Stronger family firms contribute more to the economy - consultant

A new Maltese-Scottish joint venture aims to improve the contribution family enterprises make to the economy by giving them access to best practices in governance and succession, Ken McCracken told The Times Business.

Pietà-based 2M Management Consultancy Ltd and Family Business Solutions Ltd of Glasgow have established FBS2M to offer local family firms specialised consultancy and advisory services.

Mr McCracken, a lawyer, and George Stevenson, both consultants for FBS, were in Malta over the past few days to address the family business conference last Thursday.

Mr McCracken said that family businesses were collectively the most important sector - and arguably the largest unrecognised group - in the economy, but there were scarce dedicated resources to help families ensure the longevity of their enterprises.

To address the void, FBS2M is to offer "world class" education and training besides acting as a driver to bring family businesses together within Malta's first Family Business Association. The planned association, which will serve as a forum for like-minded enterprises to meet, share experiences and learn from one another, will benefit from the expertise of Mr Stevenson, the chairman of the Scottish Family Business Association.

2M managing director Mario Duca said some of Malta's largest family groups had already expressed interest in the project.

FBS2M is to indentify collaborators which include the government, educators, professional advisors and trade bodies to work towards raising the profile of family firms. Mr McCracken believed there was much ground to be covered.

"At a national level, there has to be engagement," he said. "The joint venture will, directly or indirectly, also try to encourage government to take a policy stance about continuity and succession. If these businesses fail, the impact on the economy is significant. If they succeed, the impact is equally significant."

Statistics have shown that 70 per cent of family businesses fail to hand over to a second generation. Efforts to improve governance and succession practices within firms should contribute to avoiding or at least minimising generational stumbling blocks at the least cost to the economy.

He emphasised that family businesses tended not to migrate. Rather they offered protection and brought inward investment to the indigenous economy. By having a strategy to support family businesses, providing them with education and resources, and making them aware of fiscal stimuli and regimes, family businesses will achieve continuity of wealth.

FBS has latterly focused its operation on the UK, but its consultants have worked in the Middle East, North and South America and across Europe, applying the same proven consultancy and methodological processes.

Mr McCracken said the company's international research proved that issues and challenges faced by family businesses were the same across the world, transcending cultural, ethical, religious and social differences.

"We have processes and practices that factor in on an individual level what each family wants to achieve in terms of success," he pointed out. "We take into account where they are located, what their values and beliefs are. We have to articulate that with them so that they achieve success on their terms. That is not always necessarily going to be maximising financial return. It might be about preserving a multigenerational legacy, or about philanthropy - in certain cultures and religions that is important.

"It is very important for consultants not to bring their own value systems. We have to work from the client's perspective. We work with families whose origins are Italian, Polish, Irish, and Indian and that value system still influences their business, even though they are in Scotland. The same will happen here."

Through his close collaboration with numerous family businesses in Scotland - the SFBA disseminates information to over 24,000 firms - Mr Stevenson conceded that these enterprises were generally not open to thirdparty consultancy. They often sought advice when they were in trouble.

That trend led to the establishment of the SFBA which sought to address the lack of knowledge and skill.

"The education and training in the business world is built around MBAs which are built around the PLC model," he explained. "Traditional business training does not touch on the skills that family businesses need. Besides, there is no centre of excellence for family business education where families can enrol younger generations to acquire the skills they need. The reason family businesses get into trouble is failure to manage the family. Our task is to change the education so that families are equipped with the skills to manage the family. Advisors are trained to help them do that."

Mr McCracken said that Maltese trends fell within an international phenomenon. A recent benchmarking study conducted by the University of Pennsylvania's Wharton Business School and the IESE Business School of Barcelona found that governance was the most significant factor of the future success of a family firm.

The study into "single family offices", the structures which manage the wealth of extremely affluent families, revealed that even with the most renowned technical and financial expertise these families could muster, firms which were not well governed were still prone to collapse.

"Every family decides whether it wants to draw the line between the business and the family," Mr McCracken said. "Some families will only be in businesses that the family can run. Others put their family first. Some favour the business over the family because they are in business to make money. Every family business needs to find its own equilibrium between business and family - it is very demanding because they are incompatible.

"Families do not adapt and change structures to new realities, preferring to cling on to what went before. By the time they reach the third generation, the chances of those practices working are very small. If you want to be successful, get organised. It's not rocket science, but it is complicated because you have families, owners and businesses. That is the art and craft of our work and that is what we are giving people in terms of knowledge."

Traditionally, Maltese family firms have turned to legal and financial advisors for guidance. Mr McCracken said FBS2M will work with these professionals and demonstrate that specialised family enterprise consultancy is also helpful to their own mission.

He understood that lawyers, for instance, became frustrated when family owners failed to take seemingly obvious decisions. But families had other issues on their minds like the distribution of opportunity, time, love, power and money. FBS2M would be creative and work with members of Malta's advisory community who were open to new ideas and who could be instrumental in helping to provide a local, tailor-made solution to Maltese family businesses.

Mr Duca explained that after FBS2M mapped out the overall blueprint for the business, the legal and financial advisors could then proceed to develop the identified solutions about matters like property acquisition or trusts according to law.