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The challenge of defining 'family business'
and the needs of policy makers
Family enterprises are not
officially defined, which impedes the gathering of statistical information on
family businesses. Decision-makers need statistical information on family
businesses to support their decisions and to assess the effects from these
decisions. It is difficult to obtain statistics on family enterprises and their
activities since there is no definition of family enterprise.
The first article of the terms of reference for this inquiry directs the
committee to consider the definition of 'family business'. The committee
deliberated on this matter in some detail: it is the crucial consideration of
this inquiry. Some witnesses and submitters proposed a definition of their own;
others gave broad support for one or several of these definitions; while others
highlighted the difficulties in composing a definition and questioned the
purpose of, and therefore the need for, a definition.
This chapter considers various aspects of a definition of 'family
business' and how work on an official definition might proceed. It is divided
into the following sections:
(a) the 2005 Australian Bureau of Statistics (ABS) survey question which
attempted to define a family business;
(b) stakeholders' views on whether a definition is needed, the arguments for
and against the development of an official definition, and whether family
businesses are mainly small and medium sized enterprises;
(c) proposed definitions of 'family business';
(d) the setting of thresholds in a definition including;
- whether sole traders should be classified as a family business;
- whether there should be the possibility or intention to pass on
the business; and
- whether a definition should include both small and large family
(e) the public policy reasons for a definition of family business; and
(f) the committee's recommendations for how a definition of family business
should be developed.
The 2004–05 Business Characteristics Survey
The first and most fundamental observation is that there is no generally
accepted definition of a 'family business' either in Australia or
internationally. In Australia, the ABS does not collect official data on family
In its submission to this inquiry, however, the ABS did note that as
part of its 2004–05 Business Characteristics Survey (BCS), it asked the
As of 30 June 2005, was this business a family business?
For the purpose of this survey a family business is defined
as one where family members are part of the business ownership and are involved
in the strategic direction of the business.
The ABS found in a post-enumeration investigation that there were
'quality issues' with the data collected. It speculated that the reasons for
this could have included:
- the narrow definition specifying that family members must be
owners and involved in the strategic direction;
- the definition did not define family members, and in particular
whether in-laws and those in de facto relationships are included; and
- that the answer may not be known by the person responsible for
completing the survey.
The ABS noted that this question (among others) was discontinued and
replaced with 'questions more focused on business characteristics which
demonstrated a stronger relationship to productivity and performance'.
The data were used to populate the Business Longitudinal Database, initially
released in October 2009.
The ABS told the committee that it had recently met with representatives
from Family Business Australia (FBA) and the University of Adelaide Business
School to discuss the possibility of including new family business-related
questions in the BCS. It noted that at this meeting, the FBA acknowledged that
the question used in the 2004–05 BCS did not collect 'fit-for-purpose'
information. The FBA proposed a number of questions which they believed could
accurately identify family businesses. However, the ABS commented that these
...would need to be reworded and fully tested before they would
be considered fit for inclusion on an ABS survey vehicle. Part of this work
would require defining a ‘family business’ and ensuring that the definition can
be understood and answered by the person completing the survey.
At the end of that process, they were accepting that the
definitions used did have the ambiguity which caused problems and that would
need to be sorted. They also accepted that in ABS we were in the business of
having to balance a wide range of information requirements and that our current
funding was not sufficient to do that.
Treasury observed that while there is benefit in having data, there is
also a cost to collecting it. In terms of the utility of a future ABS survey
question on family business, Treasury agreed with the ABS that if a better
question (than in the 2004–05 survey) could be designed to replace an existing
question, there could be value in asking this question.
Stakeholders' views on the need for a definition
The fundamental question in drafting a definition of 'family business'
is to ask why a definition is needed in the first place. Interestingly,
submitters and witnesses gave a range of views on this matter.
Identifying the public policy
In terms of the need for a definition of family business, government
departments emphasised the importance of identifying the public policy issues
that need to be addressed. A definition of family business, they argued, might
be unnecessary if the policy matter can be addressed through existing
frameworks and definitions. The Department of Industry, Innovation, Science,
Research and Tertiary Education (DIISRTE) told the committee:
In essence, the role of government is to look at what the
problem is that we are trying to address and to see how best to do it. In some
instances, the definition may be a secondary issue to that.
The committee asked DIISTRE whether in policy-making terms there was an
advantage in identifying family businesses as distinct from small, medium and large
businesses. It replied:
There is nothing particularly evident other than the idea of
the family structure. I guess the issue is what policy issues would need to be
addressed by having a particular definition like that.
...many of the issues facing small business generally—for
example, there are issues relating to taxation, regulatory burden, best
practice regulation, access to finance and those sorts of things—would relate
equally to small family businesses as well, and so the question we would ask
ourselves is: what additional factors are there at play that would require
particular either data collection or definitional structures around a family
...issues around succession are probably the main ones. Others
probably relate to the more general issues facing small business.
The committee asked the Department of Regional Development, Local
Government, Sport and the Arts (DRALGAS) the use to which data on family
businesses in regional Australia could be put. It responded:
With that type of data we would do similar things to what we
do with other industry or employment data. We would get a richer picture of
what is happening in particular regions, which can support policy development
across all types of areas. That would be another element of that.
The ABS also emphasised that if a definition of family business is to be
developed, it must reflect the public policy objective. Mr Bill Allen,
Assistant Statistician at the ABS, told the committee:
...we collect data based on what the information is meant to
inform, so as to what the decisions and what the policies are. So it really
comes down to what the policies driving those questions are. If a policy is
relevant to that concept then that would be appropriate but if not it would not
Ms Jacky Hodges of the ABS added:
One of the considerations we would test is around people's
understanding when they were filling in the survey form to make sure that the
question we were asking was actually getting the information that was needed to
support that policy. So there would be a lot of field testing to actually test
questions before we would commit to what would or would not work in a survey.
Mr Chris Lowe, a doctoral candidate examining the links between
governance and performance in family businesses, also suggested that a
definition must reflect the government's public policy needs.
He told the committee that in developing a definition, the government could
approach family business industry representatives and say: 'This is what we're
trying to achieve and this is why we're trying to achieve it; can you help us
get this data submitted'.
A definition as a heuristic tool
Some witnesses to this inquiry argued that a definition of family
business is needed as a heuristic tool; that is, gathering data on the sector
that could be analysed in a meaningful way would broaden the sector's
understanding of itself. As Mr David Smorgon told the committee:
Frankly, I don't care what the definition is; let's just
understand and agree on one definition and let that then be the base on which
all the other data can stand. Only when you have that definition can the
relevant numbers be obtained. For example, how many family businesses are
there? How many people do they actually employ? What is their contribution to
our society? What is the wealth of the family business? How long do they
survive? Most importantly, what are the key issues that they face when compared
with SMEs or other businesses in our community?
In the same vein, Mr David Hill of Deloitte Private told the committee
that a definition of 'family business' should reflect the data that family
businesses themselves want to know. In terms of the data that is needed, Mr
Hill explained that the list is long:
[F]undamentally, the number of family businesses. It will
drive the definition of what a family business is. They are very diverse and,
as we have said today, one of the most naive things to think would be that
family businesses equals SMEs. That would be missing a vast component of the
Australian economy. Information on the definition, the number, the employees,
issues such as growth—are they experiencing growth?—and the contribution to the
broader GDP of the country is very important.
Professor Mary Barrett of the University of Wollongong argued that a
better understanding of family businesses could assist the broader business
community in Australia. She drew the committee's attention to an article
published in the Harvard Business Review in November 2012 which compared
the characteristics and the performance of family and non-family businesses.
The article's finding was that while family businesses performed below their
peers during upturns, they led the pack in times of crisis.
Professor Barrett argued that this type of research into the dynamics of
family business is important for the insights and the lessons it can provide.
As she explained to the committee:
I think there is a point in saying it is worthwhile to know
what it is about the dynamic of family businesses that sets them apart from any
size-based definition or any definition based on the size of loan they get in
certain situations, because it gets at a mindset that has quite a lot to do
with the way a certain dynamic can work in a business, for good or for bad. The
point is that when you know what it is, what you have to do to make it good and
how you can head off the bad you are a whole lot better off than if you had not
made that segmentation.
Professor Barrett took issue with the view that collecting data on the family
business sector is not worthwhile as it is unlikely to be the basis of public
policy and there are other factors that are more likely to predict the success
of businesses generally. She argued that the operation, success and failure of
family businesses is substantively different because of these family business
characteristics. Accordingly, Professor Barrett emphasised that proper data
collection and analysis is 'absolutely vital'.
In terms of the ABS's 2004–2005 BCS family business question, Professor
Barrett suggested that a few amendments could be made. She argued that instead
of asking 'do you regard this business as a family business?' and then 'why?'
(for those that ticked 'yes'):
I would just have them separately: 'Do you regard this
business as a family business?' Then I would have those questions, but not with
a 'why' connection to the first one. They would just say: 'Do you do this? Do
you do that?' Then we would catch the people who self-identify, and then we
would still have all the other data, with which we can slice and dice as other
people have said. I would be delighted, and I think just about every academic
in the country would love the opportunity, to do a bit of head scratching with
the ABS over that one.
For my own part, I would basically be happy to see the two
main conceptual issues in the literature captured in a definition of family
business which had something to do with control and, as I say, one to two
people, members of the same family. Yes, there is a problem about family, but
what I liked about the original definition was that the family themselves could
define how they thought of their family.
Doubt on the need for a definition
Some stakeholders were sceptical that a definition of 'family business'
and the subsequent collection of data are necessary. Mr Peter Strong, Executive
Director of the Council of Small Business of Australia (COSBOA), told the
committee that in considering a submission to this inquiry, the feedback from
members was that the issue of a definition of family business is not important.
As I was looking at writing this report...I thought, 'It's
obviously important enough for people to be looking at it.' So I rang a few
people, and the same thing happened across the council. It does not come up for
us, and it has never really come up in the whole time that I have been around
COSBOA, which is since 1996. It comes up from technicians who need to define
small business for technical purposes. Family Business Australia have their
head around this.
The impression I get is that it is for the wealthier people.
So it is the family businesses that have money, not mum and dad down the road
who are running a little shop. They are very different, even though I would
define them as a business. You can hear that I get quite confused about where I
am going with this whole family business thing. When I talk small business, I
am very comfortable. I do not see the difference quite often.
He emphasised COSBOA's view that the first priority should be to
establish a clear definition of a small business:
In all the time that I have been around I have never heard of
anybody in COSBOA asking for a family business definition. It is not a big
issue for us. A definition of small business is a much bigger issue. If we
bring the family into that I am comfortable with it, but let us get a
definition of what a small business is first. Otherwise, my experience is that
we will end up concentrating on the people who have the money to be
concentrated on. That is always the way.
Indeed, COSBOA argued that efforts to refine the definition of a small
business will assist in identifying and addressing family business issues. Mr
Strong told the committee:
...at the beginning of this year, we ran a roundtable with the
tax institute on the definition of small business, so getting back to the
definition of what a small business is—and that has its own problems and I am
sure you are aware there is any number of definitions depending on how you look
at it. By the way, I do not think we will ever get one definition. I think that
is a bridge too far. But we can cut it all down to not many definitions. That
is an area we can work on. I think it will then impact upon the family business
issues if we can say, 'Okay, we can define a business this way and the owners
of the business can be structured shareholders or it can also be about the
people who have put a lot of time and effort into it and are part of a family
structure.' That will take solicitors and lawyers some time to work out but I
think that is the way we have got to go.
Other witnesses, while not rejecting the need for a definition, noted
that they had not required data on family businesses. For example, the
Queensland Chamber of Commerce and Industry told the committee:
The chamber predominantly deals with issues that impact on
all business, so we have never had the need to differentiate between family-run
business and non-family-run business. We often find that the issues that are
important to large businesses are equally important to small businesses. The
issues important to those businesses in South East Queensland are equally
important to those businesses operating in regional Queensland. The issues
relevant to some industry sectors are relevant to other industry sectors.
Are family businesses mainly small and medium-sized enterprises?
A point of some discussion during this inquiry was the extent to which
family businesses are small and medium-sized businesses. Witnesses such as
COSBOA argued that policy-makers' focus on small business will also address the
concerns of family businesses. Other witnesses strongly rejected this argument.
They claimed that not only do family businesses come in all sizes, but that
their issues are distinctive to those of other small and medium sized
Table 2.1 (below) shows that 96 per cent of all businesses in Australia
are small businesses, employing less than 20 employees. Among family
businesses, 64 per cent employ less than 20 employees;
32 per cent are medium-sized firms employing between 20 and 199
employees; and four per cent are large businesses, employing 200 or more
Table 2.1: Businesses by size (employees)
(more than 200 employees)
Source: The figure for all businesses is taken from the Australian
Bureau of Statistics, Counts of Australian Businesses, Including Entries and
Exits, June 2007 to June 2011, Cat No. 8165.0, released 31 January 2012,
p. 2. The data for family businesses is taken from the MGI Australian
Family and Private Business Survey 2010, p. 13.
Table 2.2 shows data on businesses by annual turnover. The first two
columns are taken from ABS data. It shows that as of June 2011, roughly a third
of all Australian businesses fell in each of the ranges of less than $50,000
annual turnover, from $50,000 to less than $200,000, and from $200,000 to less
than $2 million. Only six per cent of Australian businesses have an annual
turnover of more than $2 million. Therefore, on the ATO and Treasury's
definition of small business (less than $2 million in annual turnover), 94
per cent of all businesses are classified as small businesses.
Table 2.2 contrasts this data with the findings of the 2009 KPMG and FBA
Survey of Australian Family Businesses. 648 businesses were surveyed, of which
70.6 per cent self-identified as a family business. This survey found that
36 per cent of respondents reported the annual turnover of their business between
$1 million and $5 million, and a further 36 per cent of respondents reported
annual turnover at more $5 million.
Assuming respondents gave correct responses, the sample of businesses
used in the 2009 KPMG survey was unrepresentative of the business community at
large. Their annual turnover is far in excess of what the official data would
indicate was a representative sample. Either the respondents gave inaccurate
responses or the businesses surveyed were disproportionately medium and large
businesses. Chapter 3 comments on the broader issue of the reliability of the consultancies'
Table 2.2: Businesses by size (turnover)
% of all businesses
% of businesses (648)
(71% family businesses)
Less than $50K
Less than $500K
$50K – $200K
$500K to less than
less than $2 million
$1 million to less than
More than $2 million
$5 million to less than
More than $10 million
Source: Australian Bureau of
Statistics, Counts of Australian Businesses, Including Entries and Exits,
June 2007 to June 2011, Cat No. 8165.0, released 31 January 2012,
p. 11; Australian Centre for Family Business, KPMG and Family Business
Australia Survey of Family Businesses 2009, 2009. Note: Numbers have been
DIISTRE confirmed for the committee its view that most family businesses
are small businesses.
Its engagement with family businesses is mainly through its dealings with small
businesses. As it told the committee:
What we tend to do is focus on the idea of small business and
definitions around small business—of which there are more than one across
government as well for a range of policy and legacy reasons as well. Our
interactions with family businesses tend to be, I guess, through that small
DIISTRE argued that from a policy perspective, the issues that some
claim to be particular to the family business sector may best be handled within
a broader policy rubric applying to small and medium-sized enterprises (SMEs). It
Coming from the policy perspective, I just reiterate, it has
been suggested in the past that there are some family businesses whereby the
succession can be an issue. From a policy perspective, we would see that in the
broader issue of management capability. It has been demonstrated over a number
of years that that is a challenge for Australian businesses: management
capability and capacity. That might be one of the issues that could fall under
The Reserve Bank of Australia (RBA) put a similar view:
On family businesses, the thing that is striking there is
that small and medium seem to collect a large proportion of family businesses,
but there are family businesses that are extremely large as well. But you are
probably picking up quite a bit in that small and medium-sized category.
The RBA added further context to the parallel between small and family
businesses by noting the similarities between small business decisions and
those of households. As Mr Aylmer told the committee:
...there is an interesting characteristic of small businesses...that
to a large extent they look more like households, because family businesses'
decisions are actually household decisions. They are not necessarily scaled
down versions of very large businesses. Once you get to a certain size, you
will have people who will manage all of your financials. You start to
specialise when you get very large. In family businesses, particularly the
smaller ones, quite often decisions on whether or not they want to grow are
basically decisions about their households and whether or not, as a family,
they want to expand and get bigger and take on the additional pressures of
being a larger business.
COSBOA noted that for its purposes, 'family business' and 'small
business' are essentially interchangeable. As Mr Peter Strong, the
Executive Director of COSBOA, told the committee:
...in the main we are all family businesses, so the
definitional stuff becomes confusing for a lot of our members because they say,
'Small business or family business; it's really much the same sort of thing,
Mr Graham Henderson, a board member of Family Business Australia and a
part-owner of a third-generation family business, told the committee that the
majority of small businesses (those with a turnover of less than $2 million)
are family businesses. However, he argued that the $2 million threshold used
by the ATO to identify small businesses was not necessarily a useful point of
reference to identify family businesses:
The segment of business that is family business, whether it
be the Stillwell Motor Group of $400-plus million or our business of about $17
million or the small hardware store of $2 million, is a segment that is very
different to what we perceive as big business...In terms of family business and
small business, or if you want to call them one and the same thing because it
is really the sector we are talking about, there are so many things that are
very different in our sector of the business than in larger business and the
considerations we talked about regarding capital gains tax, shareholder
rulings, education et cetera are all relevant to family business. So my
response to you would be to say that, rather than have a minister for small
business, I would very much favour a ministry for family business, which would
then cover off a lot of the things we are talking about.
Some witnesses strongly disagreed with the characterisation of family
business as simply small business. Mr Bill Noye of KPMG, for example, told the
From a definitional point of view, I need to stress that it
is very important that 'family business' is not just seen as 'small business'.
I think to do so is a poor misconception and provides a misguided view of the
sector and its needs. It is wrong. Family businesses are unique. They are not
necessarily small. They have unique issues that impact on them. In our view, it
is that uniqueness that this committee should focus on. We are inclined to
support the European view. We do support the FBA view of the definition of family
business, but we would like to extend that somewhat further to be consistent
with the European Commission definition.
Mr David Smorgon, whose family's business interests exceed $2.5 billion
in value, also rejected the idea that family businesses are simply small and
medium-sized businesses. As he put it:
We also know that family businesses are not necessarily SMEs.
I know we are always branded as SMEs, but there are some very large family
businesses that would abhor to think that they are classified as a small
Possible definitions of a family business
The following section looks at three possible definitions: one proposed
by Family Business Australia (FBA) in its submission to this inquiry; another
used by MGI Australasia in a 2010 survey; and a third used by the European
Commission in 2009. These definitions were the basis of considerable comment
during this inquiry. A key point of stakeholder focus—common to all three
definitions—was the requirement that a family member or members have control (and
ownership) of the business.
Family Business Australia's
In its submission to this inquiry, the FBA proposed the following
definition of family business:
a family business is comprised of two or more members of the
same family involved in the business with one or more related members having a controlling
The ABS foresaw that the FBA definition may encounter some of the
problems that beset the 2004–05 BCS question. As it told the committee:
Our initial response is that the definition is expected to
come up with some of the same conceptual issues that we expressed in 2004-05,
particularly around issues such as the definition and interpretation of a
family—so does it include immediate family, extended family and de facto
relationships and the like—the nature of the involvement—is it a legal
involvement in the business or an operational involvement?—what we mean by
controlling interest—is it financial, strategic direction or ownership?—and the
availability of the information to the provider of the data. An example would
be that in many of our surveys, particularly those of a financial nature, it
might be referred to the tax agent who may not be on top of the specific
However, other witnesses appeared to support the FBA's approach and in
particular, the focus on family members having a controlling interest.
Mr Andy Kennard of Kennards Hire, for example, told the committee that a
definition of family business:
...has to include the aspect of ownership and control. There
are many public companies that are controlled by families, so it does not have
to be 100 per cent ownership, but ownership and control are a key factor, and I
think they are the two things. I do not think the number of generations matters.
The size certainly does not matter; it is across all sectors.
However, he added:
I do not know why you have to have two or more involved. You
can have multiple people owning it but only one person working in it...I think
the numbers do not matter. I still think it comes back to who owns it. Many
family businesses do not actually have family working in them.
Professor Barrett also seemed to support the FBA's definition. She
argued that a definition essentially needs to refer to the involvement of
family members and the control of these members over the business. Professor
Barrett noted that she was comfortable with a definition that left it open to
respondents to determine whether they were family members. The threshold of
'control' would be satisfied where two people are 'actively involved in the
management and/or working in the firm'.
MGI Australasia's definition
Another definition of family business was used in the MGI Australasia
2010 Australian Family and Private Business Survey, conducted in
conjunction with Royal Melbourne Institute of Technology (RMIT).
This definition was as follows:
A business is a family business when it involves two or more
related individuals who work together (or are otherwise associated) in a
commercial enterprise that is controlled by one or more of them.
The committee questioned MGI about various components of this
definition. In terms of what constitutes 'related individuals', Mr Desmond
Caulfield, a Director of MGI Australasia, responded:
I would define 'related' in the same manner as it is
currently defined in the Income Tax Assessment Act. Related parties are
clearly defined in various sections of the Income Tax Assessment Act. I
believe they are also defined in the corporations law and the company law
similarly. It covers situations of spouses, children, cousins, associates of
those people who would be spouses of cousins et cetera, so it is a fairly wide
The Corporations Act 2001 and the Income Tax Assessment Act
1997 (ITAA) define 'relative' and 'related' broadly. Section 9 of the Corporations
Act defines 'relative' as 'the spouse, parent or remoter lineal ancestor, child
or remoter issue, or brother or sister of the person'. Section 995-1 of the ITAA
defines 'related' as:
person's spouse; or
parent, grandparent, brother, sister, uncle, aunt, nephew, niece, lineal
descendent or *adopted child of that person, or of that person's spouse; or
spouse of a person referred to in paragraph (b).
Mr Caulfield told the committee that a 'commercial enterprise' is not
necessarily a full-time business, but it must be a business that is established
to make a profit. In terms of the reference in the definition to 'controlled',
Mr Caulfield explained:
Control is generally ownership, and ownership means that if you
own more than half of something you are considered to control it—you may not,
but you are considered to control it if you own more than half of it. There are
various definitions in the corporations law about what 'control' means. For
significantly large public companies sometimes as little as 15 per cent can be
considered to be some form of control, but what we are talking about here in
our submission is that for it to be control more than 50 per cent must be owned
by a family group.
Other suggested definitions focused
on ownership and control
In the academic literature over the past thirty-five years, several proposed
definitions of a family business have been based on the conditions of family
control and/or ownership. Bernard (1975) referred to 'an enterprise which, in
practice, is controlled by the members of a single family';
Barnes and Hershon (1976) to 'controlling ownership';
Davis (1983) referred to 'significant influence by one or more family
units...through ownership and sometimes the participation of family members in
and Holland and Oliver (1992) propose 'any business in which decisions
regarding its ownership or management are influenced by a relationship to a
family or families'.
Mr Francesco Barbera, a researcher at the Australian Centre for Family
Business at Bond University, referred in his submission to a 'structural based
classification' of family businesses: where family firms are defined as those
which are owned, controlled and/or managed by a family unit. He noted that this
definition allows for a wide range of family firms given that the degree of
family ownership, control and management can differ among individual firms.
Several consultancy firms also emphasised that a definition of family
business must be based on family members being both the owners and managers of
a business. For example, Mr Robert Powell of Grant Thornton Australia
proposed a definition of family business where there are at least two family
members involved in management and the family controls the business through voting
Similarly, KPMG recommended a formal definition of family business that recognises
'the unique characteristic of family business owners as both the owners of
equity/capital and managers of the business'.
Mr Paul Brassil, a partner at PricewaterhouseCoopers, proposed a definition where
the family has 'a significant percentage of ownership of the business' and
where 'the family is predominantly in control of the direction of the business'.
Deloitte Private also argued that a definition of family business should
be based on recognition of family ownership and control of the business. In its
submission, Deloitte contrasted 'private business' from public corporations. It
noted that in the case of public corporations, ownership is offered to the
public and decision-making and management is outsourced to employees overseen
by a board of directors appointed by shareholders. In private companies and
family businesses, by contrast, every decision 'directly affects the welfare
and wealth of the family or families who own the business and the ability of
the business to support the family members now and in future generations'.
Deloitte noted the broad scope of this definition. Mr David Hill, a
partner at the firm, stated that a definition based on family involvement in
both the ownership and management of a business:
...could extend right through to listed companies where the
family either controls the business through their shareholding or controls the
composition of the board. That could go from the corner deli through to very
large listed companies which remain under the control of the broader family
either in terms of the composition of the board or via their voting rights or
their shareholding. I think any attempt to come up with a common agreed
definition needs to recognise that that is the reality of the breadth of family
business in Australia.
KPMG made essentially the same point. While the lack of separation of
ownership and management is a defining characteristic of a family business
(compared to a publicly owned business), a family business may become publicly
owned with the family maintaining a controlling interest. KPMG argued that in these
cases, the family may still see its involvement as being part of the family business
despite outside shareholder influence. It added:
It may be necessary to contemplate the continuation of the 'family
business' as both a closely held 'private' entity and also a more widely 'held'
public entity providing the organisation can demonstrate that there exists a
significant level of family influence.
The European Commission's
definition of family businesses in company form
The committee is also aware of a definition of family business first
proposed in 2006 by the Family Entrepreneurship Working Group, which was established
by the Finnish Ministry of Trade and Industry in 2004.
In November 2009, the European Commission's (EC) Expert Group on Family
Business endorsed the Finnish Working Group's definition. The definition is as
A firm, of any size, is a family business if:
majority of decision-making rights is in the possession of the natural
person(s) who established the firm, or in the possession of the natural
person(s) who has/have acquired the share capital of the firm, or in the
possession of their spouses, parents, child or children's direct heirs.
majority of decision-making rights are indirect or direct.
least one representative of the family or kin is formally involved in the
governance of the firm.
companies meet the definition of family enterprise if the person who established
or acquired the firm (share capital) or their families or descendants possess
25 percent of the decision-making rights mandated by their share capital.
This definition includes family firms which have not yet gone
through the first generational transfer. It also covers sole proprietors and
the self-employed (providing there is a legal entity which can be transferred).
This definition differs from the FBA's and MGI Australasia's in several
respects. First and significantly, it explicitly notes that a family business
can be a firm 'of any size'. Second, instead of a broad reference to a
'controlling interest', it refers to 'the majority of decision-making rights'.
Third, there is an explicit reference to one member being involved in the
'governance' of the firm. Fourth, in keeping with the definition of a 'firm of
any size', there is reference to a family business being a listed company
provided the founder or their descendants have at least a quarter of
decision-making rights. And finally, unlike the other definitions, there is the
reference to sole proprietors and the self-employed being family businesses,
and to firms 'that have not yet gone through the first generational transfer'.
It would seem that the detail in the EC's definition is its obvious
strength. It clarifies some of the issues that are essentially left open to
interpretation in the FBA's and MGI Australasia's definitions. The EC's
definition explicitly acknowledges the diversity of family businesses' size and
structure. As the remainder of this chapter emphasises, this issue of the
sector's diversity is important to many stakeholders.
In this context, another observation is that many of the ABS' concerns
with the lack of detail in the FBA's definition seem to be addressed by the
- The ABS queried whether the FBA's reference to 'involved in the
business' was to legal involvement or operational involvement. The EC's
definition makes explicit reference to 'governance of the firm'.
- The ABS was concerned with whether 'family members' refers to immediate
family or extended family. The EC's definition makes clear reference to 'spouses,
parents, child or children's direct heirs'.
- The ABS questioned the meaning of 'controlling interest' in the FBA's
definition and whether this referred to the financial stake, the strategic
direction or the ownership of the firm. The EC's definition clearly states that
the family must have a majority of decision-making rights or at least a quarter
of these rights if it is a listed company.
While the EC's definition is detailed, it relates only to family
businesses in company form. The committee draws attention to the thresholds set
in the EC's definition. If the EC's definition is to be used as a guide in the
Australian context, these thresholds will need to be carefully considered: should
the decision-making rights thresholds be set at these levels; should the
'majority of decision-making rights' threshold extend more broadly than to 'spouses,
parents, child or children's direct heirs'; and should sole traders be
Are sole traders family businesses?
Another issue relevant to the question of a definition is whether sole
traders should be considered a family business. While the sole trader is the
business owner and trades in their own name, he or she often employ their own
staff which can include family members. Sole traders account for a sizeable
portion of all Australian businesses. ABS data indicates that 33 per cent of
all Australian businesses are companies, 29 per cent are sole proprietors, 22
per cent are trusts and 16 per cent are partnerships.
The Australian Bureau of Agricultural Resource Economics and Sciences (ABARES)
told the committee that roughly one in five family farms are operated as sole
traders, a higher proportion than family farms run by trusts and corporate
Partnerships are the dominant form for family farms in Australia.
There does appear to be a case for including sole traders in a
definition of family business to recognise those businesses with a single owner
but with a family member or members working in the business. Regional
Development Australia (RDA) told the committee:
...if information were collected, depending on the definition
that you use...you could have someone who is effectively a sole trader who has a
family and has all the other characteristics associated with what you would
want to know in a region.
So just getting family owned businesses where you might have
several members of that family involved does not necessarily mean that you
should not also be looking at, for example, sole traders, because they could
also have family, children, social engagement and all those other things.
The ABS similarly raised the inclusion of sole traders in a definition
of family business as a possibility. Mr Allen told the committee:
We are not saying they [sole traders] need to be included.
They just need to be considered and whether it is appropriate for their
inclusion depending on the information needs. We have had instances where a
family can be a family of one. We are not prejudging. We are just making sure
that the policy implications are considered with that group in mind.
Mr Matthew Power, a family business owner based in Canberra, claimed
that the issue of including sole traders as family businesses is a matter of
perception. He told the committee that:
...when we speak to sole operators they forget about the fact
that their wives, children and cousins are involved in what they do. Probably
the only ones I can think of are the one-person consultancies, where they
literally go in, write a report and leave. But even then, you sit at home in
your study, your wife brings you a cup of tea, she's the one answering the
The committee is interested to receive from the ABS an estimate of how
many sole traders would be likely to fall within a definition of family
business based on 'at least one family member' working in and owning the legal
entity. It also seeks advice from the ABS on how this number would be likely to
change if a definition required:
- at least two family members working/involved in the business, with
ownership of the entity by at least one family member (as per the FBA and MGI
Including or excluding sole traders in a definition can significantly
alter the number of family business that are identified. The committee draws
attention to comments made in the 2006 study by the Finnish Ministry of Trade
and Industry, with reference to a 2002 survey of Finnish businesses:
If estimated using a structural and a subjective indicator, a
significantly higher proportion of Finnish enterprises are family enterprises
compared to the estimates using a functional or a generational-transfer
indicator. A closer examination of the material shows that the difference is
mainly caused by sole-proprietor businesses, which comprise approximately 40
per cent of Finnish enterprises (number of personnel in companies in 2003). It
is also difficult regarding the definition if family members are involved in
the sole proprietor’s business activities as wage-earners or as owners.
The possibility or the intention to pass on the business
Another possible element of a definition of family business is the
potential and/or the intention of the family to pass the business on to the
next generation. This is a complex issue. In evidence to the committee, Mr
Barbera reflected on this complexity:
I am lecturing a class here at Bond that is called
'Understanding the family enterprise', and in the first week we deal with this
issue of definition. Technically, according to Poza, the textbook that we are
using, the family firm does not become a family firm until the next generation,
the children of the founders, are somehow involved; then you can call it a
family business. What I am suggesting is that just the intention alone to
involve your children, whether or not they are currently involved, would
constitute your business to be a potential family business. Of course, those
intentions can change at any given moment; in fact, depending on when you ask
them, those intentions may be different. So that relates back to the trickiness
of it, the complexity of it.
There are multiple ways of doing it. As I said, typically,
what we would do is take a structural based approach and look at who is holding
the equity; is it a controlling ownership stake; and, subsequent to that, are
there intentions to either increase or decrease the family relatedness or
inter-relatedness in this particular firm across multiple generations. So, yes,
I agree it is a problem. It has always been a problem in this discipline and it
is one that I do not think is going to be solved any time soon.
A 1987 article in the American Journal of Small Business defined
a family business as one that had either already been passed on to the next
generation, or anticipated to do so:
What is usually meant by family business is either the
occurrence or the anticipation that a younger family member has or will assume
control of the business from the elder.
In a 1988 book, Professor John Ward defined all family firms
specifically as those that will be 'passed on for the family’s next generation
to manage and control'.
The same year, an article published by Ivan Lansberg, Edith Perrow and Sharon Rogolsky
suggested that the key to defining a family business was the potential for
They proposed the following definition:
A family business is a business in which related family
members control the ownership, vision and direction and which is potentially
sustainable across generations of the family.
In his evidence to the committee, Professor Kenneth Moores of Moores
Family Enterprise, emphasised the need for a definition of family business to
be based on the issue of succession. He argued that a definition of family
business must recognise:
...their essence, and that is their intention to maintain this
across generations over the longer term. Until you have crossed that particular
rubicon, I do not think you actually are a family business. If you are a family
in business and have a lot of people working in the business, you have many of
the issues. But when the penny drops and you say, 'We want to keep this,' there
intrude many more of the issues that highlight the difference of this sector of
The FBA and MGI Australasia definitions are silent on this issue of the
capacity or the intent to pass on the business to the next generation. The EC's
definition mentions that it applies to firms that have not gone through the first
generational transfer. On the other hand, a proposed definition by the German
Wittener Institute fur Familienunternehmenas, emphasised:
The transgenerational aspect is essential to a family
business. For this reason, it is strictly speaking only correct to refer to a
company as a family business if the family is planning to hand down the company
to its next generation. Start-ups and owner-managed companies are therefore not
yet family businesses in their own right.
Some submitters to this inquiry also argued that a definition should
refer to the transgenerational nature of family businesses. Mr Lowe, for
example, told the committee:
I think there is a need to reference in some way the
transgenerational nature of the family business...I would think the intention of
having sustainability and tenure is a core objective of both family and
non-family firms, but it is the handing down and passing on of the business to
continue the IP and give the family firm a competitive advantage that needs
referencing in a formal definition.
However, the FBA disagreed that an intention to pass on the business
should be part of a definition. Ms Taylor described this aspect as an
'unnecessary complication'. She told the committee:
I do not believe it should be included. I do think that when
a family business starts and maybe is into its first decade of business, the
intention to continue as a family business might not be there. You might also
find that the founders and owners do not at that stage have children who have
indicated that they are ready, willing and able. But that can change as time
goes on. We have found within our family business community that family
businesses have come to our conferences and been inspired by what has been
achieved by second, third and fourth generation businesses and have turned their
thinking around. They subliminally, maybe, have thought that they might sell
the business once they have made enough money to survive on it and they have
then changed their thinking.
Whether a definition of 'family business' should be framed around the
intention, or the event, of passing the business on to the next generation is
an important but difficult question. Clearly, without a definitional
requirement of intending to pass the business on, there will be many 'families
in business' classed as a 'family business'. On the other hand, if a definition
requires that the business has at least been transferred to the second
generation, there will be comparatively few businesses in Australia classed as a
family business. As the 2006 study by the Finnish Ministry of Trade and
Industry observed: '[T]he stricter a definition of a family enterprise is used,
the older a family enterprise often is'.
Between these extremes, there are other possibilities to consider. If a
family business is to be defined as one that could be passed on to the next
generation, there will be many businesses captured by the definition that may
in fact never reach the hands of a second generation. The same is true if a
definition is based on the intent to pass the business on.
In both these cases, the definition of a family business would rely on
the businesses themselves 'self-identifying'. In terms of official data
collection, this seems unsatisfactory. If a survey simply asked respondents
whether they could, or intended to, pass on the business, and if on this basis they
are classified as a family business, one might expect many respondents to do
so. This would particularly be true if respondents thought there would be some
public policy benefit from self-identifying.
Short of restricting the definition of a family business to second and
later generation businesses, a definition could require that the business have
in place a succession plan. In other words, the intention alone is not enough;
there needs to be a formal plan in place for the business to be classed as a
This requirement is certainly a higher threshold than merely the
possibility or the vague intention of passing the business on. As discussed
later in this chapter, the committee believes that a formal definition of
'family business' in Australia must carefully consider the public policy
rationale for a definition. If the policy rationale is to assist businesses
that have made clear and concrete plans to succeed, the committee believes that
a definition should require evidence of a succession plan.
Should a definition include small and large family businesses?
Another matter considered by the committee in terms of defining a family
business is whether a threshold is needed to distinguish between small family
businesses on the one hand and large family-based corporations on the other.
Some submitters noted that without a threshold—however framed—a definition of
family business would be too broad and untargeted for public policy purposes.
DIISTRE told the committee:
...family businesses can be across all ranges of structures.
They can be small or they can be multinational. So it is difficult to see how a
definition of a family business could apply equally to a corporation like
Westfield, for example, and to a family business located in the suburbs...
Treasury was asked whether in its view, a local corner store and a
multi-billion corporation have common traits where they are both family-owned
entities. It responded:
I could make the comment—and this is purely from a tax
perspective—that the tax issues that a large globally competitive company is
likely to face are significantly different from the tax issues that I imagine a
small partnership in a suburb is likely to face. I guess that is from the
perspective of the business; I imagine they are going to have a very different
set of preferences around their interaction with the tax system and a very
different set of capacities to engage with it.
The committee recognises that the question of whether to set a
definitional threshold based on numbers employed or annual turnover has
polarised opinion during this inquiry. While it may be true that most family
businesses are SMEs, a definition without a size threshold would also find many
large companies that are family businesses. These businesses are often highly
successful and have gone through intergenerational transfer. There is an
argument that it is these large businesses that embody what a family business
is, and there should therefore be no size threshold within the definition. On
the other hand, as the following section of this chapter emphasises, the setting
of a threshold in an official definition of family business should be based on
how policy makers intend to use the data. If their focus is only to be on SMEs,
there may be a case for a definition with a size threshold.
The committee does recognise that policy makers' use for data must
acknowledge stakeholders' concerns and needs. Government agencies need to be
aware of the extent to which family business issues differ between medium and
large sized businesses and small businesses. To some extent, this will require
consultation with these businesses.
Public policy reasons for a definition of family business
There is already a policy framework and statistical basis upon which to
consider the needs of small and medium sized enterprises (SMEs) and large corporations.
The key issue, therefore, is to identify the particular public policy needs of
This issue was considered by the EC Expert Group in its November 2009
report. It noted the following six areas of policy interest:
- there is limited awareness among policymakers of the contribution
that family businesses make to the economy and society. A commonly recognised
definition of family business 'would significantly help overcome this
- family businesses face specific financial challenges related to
succession and the choice of financing method. It noted that national
governments may consider issuing regulations to grant access to finance for
family enterprises, without threatening decision-making powers within the
- family businesses must prepare for succession which is widely
viewed as the most important issue facing family businesses. The EC report
argued that the main issue to enable succession is to raise awareness of the
importance of early preparation and to make training available for the
transfer. It claimed that this type of initiative is best undertaken at a local
level or by private sector organisations;
- family firms require a 'special type of management' which
minimises potential tensions between the family and business aspects. The
report argued that governments need to raise awareness of these governance
issues and the tools that are currently available;
- there is a need to improve the image of family businesses in the
labour market to overcome perceptions that they are nepotistic, paternalistic
and fail to offer career opportunities; and
- national governments need to develop family business-specific
courses as part of existing curricula or as new curricula.
In a 2010 article, Dr Linda Glassop of Deakin University gave an
Australian context to these areas of policy interest.
She argued that establishing the significance of family businesses to the
Australian economy requires an operational definition of family business and
data on the number of businesses by legal status, industry, region, revenue
size and employment size. She noted that only then can research be conducted on
the extent to which owner relationships affect business practices (including
governance, employment, operations, risk-taking and innovation).
The committee recognises that the EC's list is by no means comprehensive.
There will be other areas of policy interest as well as several elements within
the six mentioned above that deserve closer attention from policy makers.
For example, there is a useful discussion that Australian government agencies
could have on the economic benefits of succession. Several witnesses to this
inquiry have argued the need for this discussion.
The committee suspects that Australian policy makers have not given adequate
consideration to the possible benefits of succession to the economy. The view could
be that whether business owners pass on to the next generation or sell to the
highest bidder is a matter of judgment for the business owners. As Treasury
told the committee:
...if they have a succession plan or not, many businesses will
simply hit a point whereby they enter into negotiations for sale. They will
sell the business as an ongoing concern to someone else. The point from a
productivity perspective is that this may result in a possible loss of
corporate knowledge. That is going to be heavily dependent on the transition
between the new buyers and the existing sellers. From an economy-wide
perspective, if you make the assumption that these businesses are viable, then,
arguably, they should be being sold and you should have a smooth transition.
Having said that, and speaking from a personal perspective, I think it would be
good business practice to have transition plans in place.
This type of comment suggests to the committee that government agencies
would benefit from focused discussion on the economic benefits of succession
planning, particularly within sectors such as farming. It may well be that
government agencies form a view that there is no discernible economic benefit
from ensuring that a family business is passed on. It may well be that a
business can survive and perform better in the hands of an unrelated buyer,
rather than a reluctant successor. Nonetheless, the committee believes that
based on the discussions during this inquiry, it is worthwhile for policy
makers to have this debate.
The committee's conclusions on an Australian definition of family business
The committee believes there is merit in scoping an official definition
of family business in Australia. The case for this view is developed throughout
this report, noting as it does the unique characteristics of these businesses
and their contribution to economic activity. As the following chapter outlines,
these characteristics and contributions have not been reliably measured to
date. However, a definition of family business should not be developed merely
to satisfy curiosity—the committee stresses that any effort to develop a formal
definition of family business and devise survey questions must be principally
based on clear policy objectives.
In conducting this inquiry, however, the committee has observed that
consideration of how family businesses fit within the broad policy framework is
generally not as well-advanced as it is for other groups, such as small
businesses. While family businesses have certainly not been ignored, this
inquiry has perhaps been the first occasion that multiple government
departments and agencies have been required to directly turn their attention to
family business issues. This has allowed a preliminary discussion on policy
implications; however, there is a need for this to be continued.
Given the committee's view that a formal definition of family business
needs to be linked to policy objectives, the committee believes that there is a
need for officials to further consider the policy areas that are particularly
relevant to family businesses. Following this, a clear definition of family
business and ABS survey questions that are useful for policy development can
then be framed. Accordingly, the final part of this chapter considers the
process through which an official definition of family business should be
developed. The committee acknowledges the complexity of this task, and argues
the need for a systematic process of consultation and analysis.
An Inter-Departmental Committee
The committee recommends that a formal definition of family business should
be based on a collaborative process involving key government agencies. This
should take the form of an Inter-Departmental Committee (IDC). The agencies on
the IDC should include—but should not be restricted to—the Treasury, DRALGAS,
the Australian Taxation Office, DIISTRE, the Department of Resources, Energy
and Tourism, the Department of Education, Employment and Workplace Relations
and ABARES. The ABS should be an active participant on the IDC throughout.
The committee recommends that an Inter-Departmental Committee (IDC) be
established to identify the policy issues facing family businesses that are not
adequately captured within the existing policy framework and with existing Australian
Bureau of Statistics (ABS) data collection. The IDC should include: the
Department of Industry, Innovation, Science, Research and Tertiary Education;
the Treasury; the Australian Taxation Office; the Australian Bureau of
Agricultural Resource Economics and Sciences; the Department of Resources,
Energy and Tourism, the Department of Regional Australia, Local Government,
Arts and Sport; and the Department of Employment, Education and Workplace
Relations. The ABS should also participate in the IDC.
The first phase—the policy need for
The IDC's principal objective must be to identify the public policy need
for data relating specifically to 'family businesses'. Each agency on the IDC
should address the following questions:
(i) what has been the agency's past need for—or interest in—data relating specifically to businesses that are owned and operated by a family?
(ii) to what extent has the particular need/interest for family business data related specifically to:
- the economic contribution of family businesses;
- their contribution to employment;
- workplace relations issues;
- the productivity of family businesses;
- taxation and trust matters;
- governance structures (such as the presence of a succession plan);
- superannuation arrangements, particularly for women involved in family businesses;
- technological innovation;
- rural and regional policy; and
- behavioural considerations (such as the propensity to reinvest profits, levels of indebtedness)?
(iii) to what extent is there international data on family business based on these indicators that the agencies find useful, and to what extent is it important that there is consistency with the format of this international data?
(iv) to what extent have agencies shared a need for, or interest in, information based on these indicators?
(v) to what extent could the agency find future use for data on family businesses based on these indicators, and what is the shared need/interest for this information?
(vi) has there been, or could there be, a need for the agency to distinguish between small, medium and large family businesses?
(vii) what is, or what could be, the specific public policy need to distinguish between small, medium and large family businesses?
The committee recommends that the initial focus of the Inter-Departmental
Committee (IDC) must be on the specific public policy need for these agencies
to identify a family business as distinct from a non-family business. In terms
of the policy rationale for a survey (and a definition of family business), the
committee recommends that the IDC carefully consider the following issues:
(a) the need for policy makers to identify the number of family
businesses that are small businesses, and if so, whether the definition of
small business should be based on the threshold used for tax purposes (annual
turnover of less than $2 million) or the ABS's threshold of fewer than 20
(b) the extent to which a definition of family business needs to
capture employment data, and the possible effect that different thresholds in
the definition will have on the number employed;
(c) the importance of succession as a policy objective and the need
for a definition to identify whether the owners could pass the business on,
whether they intend to pass it on, whether they have a formal plan to do so;
(d) the need for policy makers to identify first, second, third and
later generation family businesses;
(e) the need for policy makers to identify the industry and location
of the family business;
the need for policy makers to identify the number of family
businesses from culturally and linguistically diverse communities;
(g) the need for policy makers to identify the number of non-employee
shareholders in a family business and, therefore, the need for data on the
number of family businesses that are proprietary companies as opposed to unlisted
public companies; and
(h) the need for policy makers to collect data on the superannuation
arrangements of family businesses, particularly the evidence that female family
members do not have adequate superannuation arrangements in place.
While the committee emphasises the key role of the IDC as a mechanism
for policy discussion on all these issues, it is also important that
stakeholders have a voice in this process. The IDC should periodically consult
with key stakeholder groups to ensure that the IDC registers and considers
their views. A good example of the need for consultation is in relation to
recommendation 2(g) (above). As Chapter 7 of this report discusses, this issue
of the number of non-employee shareholders and how this affects the business'
legal structure, is an issue of stakeholder concern. Consultation with
stakeholders should occur within the IDC process.
The agencies represented on the Inter-Departmental Committee should
periodically consult with key stakeholder groups to seek their input and
feedback on the issues it is discussing. These groups should include Family
Business Australia, the Australian Chamber of Commerce and Industry, the
Council of Small Business of Australia and the National Farmers' Federation,
and consider engaging other peak bodies that may be nominated to represent
family businesses of differing sizes.
The committee recommends that the Inter-Departmental Committee report
its findings to the Minister for Industry and Innovation within six months of
it being established.
The second phase—scoping a survey
If the agencies do identify sufficient need to collect and use
official data on the family business sector, the next task of the IDC should be
to discuss these outputs or measures with the ABS.
In correspondence to the committee, the ABS explained its process for
identifying these outputs:
When considering whether a particular survey vehicle is
appropriate to consider asking a new question, firstly there has to be an
understanding of what outputs or measures are required. This includes whether
the survey vehicle has the scope and coverage for the desired outputs to be at
the required level of disaggregation. This includes whether the scope of the
survey covers the population of interest and whether the coverage provides for
the data to be available by industry, business size, geography (e.g. state,
regional) for what is required by the end users.
Having identified the agencies' use for the data, the ABS then
determines what questions would best yield these results. As the ABS explained:
Does the data need to only provide high level metrics of
information or is further detail needed, for example, with family businesses is
it just a raw count that is required or is information needed on the business
structure and management, inter-generational involvement or future intentions
of the business?
The ABS then develops appropriate questions (and response
options) that will inform these policy areas. This includes seeking advice from
internal experts on form design and methodology to reduce the potential of
non-sampling error, such as poor layout, ambiguous or offensive questions,
inadequate instructions and so on. Expert ABS areas provide the survey area
with formal feedback on every survey form, with particular focus on new
questions being tested.
The committee suggests that the format of a survey to identify and
gather information on family businesses needs to use two sets of questions:
- those that are fundamental to determining whether a respondent is
a family business; and
- those that further inform policy makers (as distinct from defining
whether the respondent is a family business).
Table 2.3 presents a range of issues according to this division of
'definitional issues' that are fundamental to determining whether the
respondent is a family business (column 2). The key definitional issues relate
to the size and composition of the business and its governance structure. There
are also several information issues relating to size/composition and governance
of the business that the IDC and the ABS may want to consider (column 3).
A key area of discussion for participants on the IDC will be how the thresholds
set on the various definitional issues will impact the data set. Including sole
traders will inflate the number of family businesses, as will a broad
interpretation of 'family members'.
The committee recognises the expertise of the ABS in devising survey
questions and definitions based on its clients' intended use for the
information, and with an eye to international data and definitions.
In its evidence to the committee, the ABS commented on some of the
practicalities in collecting official data on family businesses. It made the
- first, the ABS noted that if a question on family business was to
be included in the BCS, existing questions would need to be cut;
- second, the ABS noted that there is more interest among key stakeholders,
such as DIISTRE and Treasury, in many of the existing questions in the BCS than
in data on family businesses;
- third, and relatedly, the ABS told the committee that in terms of
eliciting responses on family business, there would need to be 'quite a few
questions to draw out the concept properly';
- fourth, if the family business questions could not be included in
the BCS, the ABS noted that it would need to look at additional funding
The committee believes that if the government does proceed with the
formal collection of ABS data based on a definition of family business
recommended by the IDC, this process should be incorporated into the existing
BCS. It is important that the process be as efficient as possible, both from
the perspective of public administration and respondents' time. There should be
a set of clear and targeted questions which reflect the policy need for the
data, and which are most likely to present policymakers with evidence for
The committee recommends that when collecting official data based on a
formal definition of family business, the ABS should incorporate a set of clear
and targeted questions into the Business Characteristics Survey. The intent
must be to deliver the survey as efficiently as possible, including to limit
the time taken by respondents to complete the survey.
the number of family members employed in the
business (should a definition include sole traders if there are family
members informally employed in the business?);
the definition of 'family' and whether
'family' should include de facto members and extended family (should it be
consistent with definitions of 'related' in the Income Tax Assessment Act?)
the number of family and non-family
members employed in the business;
whether the survey should ask:
1. if the business is small,
medium or large with reference to the existing ABS definitions of these terms
2. if the business is a public
company (more than 50 non-employee shareholders)
3. if the business has an annual
turnover of more than $2 million
whether the definition of 'family business' should
refer to 'control' and if so:
whether this term needs to be
consistent with existing definitions in Australian statute (section 50AA of
the Corporations Act);
2. whether a definition should
refer to a 'controlling interest by one or more related members (FBA and MGI
definition of 'family business' needs to refer to 'owned' and if so,
whether to refer in the survey to having a majority of the equity
whether the definition of
'family business' should also refer to 'managed', and if so, how
should this be measured (eg: majority of decision-making rights; working in
whether the definition should
require at least one representative of the family is formally involved in the
governance of the firm
among first generation owners, whether they intend
to pass the business on to the next generation
whether the business is owned by the first, second,
or later generation
whether the business has a Board of Directors
presence of a formal Strategic Plan
establish and annually review a succession plan
superannuation arrangements and whether all family
members have superannuation arrangements in place
whether female family members are involved in the
governance of the business
reliance on equity rather than debt capital
the productivity and profitability of the business
the principal industry/sector and region in which
the business operates
The ABS informed the committee that the final stage of the survey
development process involves field testing the questions:
These new questions are then field tested on a range of
business types, size and industry groups. The measures for determining whether
a new question will be included on the next iteration of the BCS are:
- the data needs of users;
- the level of accuracy needed, the
availability of the data from the respondent, the language appropriate for
respondents, data item definitions, standard question wordings and any other
relevant information e.g. accounting standards, ABS classifications;
- the office processing system you
are using, including editors, data entry staff, OCR [Optical Character
- the sequencing, or order of
- the answer space required for each
The committee's key recommendation is that an IDC be established to
discuss the public policy need for data relating to family businesses in
Australia, which will inform a definition of family business. The committee
hopes that the evidence it has gathered during the course of this inquiry will
be a useful reference point in the IDC's deliberations.
The committee recognises that there are key threshold questions relating
to the definition of family business on which the IDC—in discussion with the
ABS—should form a view. Including sole traders and extended family in a
definition will increase the number of businesses that are family businesses.
Requiring at least the intent to pass the business on, and limiting the
definition to under a certain employee or turnover threshold, will reduce the
number of businesses defined as a 'family business'. These are potentially very
complex considerations. The committee emphasises that in making these
decisions, agencies need to consider carefully their need for the data, how it
will be used and whether it should be in a form that matches available
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