‘Trust is not a governance system’: Franco Azzopardi appeals to family businesses on succession planning

Family businesses must move beyond informal arrangements and establish clear governance structures to ensure their long-term sustainability, professional director and former CEO Franco Azzopardi has warned.

Speaking during a Malta Business Network panel discussion at the Malta Chamber of Commerce in Valletta, Mr Azzopardi argued that while family businesses are often built on trust, this alone is insufficient to manage increasingly complex ownership structures and generational transitions.

His comments came as a survey of 150 family businesses in Malta revealed that only one in three has a written succession plan.

Despite this, the findings indicated progress in corporate governance, with 83 per cent of respondents reporting that they have a functioning board of directors and half having appointed independent directors.

Mr Azzopardi, a former President of the Malta Institute of Accountants, maintained that establishing an effective board should be the starting point for businesses seeking to strengthen their governance.

Drawing on his professional experience, he described advising a family-owned company to restructure its governance arrangements, including amendments to its memorandum and articles of association to provide shareholders with a mechanism to exit the business.

"The articles are written when everyone agrees. They are tested when someone disagrees," he remarked.

He also questioned the effectiveness of family charters that outline shared values but lack enforceable provisions to address disagreements.

Another concern raised was the treatment of family members within businesses, with Mr Azzopardi warning that paying relatives more than other employees could discourage talented staff and undermine merit-based management.

Meanwhile, Vassallo Group Chairperson Nathalie Briffa Farrugia shared her experience of succession planning within the company, explaining that the transition following her father's departure from his executive role in 2021 had been prepared for years in advance.

She noted that family members became shareholders upon turning 18, with the company now having seven family shareholders.

"The test of your success is if the company keeps going when you are not there," she said.

Ms Briffa Farrugia also emphasised the importance of separating executive responsibilities from shareholder interests, particularly as businesses expand across generations.

Camilleri Preziosi Partner Andrew Caruana Scicluna highlighted the difficulties that arise when family businesses lack a clear successor or ownership becomes fragmented among multiple heirs.

He also discussed Malta's family office framework as a potential structure for managing family wealth, although he noted that operating costs make certain arrangements more suitable for families with substantial assets.

Closing the discussion, Mr Azzopardi reiterated that businesses should distinguish between financial budgeting and long-term strategic planning.

He argued that non-executive directors should contribute beyond regulatory compliance, helping family businesses move away from day-to-day operational pressures and focus on their future direction.

The panel was moderated by former Malta Chamber President Marisa Xuereb and formed part of the Malta Business Network's monthly series of discussions involving business leaders and industry professionals.