Governance First

The topic of ESG (Environmental, Social and Governance) is fast picking up. Many family businesses and SMEs in Malta are oblivious to the changes this will bring with it at all levels – just to mention one, investors and finance providers, including banks, will likely start including ESG based criteria to determine whether to provide financing to a business or not. However, as a first step I strongly advise that all family businesses and SMEs should first focus on setting up robust governance structures and a healthy governance culture to then have a strong foundation to build upon it strategies and actions on the environmental and social front.

So below, please find some best practices for setting up robust & sustainable governance for family businesses & SMEs:

  1. Discussing and having a clear vision on the sensitive topics of ownership and management of the family business – what the business means to the family and has meant historically, as well as the family’s vision for its future. The family’s shared vision and mission should be articulated, and then reviewed and re-aligned over time.
  2. Examining how decisions have been made, including how power and resources are allotted, and discussing what changes will be required in the future to support clear and effective decision making in the family and the business. Family businesses need to move away from the single-person-calling-all-the shots model if it is to have a future let alone a sustainable one.
  3. Establishing forums and structures to achieve family, business ownership and management objectives. These forums include board of directors meeting with some external non-executive directors sitting on the board, family assemblies or family councils and management executive meetings. They take time, sometimes years, to put into place, but they need to be there.
  4. Have clear processes and to how information will be communicated, and who may be privy to various types of information. A family business need to be a data driven organisation and it cannot be so if key persons taking important decisions do not have access to key data. This also brings up the sore point that many family business fail miserably when it comes to keeping up with reporting timely on financial performance and key KPIs.
  5. Educating the family. Education enables individuals in each of the three spheres of the family enterprise – owners, managers and family members – to understand the world from others’ perspectives and to become savvy and cooperative stakeholders. Education also builds skills that support a shared family identity and culture. Education also makes sure that any family members getting involved in the family business has enough skills to help the family business, rather than hinder it.
  6. Creating policies and agreements that maintain the family’s open communication, interpersonal trust and collaboration — before disruptive collisions occur. Employment policies should be developed before the next generation is ready to enter the business. Profit distribution policies should balance the needs of the family and the business in the right proportions.
  7. Governance is something that is alive. It deals with constant change as family businesses and people involved in them are changing and dealing with change all the time. Hence the importance of revisiting all of the above from time to time, in order to keep up with changes in the family and the business.

The topic of Governance and its various ramifications will be discussed during the scheduled free online live event to be held on Tuesday 8th March at 6pm. This event will be dealing with various issues that effect family businesses. To register your interest in attending this online live event please click on the below link:-

To be sure that this event covers the most important topics and issues that Family Business face, I kindly ask to to fill in the below very short survey (just one question!), by clicking on the below link:-

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