Awareness of family business public policy issues has been non-existent in Malta, but now things are changing thanks to the annual Family Business Conference and more recently through the establishment of the Malta Association of Family Enterprises. The association has been set up by a group of family business owners for family businesses.
By discouraging continuity and growth, there is loss of tax revenues, turnover and employment- Mario Duca
The discussion on public policy will require statistical information on the importance of family businesses within our economy. Unfortunately, there are no direct data or scientific surveys on the number and various forms of family businesses. By using the fragmented information available from the National Statistics Office, the Trade Department and the Malta Financial Services Authority, the composition of the breadth and width of the local family business sector can be developed.
Family enterprises cover the total business spectrum and are present in every sector of the Maltese economy.
Only 75 per cent of family businesses are expected to succeed through a successful transition to the next generation, an indication of the economic impact they have on the Maltese economy.
There are several reasons for this economic wastage. Some transition failures result from family conflicts, nepotism, succession difficulties and, in Malta, due to the lack of legislative policy and structures that facilitate the transition processes and succession planning.
The Small Business Act relates to micro-enterprises and SMEs and provides for better regulation and the facilitation of dialogue between business and the government. There is, however, no mention of family enterprises and their distinct needs. To date there is no legal framework and policy on the basis of which family business transfers can be effectively planned and executed.
There is widespread loss of business, opportunities and wealth entirely because family members indefinitely postpone dealing with the issue of succession and then are forced to act hastily following the death of the current owner and leader. Many have also gone about succession in an emotional, unstructured manner to the detriment of the business and the family in the long run.
Family businesses are currently transferred either through wills or through the donation of the business and its assets. The financial burdens related to succession of the family business being imposed on the next generation because of a lack of legal structures do not encourage the continuity of family businesses, particularly the smaller ones.
Over the years, the vast majority of family businesses would have invested the generated wealth back into the business – consequently the majority are asset-rich but cash-poor. Tax liabilities that extract liquidity from businesses which have consist-ently invested in the business to grow along the years would necessitate the sale of business assets. This does more immediate harm to Malta’s economic and employment sectors.
By discouraging continuity and growth, there is loss of tax revenues, turnover and employment possibilities generated by family enterprises over the long run. This contradicts the commonly-held view that tax liabilities following succession increase the country’s tax revenues in the long run.
To start to better understand the impact the family business sector has on the Maltese economic scenario, it is imperative that data be compiled. Those data would then be the basis on which legal frameworks and policy decisions could be developed.
The government could improve succession rates through education, assistance with business transfer planning, and the deve-lopment of a legal framework which will help families in businesses to succeed through the generations.
The Malta Association of Family Enterprises is doing its part and has submitted its policy proposals to the government and put forward recommendations on how the current scenario can be drastically improved.
The Maltese economy heavily depends on the continuity of family businesses. This business sector deserves government’s attention in laying out the future legal and policy strategy for the benefit of family enterprises in Malta.
It is in the country’s interests to preserve and motivate these businesses, particularly through economic incentives and an infrastructure which encourages their establishment and permanence through generations. It has been proven that family businesses are more resilient in severe economic downturns like the one we are currently living.
The next annual Family Business Conference will be held at The Palace Hotel, Sliema, on Thursday.
mariod@2mmanagementconsultancy.com
Mr Duca is managing partner of FBS2M Family Business Solutions and President of the Malta Association of Family Enterprises.