Insights from an EMCS research on family businesses

Family businesses play a crucial role in Malta's economy, contributing significantly to the nation's GDP and employment. Recently EMCS conducted a comprehensive study, in collaboration with the MaltaChamber and the Family Business Office, involving 160 family businesses in Malta, revealing intriguing insights into their operational and strategic practices. The results indicate a continuation of trends observed in previous years, shedding light on decision-making processes, succession planning, and strategic focus.

The need for stronger governance

The findings clearly indicate that family businesses still have substantial work to do to achieve a higher and better level of corporate governance. 33% declared that they do not have a functioning board of directors. Out of the remaining 67% who declared that they do have a functioning board of directors, 46% declared that such board of directors is made up only of family members, with no external, independent non-executive director on the board.

The survey clearly shows that family businesses with a board of directors that includes external and independent directors, score better when it comes to preparedness with regards strategic and succession planning, base more of their decisions on data analysis and are likely to have policies in place to guide the business, when compared to family businesses with no functioning board of directors or a board of directors made up only of family members.

Decision-making: Gut feelings vs. data-driven approaches

One of the standout findings from the EMCS research is the prevalent reliance on intuition over data. An overwhelming 64% of family businesses reported that their decision-making is primarily based on perception . In contrast, only 36% of businesses make decisions grounded in research and data. This trend highlights a potential area of vulnerability, as reliance on intuition can sometimes lead to inconsistent outcomes, particularly in a rapidly changing business environment where data-driven decisions can offer a competitive edge.

Succession planning: An ongoing challenge

Succession planning remains a critical issue for family businesses in Malta. The study found that merely 36% of the surveyed businesses have a written succession plan. This statistic is concerning, given the pivotal role that succession planning plays in ensuring the continuity and stability of family businesses. A lack of formal succession plans can lead to uncertainties and conflicts, potentially jeopardizing the business's future when leadership transitions occur.

Focus on operational matters

Family Businesses were asked to list the top matters that occupy most of their time, this resulted in a significant 86% focusing on matters related to daily activities and operational matters, with less emphasis on strategic planning. This operational focus can be attributed to the hands-on nature of family business management, where owners and managers are deeply involved in the day-to-day running of the business. However, this can also be a double-edged sword. While operational efficiency is crucial, neglecting strategic planning will hinder long-term growth and sustainability. This is why, only 32% of family businesses declare to have a written strategic plan in place which is regularly reviewed.

Implications for family businesses

The findings from the EMCS study underscore several key implications for family businesses in Malta:

1. Embrace data-driven decision-making: Silvan Mifsud, Director, EMCS, highlights the need for a cultural shift towards leveraging research and data in decision-making processes. “Family businesses should invest in data analytics and market research to enhance their decision-making capabilities and improve business outcomes.” This can only happen within the background of a strong commitment to good corporate governance and a better focus on strategic matters.
2. Develop comprehensive succession plans: Family businesses must prioritize the development of written succession plans. These plans should outline clear processes for leadership transition, ensuring that the business remains stable and continues to thrive across generations.
3. Balance operational and strategic focus: While operational efficiency is essential, family businesses should also allocate time and resources to strategic planning. Kurt Muscat, Assistant Manager, EMCS says “businesses should set long-term goals, explore new markets, and innovate products and services to stay competitive.”
4. Education and training: Business owners and future leaders should seek continuous education and training in modern business practices. EMCS last year launched an Award in Leading a Family Business, which was successfully completed by a cohort of 21 family business owners and directors. The same course is being launched and will start in October 2024. The course led by Silvan Mifsud, seeks to empower participants with the necessary knowledge, skills, and competences to effectively lead a family business using a strategic mindset. With a focus on establishing professional structures and embracing a data-driven approach, this course ensures informed decision-making, based on solid evidence.

Family businesses are a cornerstone of Malta's economy, and their sustained success is vital for the nation's prosperity. The EMCS research highlights critical areas where these businesses can improve to ensure long-term growth and stability. By adopting data-driven decision-making, formalizing succession plans, and balancing operational efficiency with strategic planning, family businesses in Malta can navigate the challenges of the modern business world and continue to thrive for generations to come.

For more information on this market research or to find out how you can make your family business work better for you contact EMCS on info@emcs.com.mt, +356 2777 2777 or visit www.emcs.com.mt.