The most common issue causing quarrels in family businesses, both in Malta and globally, is about the future direction of the business followed by quarrels about the performance of family members employed within the firm, according to the PricewaterhouseCoopers Family Business Survey 2010/11.
Fifty four per cent of Maltese participants in the survey said discussions about the future strategy of the business caused tensions within the firm, compared to 44 per cent globally, while 42 per cent of those questioned highlighted the performance of family members as a cause of tension, compared to 36 per cent globally.
Almost a third of all businesses interviewed, both in Malta and globally, said quarrels arose because of disagreements over who should be allowed to work for the businesses and whether family members who are actively involved in the firm are consulting the wider family sufficiently.
About 25 per cent of the respondents, both in Malta and globally, said other causes of dissent with family businesses were the role of in-laws in the running of the business, setting the remuneration level for family members actively involved in the business and deciding between the reinvestment of profits in the business and the payment of dividends.
Seventy nine per cent of Maltese firms (64 per cent globally) said they hire relatives without requiring them to compete for their jobs on the open market. Furthermore, few companies have introduced any procedures for dealing with disputes between family members. Only 15 per cent of Maltese companies interviewed have done so compared to 29 per cent of the total survey sample.
Of those companies that do have conflict resolution in place most tend to use shareholder agreements, family councils and third party mediation.
“The use of third party mediation has become more widespread, possibly because employing a non-executive director or independent business consultant to act as an impartial go-between has several advantages. It provides a neutral forum in which the disputants can air their differences without being intimidated, the process is more structured than ‘ordinary’ negotiation and the results are often more long lasting,” PwC said.
Of the conflict resolution procedures in place 33 per cent of Maltese firms turn to shareholder agreements (53 per cent globally), 44 per cent to family councils (45 per cent globally), 33 per cent to third party mediation (37 per cent globally), and 22 per cent to family constitutions (33 per cent globally).
Additionally, 27 per cent of global firms rely on incapacity and death arrangements, 24 per cent on entry and exit provisions and 23 per cent on performance appraisals. No Maltese firms resort to these three procedures for conflict resolution.
Kevin Valenzia, territory senior partner, PricewaterhouseCoopers, Malta, said: “The most successful family firms are those in which there’s a good balance between the ownership, business and family, with professional management, responsible business ownership and a harmonious family dynamic.
“If there’s unhealthy conflict between the family members it will spill over into the way the business is managed and owned – whether that’s through disputes over money, charges over nepotism or infighting over who should head the business when it passes from one generation to the next.
“Conversely, if relations within the family are healthy, the business is more likely to be healthy, too. Solid, mutually supportive bonds help to encourage loyalty to the company, make people more motivated and facilitate decision-making – qualities that mean business itself is better equipped to deliver strong results.”
The PwC Family Business Survey 2010/2011 covers small and mid-sized family companies in 35 countries: Austria, Bahamas, Bahrain, Barbados, Belgium, Brazil, Canada, Cyprus, Denmark, Egypt, Finland, France, Germany, Ireland, Italy, Kuwait, Jamaica, Japan, Jordan, Malta, Netherlands, Norway, Oman, Russia, Saudi Arabia, South Africa, Spain, Sweden, Switzerland, Syria, Trinidad and Tobago, Turkey, United Arab Emirates, United Kingdom and United States.
Interviews with top executives in 1,606 companies operating in 15 industry sectors took place between May 26 and August 17 this year.
PricewaterhouseCoopers considers a family business to be an enterprise in which the majority of the votes are held by the person who established or acquired the firm (or by his or her spouse, parents, children or children’s direct heirs); at least one representative of the family is involved in the management or administration of the firm; and, where the company is listed, the person who established or acquired the firm (or his or her family) possesses 25 per cent of the voting rights through his or her share capital and at least one family member sits on the board.