilience seriously and hence have a substantial chunk of revenue coming from outside their core business.
- Successful family businesses actively allocate resources. This means that successful family businesses are those that understand when to close the tap on resources with regards unsuccessful business units and shift them towards successful business areas or new business areas with potential.
- Successful family businesses are those that obsess over talent. This means that the best family businesses are those that outperform other businesses to attract the best talent and are better at developing talent.
- Successful family businesses ensure strong governance. This includes having written guidelines on the roles and responsibilities of family members and having independent members on the board of directors. Moreover, research shows that multigenerational family businesses have a meritocratic approach to management.
- Successful family businesses excel in operations. In general, successful family businesses are obsessed with always improving and fine-tuning their operations to become more efficient.
- Successful family businesses understand that succession planning is a critical responsibility. This is a complex and challenging process because it often involves different personal, financial and business objectives, and because each family is unique, there is no one-size-fits-all approach or blueprint for understanding succession. The planning process must ensure that the next generation is interested in managing the family business and is prepared for it.
- Successful family businesses ensure strong family board leadership. The family board should ideally consist of family, non-family and independent members that are able and competent in providing strategic guidance to the business and monitor its management by not sacrificing the long-term health of the business for short-term gains. The board provides greater accountability to the executives running the business to ensure that objectives are achieved and also acts as an independent party in addressing difficult issues that could lead to family strife and disputes. The balance between family and non-family board members will ensure unbiased advice on critical matters for the long-term benefit of the business. The selection of board members should be competency-based.
- Successful family businesses hold family meetings (family room) to foster harmony. A family meeting is a periodic meeting of eligible family members, who are not employed with the family business and do not sit on the board of directors, to discuss matters relating to the family and the family business that centres around defining and aligning on the vision, values, roles, responsibilities and priorities for the family business. This forum provides an opportunity for family members to be informed about the business’ performance, key decisions that need to be taken and updates on happenings as they relate to the ownership, structure and impact of external factors on the business as well as to strengthen the family bond, unify and harmonise their desires, goals, decisions and actions.
- Successful family businesses build a strategic plan for clear direction and focus. There is one foundational thing successful family businesses have in common – a strategic plan. Every family business should have a strategic plan that is shared with all relevant stakeholders, not just family members. It is important for all stakeholders to know where the business is going and choose the right path to get there. Strategic planning and thinking about the interests of the family helps to clarify the mission, vision, values, goals (destination) and strategy (detailed plan) to achieve the goals and fulfil the mission.
- Successful family businesses proactively manage their finances. Financial management for family businesses should evolve beyond accounting and bookkeeping into a management function that seeks to maximise the use of capital. A significant proportion of failed family businesses are a result of weak financial controls and a lack of proper financial oversight; so family businesses should make sure that they can rely on a well-oiled machine of timely financial reporting and financial analysis.
In conclusion, change and agility are constant factors that enable family businesses to survive multiple generations and achieve long-term success. Therefore, family business leaders need to be resilient, agile and adaptable. To be so, I believe that the above 10 points need to be always under check. It is for this reason that the family business committee, within the Malta Chamber and the Family Business Office, are once again undergoing a survey research study among family businesses to assess the situation about the above 10 points. You may recall a similar study was conducted in November-December 2022, with results published on 1 February 2023. This updated research study is to understand the overriding situation family businesses are in now and so get an updated view of where assistance is mostly needed to ensure we always have better run and more resilient family businesses. To this aim, I kindly ask family business owners or leaders to fill the survey on: https://marketresearch.emcs.mt/index.php/683663?lang=en
