Forty per cent of family owned businesses in Malta have no succession plans in the pipeline for key senior roles, according to the PricewaterhouseCoopers Family Business Survey 2010/11. On a global level, the figure is even higher, 50 per cent.

Of those local family businesses that are prepared for a changeover, 32 per cent do not intend to appoint a family member to assume a senior management position. Furthermore, only 43 per cent have actually identified a specific individual to take over the post, compared to 50 per cent globally.

The survey shows that 52 per cent of family businesses haven’t established any procedures for purchasing the shares of incapacitated or deceased shareholders (56 per cent of global firms). Half the businesses globally and in Malta say they either lack the liquidity to buy out family members who want to dispose of their stakes in the business or haven’t considered the possibility.

The majority of family business owners, both in Malta and globally, have failed to assess their potential tax exposure. Such businesses need to be professionally valued in order to assess the likely tax liability if the business were to be sold to an external party or transferred to the next generation. However, over half of all proprietors haven’t had their companies valued for at least a year. The survey reveals that many proprietors don’t have a complete picture of their exposure to capital gains tax and many are also unaware of the full extent of the duty their heirs might have to pay.

Twenty six per cent of Maltese family businesses are expected to change ownership within the next five years (27 per cent globally) and 63 per cent of those who anticipate a change believe the business will remain in the family (53 per cent globally).

In Malta, 25 per cent of the respondents said a change in ownership would involve a trade sale to another family business (21 per cent globally), 13 per cent said a sale to a private equity investor (20 per cent globally) and 19 per cent said a sale to a management team (15 per cent globally). Eight per cent of global firms said a change in ownership would come about through a flotation or IPO but no firm in Malta highlighted such a change.

The survey reveals that 29 per cent of local family firms are managed by the first generation (31 per cent globally), 44 per cent by the second generation (36 per cent globally), 24 per cent by the third generation (19 per cent globally), and three per cent by the fourth generation (seven per cent globally). Five per cent of global firms are managed by the fifth or more generation but there are no such firms in Malta.

In Malta, 81 per cent of family firms say they have sufficient resources to divide their assets fairly between all their heirs, including those who don’t work for the business, compared to 61 per cent globally. Eleven per cent say they don’t have sufficient resources (16 per cent globally) while eight per cent have not considered the issue (23 per cent globally).

Further evidence that some family firms may be less ready for the future emerges from the fact that 61 per cent of those surveyed (62 per cent globally) haven’t made any provisions for dealing with family and business issues if a key manager or shareholder gets seriously sick or dies. Similarly, the majority of respondents don’t have a caretaker management team to run the business should the incumbent chief executive step down before any of his children are old enough to assume control.

Salaries top the list of measures family firms use for retaining key talent, with 86 per cent of Maltese respondents (75 per cent globally) stressing this. Sixty six per cent (63 per cent globally) highlighted challenging job opportunities (63 per cent globally), 73 per cent said good management techniques (59 per cent globally), 52 per cent said career progression (57 per cent globally) and 44 per cent said work life balance (51 per cent globally).

In addition to paying generous salaries, 79 per cent of family firms in Malta (76 per cent globally) use some sort of incentive scheme to reward senior executives. Sixty five per cent of local firms (61 per cent globally) use annual bonuses for this purpose, while 13 per cent use a deferred bonus (15 per cent globally), 11 per cent use share plans (eight per cent globally), seven per cent use option schemes (five per cent globally) while 10 per cent use other incentives (nine per cent globally).

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.