Malta: Hidden Growth Within Family Businesses: Driving Success Without The Fame

Last Updated: 29 November 2016
Article by KPMG Malta

INTRODUCTION

For over a decade scholars, politicians, economists and journalists have expressed growing interest in family-owned companies, evaluating their economic impact and dissecting their unique business models.

Much ground has been covered. Graphs and reports compare the performances of family and non-family companies of diverse sizes, sectors and regions, during economic ups and downs. Leading universities and business schools integrate family business courses into their curricula. European and international institutions are paying close attention to the sector. Finally, family businesses themselves have come out of shadows, unabashedly publicizing and highlighting their family roots.

Still, there is no generally agreed definition of the term, and only limited data is available on the sector's real economic weight. Many family business owners stay discreet about their success, rarely appear on front pages, and continue to be an enigma.

For many, the term family business immediately brings to mind the quintessential mom-and-pop. However family businesses are all around us – from small and mid-sized companies to renowned multinational corporations. One third of all companies in the S&P 500 Index are defined as family businesses.1 Some 30% of all companies worldwide with over US$1 billion in sales are family-controlled enterprises.2 Of the 250 largest companies in France and Germany, 40% are family-owned.1 Many family companies do extremely well, and even better than their non-family counterparts.

Our research, conducted by KPMG and European Family Businesses (EFB), involved discussions with prominent family business leaders in various European countries.

We sought to shed light on some frequently asked questions regarding family businesses:

  • What does success mean for them, and what is their ultimate strategy: stability; growth, or profitability?
  • What drives their success, and what are the inherent barriers to growth?
  • When growth is at stake, how do owners choose the right strategy and align the interests and needs of both family and business?

We trust that our report will provide you with insightful, interesting answers.

STABILITY, NOT STAGNATION

Longevity, long-term outlook, and stability are traditionally cited among the specific attributes of family businesses. Although stability is sometimes mistakenly confused with stagnation, closer examination reveals that the two have nothing in common. To the contrary, growth is high on the agenda for family businesses, and long-term orientation tends to steer strategy.

Family legacy and strong personal attachment underpin the desire of family business owners to preserve their businesses for their heirs. Long-term outlook is their vision, longevity is their mission, and growth is their clear strategic choice. While growth is high on the agenda for family businesses, the way in which they achieve it has a number of characteristics unique to them.

Family businesses tend to project into a very distant future. In the words of one of our questionnaire respondents, "we have a 50-year strategy", "after 160 years of existence, our objective is to see the company last for another 160 years", "the desire of our company is to exist in 500 years' time". Their long-term outlook is measured in decades or generations, not quarters or months. Family-owned businesses need not fret about impressing investors with short-term performance figures. They can afford to slacken the pace slightly without sparking anxiety over momentarily lower or flat figures. Yield tomorrow is more important than return today. Family businesses are able to think and plan in the long run.

They can take a longer-term strategic outlook, which is not always possible in other business models. This means they can make decisions that are right for the long-term even if that means sacrificing some short-term earnings.

The first key to sustainable success for family businesses is therefore safer thinking and moderate risk tolerance. However, these are balanced with an understanding that 'adequate' growth is necessary for the company to stay successful and competitive. As one Dutch respondent notes, "if you are too focused on stability and security, it could hinder growth".

The second key is prioritization. Our recent European Family Business Barometer3 demonstrates that, while 83% of family businesses plan to grow in the year to come, 57% cite improved profitability and 34% increased turnover as their top business goals. Both profitability and turnover growth are necessary for a company to survive and remain attractive to investors and analysts. Nevertheless, profitability is critical to a company's long-term survival.

Finally long-term vision, which could appear to be a barrier to growth, most likely spurs on family businesses. "Dreaming in the long term and seeking resources in the short term" is the way one Spanish respondent defines his business tactics. Long-term outlook is in the DNA of family businesses, the philosophy determining everything they do. It tends to steer strategy, enabling the development of good business planning, breaking down plans into small projects and taking one step at a time. Long-term outlook creates positive thinking, since businesses can grow in the long run without being beaten down by occasional downturns in performance. Family business owners can accurately choose the right strategy and prepare their companies for growth.

Preparing to grow

The determining feature of family businesses is their particular business model in which family and business interests are closely aligned and strongly intertwined. While owners seek business prosperity and family harmony, they are sometimes confronted with issues like differing positions of the shareholders, conflicts about business direction, and in the worst-case scenario, sibling rivalry, leading to shareholder exits or the (partial) sale of the company.

When growth is put on the agenda, business owners wonder how to make it happen, how to align business and family interests, and how to prevent those conflicts or differences of opinion that hinder growth.

As a first step, our respondents advise to clearly differentiate between family and business and not to mingle the two spheres. The business should be considered a business project, not a purely financial asset. The company's primary goal should be to serve customers, not the family. "By serving its customers, it will eventually serve the family". A business, with its vision and strategy targeting its well-being, should be separate from the family with its shareholders. The co‑functioning of both is ensured by good governance. Governance mechanisms implemented should serve several purposes, such as separating ownership from management, setting up family and business rules, and defining dividend policy. With clear rules and guidelines as an anchor, family businesses can pursue their growth plans.

This separation does not mean that the business goes its own way. Ownership has special meaning in family companies, with a strong personal element. The family business should not be seen purely as a liquid asset, but as a property which is built and developed by the family over generations. "Family and business are two different things, they are separate. Business is primary to the family. If business interests are put in first place, it will then ensure the family runs smoothly, not the other way around", comments one French respondent. His Spanish and Dutch counterparts concur: "Conflicts occur when no distinction is made between the company and the family." "We have made an almost exorbitantly strict separation between family and business. From the beginning, the first focus was the business."

Once rules are set up, the next step is to communicate. Shareholders should engage in constant discussion and "open dialogue" with the business to ensure they are happy with how the business is being run and what the returns are. Owners should have an "adequate knowledge of the company" and feel involved in its development. Our respondents confirmed that "communication is key" to satisfy all parties.

Good governance not only separates the functioning of family and business, but also helps both achieve their shared goal: to safeguard and increase family wealth. Parallel planning4 helps accomplish this goal. It is a proven tool to align the thinking and planning of both family and business into a comprehensive family business plan.

Parallel planning facilitates communication about business strategy and potential, which are in turn supported by the family's investments in human and financial resources.

To read this article in full, please click here.

Footnotes

1. The five attributes of enduring family businesses, McKinsey & Company, 2010

2. What you can learn from family business, HBR, 2012

3. European Family Business Barometer — Successful & Resilient (fifth edition), EFB and KPMG, September 2016

4. The term 'parallel planning' was introduced in: Strategic Planning for The Family Business. Parallel Planning to Unify the Family and Business, Randel Carlock and John Ward, 2010

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.