Family business & succession planning: ‘We’re very far from where we’d like to be,’ says Chamber CEO

Malta Chamber of Commerce, Enterprise and Industry CEO Marthese Portelli has highlighted that more work is needed from family businesses to be fully up to speed with succession planning and strategy.

She was speaking during the Family Business Forum, an event co-hosted by Ganado Advocates and Zampa Debattista on Thursday. The event brought together various professionals and governance specialists to discuss perspectives on the significance of strong governance in establishing value for family businesses.

Zampa Debattista Co-Founding Partner John Debattista led the interview with Dr Portelli, with him saying that family businesses are the “backbone” of Malta’s economy. Referring to The Malta Chamber’s Family Business Survey 2022, he noted that 67 per cent of respondents said that they have no strategic plan, with 65 per cent also confirming they have no succession plan in place.

Dr Portelli highlighted that over 70 per cent of Malta’s SMEs are family businesses, and more needs to be done to safeguard this part of the economy.

“Strategy is what helps you look into the future and helps you feel resilient,” she said.

“We are very far from where we would like to be. I urge family businesses to take the creation of a succession plan and strategy very seriously,” Dr Portelli warned.

She pointed out that 73 per cent of family businesses who do not have a strategic plan, also do not have a succession plan. This is a “trend of how such businesses think”, yet she stressed that it is a mindset that “needs to change”.

“Only half of family businesses who have a written strategic plan, also have a written succession plan. These are very worrying statistics,” Dr Portelli said.

However, she also remarked that there are some positives, as even though family businesses are “lagging behind”, there’s a “willingness to improve”.

Mr Debattista also highlighted that in the aforementioned survey, family businesses placed staff retention, attraction, and training as their top priority. However, he said that the introduction of Independent Non-Executive Directors (NEDs) to Boards of Directors ranked 18th as a priority.

When asked why so many family businesses are reluctant to add NEDs to their Boards of Directors, Dr Portelli explained that The Malta Chamber is not advocating for a “tick-box exercise” to appoint NEDs to satisfy Malta Financial Services Authority’s requirements. Family businesses need to make sure to appoint their Board of Directors carefully.

“A Board of Directors should actually be giving the direction of the company. It is also important that the core of the family business unit sends a very clear message to the Board of Directors about the future of the business”.

While there is plenty of work to be done to safeguard family businesses, Dr Portelli clarified that she is one that believes that “it is never too late to change” and that one should “never give up”. She proceeded to list some ways family businesses can make such a transition.

“We urge family businesses to look into their current processes and revisit them,” she added.

Addressing the corporate service providers at the event, she also said that it is important that family businesses choose the right service providers. Family businesses need to “choose ones who beyond just writing the report”, ones who “actually help and provide advice” to these businesses.

She also urged family businesses to recruit more non-family members, both at management and non-management levels. “It is not always easy to have family members at management level propose radical changes that are needed, but an outside might find it easier to do so,” Dr Portelli said.

Tied to this, she also noted that family businesses must have a functioning Board of Directors.

Additionally, she emphasised that such organisations need to look at new technologies, as this will assist them in the struggle to find talent. Dr Portelli also shed a light on the need for family businesses to undergo “proper auditing processes” and to revisit their existing processes.

Mr Debattista then shifted the interview to the topic of environment, social and governance (ESG), one of the key themes of the event. He remarked that family businesses are struggling with the core principles of corporate governance and strategic planning, yet he questioned how The Malta Chamber is expecting such businesses to embrace this change when they are facing difficulties with more basic elements of running an organisation.

“Our family businesses actually confirmed that they are very willing to consider and are looking into how to invest and take on more green initiatives and digitalisation. Digitalisation is crucial when it comes to the proper implementation of ESG,” Dr Portelli said.

She stated that when ESG was first mentioned in 2005, it was primarily done to address the financial market. Prior to that, it was not as popular because it “probably was not implemented as it should be”, and businesses are now seeing its importance.

Dr Portelli highlighted some key proposals from The Malta Chamber’s Pre-Budget Document for 2024, aimed at assisting SMEs and family businesses in this area. These include insisting that the cost of living adjustment (COLA) shouldn’t be taxed, that corporate tax “needs to go down”, incentivising companies to conduct research and development, and to make funding easier for businesses, among others.

“We need to face the reality; we are a very small country. We need to look at laws not only in terms of how good they look on paper, but also how they can be incorporated in practice,” Dr Portelli concluded.