Succession Planning in Family Business

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Written by Michael Warrington, Chief Executive Officer  AX Group

In Malta, most local businesses are family-owned and managed. Many of the businesses are passed from one generation to the next. A relatively small percentage of businesses make a successful transition to the next generation. The reasons why so few transitions succeed are varied. Internal family differences often play a major role in the demise of successful businesses.

Finding the right balance between the business needs and the family perspective is never an easy task. The family interactions and motivations are normally very different from those of the business. The challenge is to balance the interests and conflicting goals of family and business.

Although many business people talk of succession planning, in practice there is a significant difference between what the owner/manager perceives and what needs to be done in reality to ensure the continued success of the business and the maintenance of a healthy family rapport.

Succession planning needs to commence at a very early stage in a business-owning family. Children are naturally curious about their parent’s work. Many founders of successful family businesses find it challenging to balance the family needs and the business demands. The consequence is that one or the other gets more attention at one time or another. These compromises are then the root cause of the long term issues that undermine family unity and ultimately the business.

There is no universal route to success. Every family needs to discern and discover the path to adopt to optimise the probability of the business surviving a transition from one generation to the next.

Here are some suggestions on strategies that should increase the probability of a successful transition.

 

1. Freedom of choice

Every parent will tell you that each of their children is different and unique. Much as the founder of a business may wish that their children will follow in their footsteps and do a good job of it, it is not a given. From an early age, children need to be allowed to understand that they are free to determine their life’s journey, that success is not only determined by them being active in a family business nor that there is an automatic place for them in the business.

2. Family and corporate values

Strong businesses are those that adopt family values and apply them within the organisation. These values guide the employees and stakeholders who interact with the company on what can and cannot be done. Businesses then set the tone on the work ethic, loyalty, honesty and integrity expected from both the family members and employees.

 

3. Meritocracy

Businesses tend to do well when authority and responsibility are determined on the basis of merit. Hard as it may be for family members to accept, it is in the long term interest of the family as much as the business that people are appointed to positions of authority on the basis of their competence and skill.

 

4. Setting the rules – The family charter.

Developing a family charter which is a document that sets out some key principles that each family member should understand and follow is also an important milestone for success. The charter would reflect the family values and set rules on everything from ownership rights, active participation in running the business and passive ownership, appointments to key roles within the business, engagement and participation of spouses and children in the business, compensation and drawings from the business, the resolution of disputes and non-competition with the business interests.

Most family-owned companies start off with a single founder or a founding couple. The founders are usually ambition-driven, passionate and very focused on the success of the business. They are usually very hopeful that their offspring would be inspired by the business and choosing to stay in it would be a natural choice.

The hardest part of the transition process is letting go. The founders are often reluctant to let control out of their hands. The ease with which they can do so is determined in a process very similar to when their children took their first steps to start walking – the initial interest, learning the ropes, building confidence, failing and trying again – with the firm but gentle hand of the parents to guide the children along.

The Pitfalls of Part-Time Work

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Written by Denise Micallef Xuereb, Construction & Development Director AX Group 

I believe in women and feel strongly about their entrepreneurial skill sets. As a company, we have always promoted women, even in high ranking positions. Locally, however, I feel that, although the situation is constantly improving there is still a long way to go. The figures still highlight poor female representation on boards and in leadership positions. Now the reasons for this are many but one element I can see is that many companies offer women part-time work instead of allowing women to work full-time and on flexible terms. Part-time work will only set them back and, potentially, will not allow them to achieve the same goals as their male peers. Now obviously that does not go with every position and with every role but that is very a probable cause why we don’t see as much female representation in higher corporate positions. They are just not around for the promotions! 😀

Another reason is also a question of mentality, I call it sometimes “self-limitation.” There are many women I know that are insecure about their own abilities, clouding themselves with a lot of doubt, questioning their abilities to venture out to be able to arrive at those top positions. Sometimes it’s just a simple thing of asking for what one deserves. This, coupled with social pressure coming from extended families or friends to quit jobs when they marry or have kids, or even possible guilt feelings when it comes to the family-work balancing act. Yet, these feelings of self-doubt need to be tempered with the realisation that women are capable and have much to offer. Women are born organisers and multitaskers. At least all women I know are! ☺️ Indeed, women should be on boards knowing they have earned the right to be on that board just like anyone else.

Quotas may be counterproductive since they might create even more insecurity. Women should be on boards because they want to and are encouraged to do so. If I were a woman on a board that had a quota imposed on it, I could question why I really am on that board. Am I there because I really deserve to be there or am I there to satisfy the requirement? This might create even more insecurity.

On the other hand, businesses that adopt more family-friendly practices and allow for continued awareness will encourage other women who are still contemplating how they can succeed at managing their work-life balance. Part of this is the realisation – across the board – that both parents need and should be able to opt to go to work. The moment we see husbands going to parents day, husbands (partners) also asking for reduced hours or demanding paternity leave I can see the mentalities shifting even further than today.

We should be able to decide for ourselves what we want in our do in lives. I am proud to be surrounded by women in my office. So, what we need is for policies to catch up to really make it easier for women to get to the top.

Every Cloud has a Silver Lining

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Written by Romina Pace, Head of Human Resources-AX Hotels

None of us could really understand the impact of COVID-19 when it struck us way back in March.  The only certain and common factor amongst different nations and communities was our undeterred focus to protect and safeguard our loved ones, the elderly and the vulnerable, healthcare workers and front liners.

Over the past eight months, we’ve all witnessed the global impact and severe consequences of this virus and it has shocked us beyond our core. The pandemic has challenged us all to rethink, reassess and re-evaluate our priorities, amongst great difficulty, ambiguity and uncertainty, both on a personal and professional level.

Many companies went above and beyond to ensure that their task force retained their livelihood during these hard times and the government’s grant to support employment has surely helped to save jobs.  Unfortunately, I also recognize that not everyone is as fortunate or well-equipped, especially businesses that were small or had just started out.

The strategies that the authorities implemented to flatten the covid-19 curve such as social distancing, stay-at-home orders, travel and mobility restrictions have resulted in the temporary closure of many hospitality businesses and significantly decreased the demand for businesses that were allowed to continue to operate.

There are times where in this situation, most people feel deflated, disheartened, and drained and it is normal that most of us feel this way.  I always remind myself that there is no harm in looking at the bright side of things and thinking with a positive outlook.

I strongly believe that the only way to cope with this upheaval is by sticking together and making the best use of everyone’s strengths. Throughout all the chaos that characterised 2020, we’ve come to the realisation that life is too short, and tomorrow is not a guarantee.  We must find ways to make it better for our own good. Let us remember that every cloud has a silver lining so we must never give up on life, life is beautiful. Let us be a light in someone’s darkness.

Don’t Try to Fit a Square Peg in a Round Hole

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Written by Denise Micallef Xuereb, Construction & Development Director AX Group 

Speaking at the Malta Chamber’s A Family Affair conference, Ms Xuereb said that the key to success was by not trying to fit a square peg into a round hole – meaning that the succeeding generations had to take up the role not out of obligation but out of choice.

“Many people in Malta don’t distinguish between shareholder and director. One can remain a shareholder but not necessarily be an executive or non-executive director,” Ms Xuereb said, adding that not everyone necessarily had the expertise to move the business forward and that there was nothing wrong with having a non-family member at the executive level.

Ms Xuereb said that there needed to be time allowed for the process and that the first seed for transition dated years back. “The extent to which non-family members are involved varies from one business to another.” She said the company implemented the necessary organisational and financial structures, including an audit committee and a board of directors. “We needed to have the right checks and balances in place. We were thinking of children and further generations.”

The second generation of a family business is only as successful as the first allows it to be, Ms Xuereb stated. “It’s not easy for the founder to accept that their time is nearly up and that they might have to take a step back to, but in our case, my father had the foresight to start early. He would ask for my opinion and encouraged me to pursue my own solutions even when we disagreed. He said we would need to be able to stand on our own two feet, even when he was out of the picture.”

Ms Xuereb also shared some tips on navigating the relationships involved in a family business. “You have to keep work at work and family. Arguing at work is not a bad thing, but then you may end up facing that same person at a family event. You can’t bring sisterhood into the boardroom – you have to maintain the distinction between family and home. It’s not easy, but as long as everyone tries to keep the two apart, it can work.”

Stating that there were no hard and fast rules to follow in success, Ms Xuereb said that what can work for one may not work for another. She concluded by sharing three key thoughts – “respect the core values of the business; know your personal strengths and limitations; and accept that change doesn’t happen overnight.”