The dynamics of multi-generational family businesses

Family businesses, often spanning generations, possess a unique dynamic that necessitates special attention and care. Typically initiated by one generation and passed down through time, they create a legacy that evolves with each succeeding generation. Each generation brings its own set of features and realities, often differing from those of their predecessors and successors.

While teamwork, mutual support, and respect are critical for all companies, family enterprises face distinctive challenges in maintaining these principles within familial contexts. Unlike other entities brought together by shared interests, families are inherently bound together by nature, each member contributing their unique experiences, education, skills, personalities, likes and dislikes.

In a family setting, authority and respect operate on different dynamics compared to a business environment, where hierarchies and professional norms govern interactions. Participating in a family business extends beyond operational involvement; it entails being part of a larger familial ecosystem encompassing home, history, space, and business. Individual goals and aspirations intertwine with familial expectations and legacies, often leading to choices that diverge from the family’s path as children mature and develop their dreams.

While individuals may choose not to join family enterprises, they inherit assets and reputations that shape their roles within both the family and the business. Understanding the implications of these choices within the family context is crucial for maintaining harmony and prosperity, apart from resilience to deal with crises which invariably hit all businesses, ultimately aligning actions with shared values to foster cohesion and sustain the familial legacy beyond monetary gains.

To navigate the complexities of a family business successfully, establishing and implementing a clear family plan and corporate structure is essential. This plan should delineate a limited number of reserved matters for all family members, define leadership roles for those with appropriate skills, give enough space for them to operate effectively, and promote transparency on financial matters while allowing strategic decision-making by qualified individuals.

Education should be provided to all family members to equip them with the knowledge and skills needed for their chosen roles should they be interested in committing themselves to the family business.

The same, of course, applies if they should choose to remain out of the business as the education could focus on assessing business performance, corporate governance and compliance which is relevant to any shareholder in a business. In either case, the important skill of restricting oneself to the proper role and parameters – avoiding egoism –  is critical.

Setting clear expectations and consequences for negative behaviours within the family business framework helps maintain harmony and discourage misconduct. Utilizing third-party perspectives for sensitive decisions like employment or remuneration ensures objectivity, provided there is prior agreement within the family regarding the family plan and educational initiatives. Objective standards in the structure, remuneration, and decision-making processes uphold fairness and equity for all family members.

Ultimately, aligning individual aspirations with the collective vision of the family business enhances cohesion and prosperity whether inside or outside the business itself.

Top tips for ensuring the success of a family business include pursuing and supporting the collective dream which must be clear and simple, leveraging diverse ideas and perspectives, and implementing effective business management practices such as role identification, succession planning, and goal setting.

By embracing these strategies, family businesses can thrive and evolve across generations while nurturing a culture of innovation and collaboration.

On November 7, Ganado Advocates and Zampa Debattista will be hosting their annual Family Business Forum at Corinthia Attard.

This article was first published on the ‘Times of Malta’ on 21/07/2024.

Authors: Max Ganado, Christine Borg