Long-term sustainability of family-owned businesses is defined by relationships. Of course, the relationships between family members who hold executive positions in the business are the most important. The relationships between the current leaders of the business and their heirs is as equally important as it determines the future of the business. The relationships between a business, its employees, customers and vendors also play a crucial role.
Generally, families apply their values to their businesses and as such their values influence the success of the business. Therefore, values are taken very much into consideration during the formulation of a succession plan which takes the business to the next level and ensures that it lives on through generations.
In our experience as advisors to family businesses, we have noted that the level of family governance development is linked to how strongly family members identify with the business. The values of the family members are reflected in the functioning of the business itself and continuing to strengthen these values inspires the younger generation to step up and start taking positions of leadership within the business of their family. It is incredibly important that the upcoming leaders relate to these values and find it natural to contribute towards the business.
The distinctive performance of successful family business has various facets, including earnest affectivity by the family members to the business, how the family identifies with the business, and strong internal and external relationships built through effective social networking. One facet which we have identified to be the crux of all the others, is the continuous regeneration of family ties across multi-generational succession.
The importance of fortifying the relationship between the leaders of today and the leaders of tomorrow is crucial in ascertaining the business’s continued success. We at KPMG Malta believe that the longevity and growth of any family business lies in creating a balance between the expectation of the family members and the demands of the business. Through navigating the strains imposed by the COVID-19 pandemic, family businesses have come to realise how important it is to concentrate on a strategic succession plan which anticipates the struggles that the business may be faced with and prepares for it accordingly. This can mean preparing for a force majeure such as a pandemic or any disturbances such as the exigency for a new leader. In certain times, such two occasions go hand in hand. Notwithstanding, one must not equal an effective succession plan to the identification of a successor. An laudable succession plan encompasses training and coaching the successor during a transition period, ascertaining that the market and operation of the business is thoroughly learnt, the expectations – both short term and long term – are committed to, and the new successor is well-prepared to step up when the time comes. During this transition period, the values of the successor are honed and the vision for the business is laid down.
The transition of any business is an emotional process, and we at KPMG Malta recognise the importance of working shoulder-to-shoulder with family businesses to guide them through the process. This is why the relationship between a business and its advisor is another pivotal relationship. It makes all the difference when deliberating on such an important business and life decision - having the right advice whilst building a succession plan is key.
Our responsibility is to make sure that the sensitive issues are dealt with in a considerate and pragmatic manner whilst taking courageous decisions with reassurance, and as such we ensure that a close and long-term relationship is built with our clients. This enables us to grasp the basic practical details of their business and to understand the family dynamics. In advising our clients, we take various themes into consideration, primarily: -
- The ambitions, expectations and vision of the internal team and the family members, even those who do not form an integral part of the business and/or do not hold an active role in its running
- The internal rules and procedures which are already in place
- How the values and beliefs of the family may influence the succession plan
- The worth of the business and the influence that may have on any decision taken.
During our assistance, we give equal importance to the succession of both the ownership and the management of the business. Through family communications, management operations, leadership succession schemes, and dispute resolution processes, a family business can effectively involve family members, evaluate options, make informed decisions, and strengthen comfort. As advisors, we help our clients consider all the elements that go into passing the business on to the next generation.
Management succession planning helps family members to clearly understand the prospects and responsibilities of taking over the business. Ownership and family frameworks with well-established principles, in addition to a family charter may aid in addressing these issues. A family charter is a set of guidelines which helps the smooth transition of the family business to the next generation as it ensures transparency and clarity, and foresees and mitigates any disagreements which might arise through specific procedures which would kick-in in such eventualities. A family charter also administers other areas of management structures within the business, such as profit distribution and the process of selling shares.
Leadership succession strategies can aid in examining and identifying the right leader and develop a plan of action to coach and train the next generation.
Communication and implementation of the succession plan can ensure that common risks are mitigated and each person is duly informed on the process, timelines and goals.
Another important consideration that needs to be taken in account are tax implications. Family business owners would need to rest assured that upon their retirement or death, the wealth generated through the operation of the business is not largely paid in taxes. Seeking expert advice in addition to advice on governance issues is key as certain routes are only available if one prepares and plans ahead.
In addition, we actively encourage our clients to expand their portfolio, since as with family, business does not stand still – it evolves. Family businesses are unique, at the core lies a prominent dynamic connecting the family and the business through the latter’s ownership vested in the former. This dynamic presents various opportunities but also some challenges as surrounding each decision are family values and a purpose which helps the business move forward.
The transition of any business can generate a mix of emotions. Letting go is not an effortless exercise and taking over the reins can also have its challenges. However, the Family Business Team at KPMG in Malta works shoulder-to-shoulder with family businesses to guide them through the process. With the same passion that drives family businesses, our team is inspired to help drive the success of these family businesses into the future.
Your success is our legacy.
Your success is our legacy.
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Partner, Head of Tax
KPMG in Malta
Partner, Head of Advisory
KPMG in Malta