The Malta Independent 13 June 2024, Thursday
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Lack of robust governance in family businesses may lead to their natural death – Chamber of Commerce

Andrea Caruana Thursday, 23 May 2024, 10:00 Last update: about 21 days ago

Lack of good governance in family businesses may lead to their natural death, a survey which was carried out by the Malta Chamber of Commerce shows.

The full results of the survey were announced publicly today in a conference organised by the chamber.

From the intricacies of governance to the strategic foresight required for effective planning, the event featured a series of interventions and a panel discussion emphasising the significance of professional conduct within family enterprises.  This poll also covers the following topics: policy-making, succession planning, training, governance, and family business priorities.

The 2024 survey found that 19% of family businesses with no board of directors did not have a written strategic plan, believing that they didn’t need one, whilst 66% said that “[they] need to get there”.

Meanwhile, of family businesses which did have a board of directors, though lacking at least one independent director, 19% were found to believe that they didn’t need a written strategic plan and 46% believe they “need to get there”.

This contrasts with those boards with a minimum of one independent director. In this case, only 3% believed they didn’t need a written strategic plan and 45% were working towards one. The remaining 52% had a written strategic plan.

The survey showed that these 52% were in line with the principles of good corporate governance, structure systems and policies.

Forty eight per cent of businesses with boards including independent directors had a written succession plan; 34% of those whose directors are only family members have this plan; and 30% of businesses without a board of directors have it.

Introducing the results of the survey, the chairperson of the chamber's Family Business Committee, Silvan Mifsud, said that the survey, the second of its kind, had more questions and a larger population of 160 family businesses chosen based on various criteria such as business size, demographic and the generational maturity of the business, which were matched. Of the 160 businesses, 100 wished to remain anonymous, the reason being that family businesses cherish and maintain privacy. 

The survey was conducted on businesses who perceived themselves as family businesses and those that did not believe they were currently family businesses were excluded from the survey.

The study found that 67% of family businesses have a functioning board of directors that meets regularly to discuss the current performance and future direction of the family business, the MCC said, and pointed out that this was a decrease from 2022 when it was 83%. Furthermore, of the businesses that do have a board of directors, it found that only 31% have independent, non-executive directors who are not family members, which is perceived to be a problem.

With regard to planning, it was found that 32% have a written strategic plan that is regularly reviewed and 36% have a written succession plan, with figures remaining approximately the same from 2022. The MCC pointed out that whilst businesses lack written strategic plans and/or written succession plans, they do realize the need for them.

Furthermore, when the 57 businesses with a written succession plan were asked if it was being implemented, 46 said yes and the remainder said that it was not for reasons such as the lack of interest from younger generations, challenges with implementation, etc.

When the MCC asked the 103 family businesses that lacked a written succession plan the reason/s holding the business from drafting one, from analysis of the open-ended questions, a link was found to an ‘operator mindset’ which gives all its importance to day-to-day matters and leaves strategy “by the wayside”. 

When asked to list the top 5 matters on an ongoing basis via an open-ended question, on analysis it was found that 86% of the matters were operational and only 14% were strategic.   

The participants were then asked for their view of the importance to training employees, through the rating of related statement, which the MCC finds important due to its concern of increasing economic with sustainability. It elaborated that increasing people in the workforce is not enough but there is a need to increase their efficiency which can be done by enhancing the skills of the workers.

In this regard, it was found that most agreed that not only was the training of employees important, but training of owners and directors was equally vital. It was also found that there was an inclination to train employees on technical aspects as opposed to communication skills such as leadership. Overall, it was found that the businesses did not have time to train the employees with links to the operator mindset, again. 

When questioned on decision-making, 2/3 of participants were not guided by research and data analysis. Furthermore, 2/3 did not make decisions based on the ‘leading force’ of the family business with the majority saying that there was no person or group who could override a decision. 75% said  that decisions were taken following a good discussion with consideration of all views. Whilst this is good, the MCC believes that it is not the best way, however, and facts and data should be used in decision making.

With regards to business policies, it was found that a policy of dividend distribution was approximately split with 46% lacking one and 14% considering it. Concerning family employment policies, meaning the generation of guidelines on the employment of family members with respect to unrelated employees, it was found that ¼ of businesses have one in place.

The priorities of the family businesses, by ranking of importance from 1-5, was found to be the improvement of financial performance, such as cashflow, in the 1st place rising from 3rd  place in 2022, on the other hand, the work market went down from 1st place to 3rd and innovation shifted upwards from 5th to 3rd priority. The MCC said that this was due to the effect on the world’s economy between 2022 and 2024 causing inflation, amongst other issues. It said that this led to businesses understanding the need to curtail costs, including employees, and turn to technology for efficiency and cost-effectiveness.

A decrease in priority was found for organization structure and the labour force, due to the intensity of new employees, as well as environmental concerns and social responsibility due to times being challenging.

The survey may be found here

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