Family businesses found to lack outside professional management

by Anthony Manduca

Family businesses in Malta often tend not to include professional management from outside the family, leading to a number of problems when the business is passed on to successive generations, a conference will be told next Thursday.

The conference, entitled "Planning for Management Succession in Family-Owned Businesses" is jointly organised by KPMG Consulting Limited and Misco and is to be held on Thursday 18 May at the Westin Resort.

The Malta Business Weekly spoke to Tonio Zarb, a partner with KPMG Malta and to Lawrence Zammit, a director of Misco, about next week's conference. Mr Zammit said that a qualitative survey was held among various family-run businesses and a number of common trends clearly emerged. He said: "In many cases there is little professional management outside the family and no outside member is placed in a strategic position such as company director. Very often female family members are excluded from the succession of the company simply because they are females and the inheritance often goes to the eldest brother who might not be the most competent."

Mr Zammit said that when the country talks about restructuring, this means the whole economy needs to be restructured, including family-owned businesses. "The conference will look at the way family businesses move down to successive generations. Many family businesses are hurting and they have to face this reality," he said.

Tonio Zarb said that very often there is a conflict between the ownership, the management and the board of directors in family-run businesses. "Ideally there should be a clear distinction between all three," adding that: "Very often problems start arising when the family businesses move to the second and third generations."

Mr Zammit said that certain small businesses such as cottage industries, for example, could have even greater problems such as a lack of interest from second and third generation family members. "Sometimes these family members are simply not interested in carrying on with the traditional family business. What happens then?" he says.

Mr Zammit also said that international business mergers often cause problems for family-owned businesses in Malta, leading to loss of local representation.

Mr Zarb and Mr Zammit said that a number of strategies for dealing with the succession problem of family-owned businesses will be discussed at the conference. They explained: "One possible strategy could be a listing on the Malta Stock Exchange which would bring about certain management changes and practices. The separation between the management, the ownership and perhaps the board of directors is also another solution. Family members should have their space within companies but this should not exclude professional managers from outside. In the long run, if there is nobody capable of running the company from among the second of third generation members, then the company should be sold off to outsiders."

Mr Zammit also said that increased education meant that certain family members became interested in pursuing other careers "It is a difficult situation when you mix family with business and this discussion about family-owned businesses has not yet taken place in the country. Sometimes, for example, there is resentment when one leader emerges from a family, causing friction between the various brothers or cousins," he said.

Mr Zarb cited the example of Turkish family-owned companies as a useful model for Malta. "Many Turkish family-run companies form a holding company with the family retaining the ownership but various companies are set up with their own independent boards and independent management. Most of the directors are not family members," he said.