Family businesses : a case for special treatment at law?

Abstract

Family businesses are the predominant form of enterprise around the world and play a vital role in modern economies. So widespread are they in the economic and social landscape, that they are commonly overlooked and taken for granted, overshadowed in the media by the domination of global multinational corporations and brands. Yet family firms make up, and are by no means limited to, the major component of a critical segment of economic operators classified as micro, small & medium businesses (SMBs). Their importance to the economy of any developed country is undisputed. Against a backdrop of global economic turmoil in recent years, interest in the Family Business model has returned. As the International Family Enterprise Research Academy (IFERA) reported “it is easy to see why more and more researchers and academics, service providers, consultants, and politicians are starting to look more closely at the phenomenon of family business”.4 Governments, no less, are taking a hard look at the unique attributes that the combination of family with business bring to the economy, and a strong argument is being made that this benign and socially oriented form of business organisation can provide (has indeed provided, some researchers would claim) a counter to the unbridled capitalism that has contributed to the global economic disruption of recent years. Is there merit in the claim, therefore, that family businesses are “special”? And if so, does this combination of business and family attributes imply that family firms are deserving of special treatment at law by national authorities? Evidently so, as the European Commission, in its Expert Group’s final report “Overview of Family-Business Relevant Issues: Research, Networks, Policy Measures & Existing Studies” in November 2009 recommended that “National Governments should consider adopting measures to create a more favourable environment for family businesses, for example in areas of taxation, company law, and the educational system”. In line with this recommendation, in July 2013 the Malta Government launched a consultation exercise aimed at obtaining feedback with a view to enacting a Family Business Act, which would in fact be a first in the EU. The declared motivation behind this proposed new legislation is “to facilitate and incentivise transfers of businesses between family members”, with the subsequent consultation paper also adding proposals to incentivise education, training and corporate governance in family firms. It appears therefore that the aim of the proposed legislation is to adopt a proactive approach toward the enhancement of the standards of competence and governance in local business families, and not simply act as remedial legislation addressing perceived areas of specific commercial difficulty in this particular sector. Given that over 95% of businesses in Malta are classified as micro enterprises and, in the main, family owned businesses,7 it would appear that the justification for enacting legislation that will positively address such a dominant sector of the Maltese economy is manifest and not controversial. However a deeper look into the subject does reveal important implications and difficulties connected with the enactment of such a bill, and there exist arguments both in favour and against affording special treatment at law to this sector of the economy. After all, it may not be coincidental that no European state has as yet felt the need to take the initiative to enact a Family Business Act. This research attempts to look at the implications connected with the enactment of a Family Business Act. In the literature review section in Chapter 1, the prevailing theory and currently accepted conceptual frameworks underlying family businesses are summarised, and contemporary views and arguments found in current published research covering the definition and unique nature of family firms, their special attributes, particular strengths and weaknesses, and their particular problems are reviewed. This chapter also reviews the latest EU literature on the state of play of family businesses, and draws on recent research that looks at the characteristics, attributes and good governance practices that foster resilience in successful, enduring family businesses. Chapter 2 reviews the prevalence of family businesses in Malta, their present situation and current state of health resulting from the most recent surveys and research,8 and compares these results to the state of affairs in the EU member states generally. Chapter 3, drawing on published theory and research literature and the local data referred to in the previous two chapters, considers the wider implications of introducing legislation to address family businesses. Here, in order to broaden the discussion and obtain viewpoints from a number of different angles, face to face interviews were carried out with leading local personalities in the fields of finance, business, corporate and family law, family corporate and succession advisory, economics, sociology and philosophy. These views on the wider implications, perceived difficulties and connected arguments, leads to the original research carried out. In Chapter 4, drawing on the direction from the previous chapter, original research in the form of a local survey has been carried out on a targeted sample of local family businesses of substantial size, market presence and influence, designed to gain an insight into those real life limiting factors which are in fact predominantly causing constraints and difficulties to the viability, growth and development of family businesses. Finally, Chapter 5 attempts, in the light of the original research carried out, to draw conclusions and highlight findings relevant to the implications of enacting the proposed legislation, and to propose possible recommendations which may be of relevance on possible ways forward in this important area of the economy.