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5.12.19 12 28.9.2023 OPINION Family businesses should strive to create a proper governance structure which goes beyond the 'family head' role which in any event will not succeed if there is no proper succession planning Simon Schembri & Philip Mifsud Simon Schembri is a Partner and Philip Mifsud is a Senior Associate within the Corporate Department of Ganado Advocates. Family business in Malta - the way forward (Part 2) T he first part of this ar- ticle delved into suc- cession issues in family businesses and the importance of early succession planning. This article will be consider- ing into the value of having governance structures on place and how such structures are critical to ensure the continuity of such businesses. According to a survey con- ducted by the Malta Chamber of Commerce, Enterprise and Industry between November and December 2022, it was es- timated that family businesses constitute approximately 75% of businesses in Malta. This same survey also showed that around 65% do not have a written strategic plan. The numbers indicate that while family businesses are clearly one of the pillars of Malta's economy, governance within these businesses is clearly lacking. When one considers the un- derlying dynamics that exists when family and business mix, it clearly emerges that there is a need to have prop- er governance structures in place. Family businesses should strive to create a proper gov- ernance structure which goes beyond the 'family head' role which in any event will not succeed if there is no proper succession planning. However, apart from a good governance structure, family businesses need to bifurcate family matters from busi- ness affairs and all businesses should have distinct policies and procedures to achieve this aim. Failure to do so creates risks in terms of conflicts of inter- ests and will result in poorly managed relationships and a process which is not partial. In addition to having these policies and procedures, the process in which decisions are needs to be transparent, fair, and sufficiently thought out to manage the emotional fac- tors and familial relationships which are naturally going to be present when such deci- sions are being made. This may involve the crea- tion of a board of directors with independent members who can provide an objective perspective. In some cases, it would also be advisable that such non independent director acts as chairperson to manage bal- anced boards and ensure that deadlock situations are re- solved. In addition to ensuring that there is a decision-making process which is clear, rec- ognising that conflicts are inevitable and implementing effective conflict resolution mechanisms is key. This will allow disputes to be addressed in a constructive and fair manner and achiev- ing this can be either through the establishment of family councils, or by appointing independent arbiters/advi- sors (trusted by both parties) to help navigate and resolve conflicts without harming the business's operations, family relationships and the busi- ness's reputation. Family businesses also need to recognise and embrace the strong ties they have to the local community and indus- try. This is even more so where regulation is increasing, con- sumers are becoming more discerning and environmen- tally conscious, family busi- nesses need to recognise that good governance also includes setting ethical stand- ards and actively engaging in ESG responsibility initiatives. Demonstrating a commit- ment to ethical business practices and social respon- sibility not only benefits the community but also enhances the company's reputation and long-term success.

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