Succession strategies: Navigating family dynamics for business longevity in Malta

Exit planning specialist Thomas J. Cremona has stated that while family business owners may be reluctant to step down amid fears of familial conflict or a failure to remain true to values, a succession plan is vital in ensuring continuity.

Family businesses make up a large part of Malta’s economy, with a survey from The Malta Chamber of Commerce, Enterprise and Industry published last year estimating that they comprise 75 per cent of all businesses in Malta. However, the study also pointed out that 67 per cent of family businesses have no strategic plan, with a further 65 per cent adding that they have no succession plan in place. While The Malta Chamber CEO Marthese Portelli has noted that family businesses are showing a willingness to improve, they are still “lagging behind” in this regard.

Speaking to MaltaCEOs.mt, Mr Cremona, Founder of exit planning, joint ventures and fundraising consultancy firm idisav, remarked that succession plans ultimately ensure “business continuity and ongoing stability of the enterprise.”

“Without such plans, businesses risk operational disruptions and leadership voids, affecting their long-term viability and the broader economy. Moreover, the lack of succession plans may deter talented individuals, both family and non-family members, from committing their skills and expertise, and sharing their experience to the business due to unclear career paths,” he added.

A detrimental factor in the success of a family business is the possibility of potential conflict within the family. Given the close links between family and business in such scenarios, it is often very difficult to separate life at home and at work. In many situations, even if business relationships are strained, family members have to gather for different events such as Sunday lunches and weddings.

This can become increasingly difficult for the family business founder when they are seeking to create a succession plan, Mr Cremona said. “The reluctance to establish a succession plan might stem from fears of creating familial discord, as publicly naming a successor could lead to conflicts among family members,” he affirmed.

As a result, he pointed out that all of these concerns need to be addressed at an early stage through “transparent and inclusive planning” to mitigate potential friction. The more rules agreed on between family members in a family charter – a written document used to record agreements made between family members, especially how it should be run – the less chance there is of a conflict.

Mr Cremona pointed out that a recent international study by researchers Anmari Viljamaa, Sanna Joensuu-Salo, and Elina Varamäki, titled “Letting Go is Hard to Do,” highlighted the challenges business leaders face in stepping down. These situations can lead to mental distress, particularly fuelled by their concerns about their ability to move on. Close ties with an incoming leader can also worsen this anxiety. Additionally, the next generation’s plans also have to be considered, as reluctance to take over can also cause significant stress, both to the founder and the younger members.

Mr Cremona said that while cultural expectations are “gradually shifting,” there are still many legacy business owners who assume that the family will continue to own and run the business.

“However, given today’s complex world, diverse career opportunities, and the constant business pressure, this ideal is becoming increasingly difficult to maintain,” he continued.

One of the main factors that keeps business owners from letting go of the business is the fear that it will end up growing into something completely different from what they intended it to be.

Mr Cremona affirmed that at the end of the day, a “company with a clear vision will not lose sight of where it is going.” While he pointed out that the manner of achieving a particular target may “evolve” over the years, the vision of the business should be documented in a mission statement and reinforced through the company culture and governance structures. This can be done through regular strategic reviews and the inclusion of family values in corporate policies, thus helping to maintain continuity.

When the business founder decides to make a change and introduce a new member to its senior management team, the incoming person will most likely want to make an impact and bring their own ideas forward, Mr Cremona stated.

At the end of the day, it is up to the departing incumbent to “trust that they have prepared their company and successor to face the forthcoming challenges, much as they were given the freedom to implement certain processes during their own tenure,” he said.

“Every CEO makes mistakes, such as a failed product launch or acquisition, but, with practice and a strong company culture, the company will be resilient enough to continue building on its successes,” Mr Cremona reaffirmed.

An ideal way to ensure long-term continuity is for the departing business leaders to take on a Non-Executive Director role. These positions, as was explained in The Family Business Forum last year, can serve as a means for businesses to gain knowledge from outside of the business and from other industries, offering different perspectives. However, as Mr Cremona pointed out, a non-operational directorship role can also offer outgoing business leaders the ability to maintain some level of control and to provide guidance when it is sought.

“Though, once again, the emphasis here is on a non-executive capacity and more of a sounding board for the leadership’s strategy,” he clarified.

However, aside from family succession, are there other exit strategies that should be considered?

Mr Cremona remarked that there are a number of options that local family business leaders can go for.

At the heart of this, he said that it is essential for family members to be treated as shareholders as it transitions from one generation to the next, typically leading to a gradual increase in the number of shareholders.

“Without a clear exit strategy for realising the value of these shares, the business may be perceived as an illiquid asset. This means that while the business contributes to the family’s wealth, the individual family members cannot fully utilise that family wealth, such as by investing in higher-return asset,” he explained.

Locally, family business owners can go for strategies such as internal buyouts, partial or full sales to third parties, management buyouts, or possibly employee share ownership schemes, Mr Cremona suggested.

Internal buyouts, the process through which a member of the leadership buys the business from the current owner, might be particularly suitable “given the close-knit nature of Maltese families, ensuring the business stays within the family while providing financial benefits to the existing family members.”

On the other hand, a partial sale to a third party could attract outside investment and expertise without having to relinquish full control of the business.

Similar to internal buyouts, management buyouts and employee share ownership schemes can incentivise non-family members to drive business growth, ensuring continuity and stability.

Mr Cremona noted that for larger businesses, being listed on the stock exchange could be a viable option, as this can offer increased capital and market visibility.