Family Businesses In Malta: Challenges & Opportunities

PS
Papilio Services Limited

Contributor

Papilio Services Limited, established in 2012, is based in Malta with sister companies in the Netherlands and the Czech Republic. The firm boasts a multinational team and a diverse client base, providing cross-border solutions in Corporate, Tax Compliance, and Residency services on a global scale.
Family businesses, which contribute considerably to the GDP and employment of the country, are the backbone of the Maltese economy.
Malta Law Practice Management
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Family businesses, which contribute considerably to the GDP and employment of the country, are the backbone of the Maltese economy. They can range in size from small family-owned retail establishments to large family-established companies managing diverse facilities. They have demonstrated themselves to be some of the most resilient and dynamic economic sectors, having historically served as the engine of the nation's financial system. However, governance, succession planning, strategic focus, family dynamics, market conditions, and decision-making procedures pose challenges for family-owned businesses in Malta. The country's family-owned businesses must overcome these challenges if they are to succeed in the long run and thrive.

Governance and Succession Planning

A recent Family Business Survey revealed that a significant portion of family businesses in Malta do not have a functioning board of directors, and those that do, often have only family members on the board. Additionally, just over a third of family businesses have a succession plan in place, indicating a lack of long-term planning for leadership transitions and continuity.

Strategic Planning and Operational Focus

Family business owners frequently devote little of their time to strategic planning and most of their time to day-to-day operations. This operational focus is influenced by the hands-on style of family business management, in which owners and managers are actively involved in the day-to-day operations of the company. On the other hand, if strategic planning is neglected, long-term growth and sustainability may suffer. The fact that shareholders are both members of the same family and participants in a jointly owned economic company, with all the dysfunctions and foibles that come along with that, frequently complicates the dynamics between shareholders in family businesses. The dynamics of a family unit involve sentiments and behaviours that are uncommon amongst unrelated company partners; these are emotions and behaviours that are developed on a personal and familial level, which are inexorably transferred into the business and frequently obstruct its smooth operation.

Involvement of External Advisors

To protect the family business's long-term interests and streamline the succession planning process, it is frequently necessary to enlist the assistance of seasoned external consultants. Transferring ownership and authority from one generation to the next is invariably a very delicate process. In order to ensure that the succession planning is carried out meticulously and that the interests of the shareholders and family members are protected, as well as the long-term interests of the family business in question, suitable structures, mechanisms, and protections must be created.

This calls for the involvement of external advisors. Papilio Services' Private Client services offer assistance to high-net-worth individuals and their families, family offices, family businesses, legal and tax advisors, investment managers, and asset managers through a holistic and bespoke approach to servicing clients' needs. Our team of experts can assist with regard to relocation and residency services, taxation for asset protection and wealth protection, succession planning, services related to trust and foundation management, and high-value investment structuring/restructuring. This entails closely working with the client or their advisors to define the client's or family's personal, business, or philanthropic objectives and working with them to put plans in place to achieve them. We can help the family-owned business establish a clear and comprehensive succession plan, ensuring the smooth transition of leadership and ownership from one generation to the next. This can help to ensure the continuity and stability of the business, as well as maintain family harmony.

In addition to succession planning, Papilio Services can also assist family businesses with governance matters by advising on establishing a functioning board of directors, including the inclusion of non-family members to provide outside input and perspective. This can help to strengthen the governance and decision-making systems of the business, ensuring its long-term sustainability.

Market Challenges and Economic Environment

Family businesses in Malta may also face market challenges and economic factors that impact their operations, such as limited bilateral trade, difficulties in importing goods, labour shortages, infrastructural demands, and broader economic conditions. Malta's growing economy presents both opportunities and challenges for family businesses; however, it's outpacing most of its fellow EU member states.

Decision-Making and Data Analysis

In Malta, family businesses are increasingly recognising the importance of data-driven decision-making to enhance their operational and strategic practices. It is emphasised that without properly collecting and holding data, the analysis will not show high-quality results, which may result in low-quality decision-making. Many businesses have a large amount of data at their disposal; however, most of them do not have the expertise to analyse the available data. Therefore, leveraging data for actionable insights is essential for family businesses in Malta.

Conclusion

In summary, family businesses with outside input in their board could be more future-proof and tend to have more robust governance and decision-making systems in place. This indicates that the future prosperity of family businesses in Malta depends on enhancing governance and decision-making processes. Malta's well-run family firms are moving away from using "intuitive" decision-makers and towards rational decision-making based on data. Their ability to outperform their competition is made possible by this shift, outlining the increasing significance of data-based decision-making procedures.

Family-owned businesses in Malta encounter challenges related to governance, succession planning, strategic focus, family dynamics, market conditions, and decision-making processes. Addressing these challenges is crucial for the long-term success and continuity of family businesses in the country. The complexity of managing a succession process carefully and correctly cannot be overstated. Families looking to rethink their internal ownership, governance and organisational structures are advised to seek professional guidance at an early stage from well-established advisors. If you are interested in having an initial consultation to discuss your situation and understand if our private client services could assist you, please contact our experts.

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.

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