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The characteristics and mindset of family businesses in Australia
We have a stronger engagement
with our staff than typical companies. Our employees value that the owners are
visibly known people that they can talk to. The success of many family
businesses is something employees take great pride in. We measure our organisation
culture to ensure family values and expectations are embraced by our people...Our
decision making is not confined to reporting periods and bonus horizons but
reflect a vision over decades. This contrasts starkly with much of the
listed corporate sector...
I believe they are the fabric,
heart and soul, of our local communities.
The third article of the terms of reference directs the committee to the
contribution of family business to the Australian economy, in terms of
financial, social, employment, innovation and sustainability outcomes. The
previous chapter noted the view of Deloitte Private, among others, that little
data is available on the extent to which family businesses contribute to
Australia's GDP, employment and other economic indicators. Government agencies also
acknowledged the paucity of evidence in this area. As the Department of
Resources, Energy and Tourism (DRET) noted in its submission:
According to research undertaken by Tourism Research
Australia, as at June 2011, there were approximately 283,000 tourism businesses
in Australia, representing in excess of 13 per cent of 2.1 million businesses
across the Australian economy.
Approximately 91 per cent of tourism businesses were
non-employing, micro, and small businesses (employing less than 19 persons).
Whilst there is a lack of data relating to the number of family businesses in
the tourism industry, the structure of the industry and anecdotal evidence
suggest that a significant number of small tourism businesses are family operated.
There is obvious interest in not only the economic contribution of
family businesses, but their economic performance relative to non-family
businesses. As a 2010 paper by Linda Glassop, one of the co-authors of the
2005–2008 FBA–KPMG surveys, observed:
If Australian family firms do outperform non-family firms,
then their presence in the economy should be encouraged and the practices that
render them successful identified so they can be emulated. In the absence of
concrete data regarding family firm contribution to the economy, such
assertions are meaningless.
The committee believes that the need for data on the economic
contribution of family businesses to the Australian economy should be a matter
for the proposed IDC (see chapter 2). This will be an opportunity for
departments such as DRET and the Department of Regional Australia, Local
Government, Arts and Sport (DRALGAS)—both of which have an interest in
disaggregating the small business data to identify family businesses—to argue
the need for, and the form of, the data.
The committee recommends that in its deliberations on the specific
public policy need to identify a family business, the IDC should consider the
need for data on the economic contribution of family businesses. This should
include the need for data on the contribution of family businesses to Gross
Domestic Product, export earnings and employment, both in aggregate and by
Key family business characteristics
In the absence of solid, reliable data, this chapter approaches the
contribution of family businesses in terms of the characteristics that they
exhibit. The evidence gathered by this committee—both from witnesses and the
academic literature—has identified a set of characteristics that form a mindset
that is qualitatively different to that of non-family businesses. Although the evidence
is largely anecdotal, the observations have been made too consistently and too
widely to ignore. They should be considered by the IDC.
This chapter considers evidence received by the committee that family
businesses possess the following attributes:
- a risk averse mindset;
- a long-term mindset, looking beyond short-term returns (what some
have termed 'patient capital');
- more flexibility in their decision-making than non-family
businesses, enabling greater responsiveness to market needs;
- a commitment to retaining staff;
- a significant contribution to the community in which they operate;
- higher labour productivity than non-family firms.
A long-term mindset—causes and benefits
Several submitters and witnesses to this inquiry emphasised the
long-term mindset of family businesses. In the academic literature, the
expression sometimes used is 'patient capital'—a long-term approach to investment.
In part, this approach was attributed to the absence a board demanding
short-term performance on share price. The other key influence is the need for
the owners to preserve the legacy and reputation of the family name.
Various submitters highlighted the benefits of family businesses'
long-term mindset. These include the stability and resilience of the business,
a commitment to retaining staff and an attachment and contribution to
Mr Chris Lowe of Bus Association Victoria drew direct parallels between
the reputation of the family name and the long-term approach of the family
business. He told the committee that:
...family values are very much transmitted over to the family
business, unlike with non-family firms. With family businesses, it is all about
continuity and continuance. There is...the legacy factor. The family name is all
over the business, so it is very important that the family values are
transmitted into the business. If there is a complaint against the business, it
is a complaint against the family. Further, family businesses have a long-term
orientation second to none. They are not so much in the game for the term of a
contract which might be seven or 10 years; this is the industry that the family
has chosen to commit itself to over generations, and this is how the family has
made its name.
Mr Sam Kennard, Managing Director of Kennards Self Storage stated that
family business owners have 'a long-term enduring view to preserve our brand
and assets for many generations'.
Mr Michael Claydon, owner of the Perth-based firm National Corporate Training,
noted that the owners of long-standing family businesses are particularly
conscious that they are continuing the family legacy and have a responsibility
to ensure that it is preserved.
Mr Andrew Mostyn from the agribusiness company Craig Mostyn Group also
linked the longevity of family businesses with their focus on their reputation.
He explained that:
...there are some underlying things that are prevalent in all
family businesses. For many of us, our name is part of the company name. I
think when that happens then there is a responsibility that you have for the
longevity of the business and for the integrity of the business. So I do think
that because that is the situation there is very much some underlying and
common themes amongst the culture of family businesses.
KPMG linked the long-term mindset of family businesses to their unique
values and their connection with the community in which they operate. As
Mr Bill Noye, National Leader of Family Business Services, told the
Family businesses do take a much longer term view. They are
not so much focused on the short-term financial outcome but rather the
long-term return on capital. Theirs is a different mindset from non-family
businesses. Family businesses have applications that involve more than merely
serving a financial purpose. They are a means of sharing certain values and
providing a service to the community in which they are integrated. They are
different. They do feel different. Their values are different. Culturally, they
are different and they offer a unique benefit to our communities.
Deloitte Private continued the theme. Mr David Hill, National Managing
Partner of the firm, put the following argument:
Virtually every family business has a long-term horizon. The
family values are attached to the family business. The family name is attached
to the family business. The legacy is attached to the family business. So
decisions that family businesses take are for the long-term. One of the regular
criticisms of government, for example, is that decisions are taken on terms.
Corporates often are challenged by taking decisions based on quarterly
reporting cycles—very short-term decisions designed to either buoy up a stock
price or report a profit. Family businesses do not think that way; they think
for the longer term because of their legacy, their values and their reputation.
That is a wonderful culture in business for the future of this country of which
we're all very proud. So I think that any attempt to sponsor family business
with that long-term view—that view to a sustainable business to hand on to
future generations—in various forms has to be a great thing for this country.
Mr Peter Taylor, the owner-manager of the Queensland-based construction
company T & T Corporation, also contrasted the long-term mindset
of family businesses with the short-term imperatives faced by corporates:
It is a resilient sector which usually handles the volatility
and variability of our economy better than corporations. There have been
numerous surveys that have confirmed the advantages of family businesses
compared to corporations...They plan longer term, with many owners focused really
as much on stewardship as on short-term profit. They are not driven by the need
to increase share value or generate large performance bonuses which often lead
to short-term and sometimes high-risk strategies in corporations.
Mr Robert Powell of Grant Thornton Australia contrasted the short-term
decisions of investor-led businesses with the stability of family businesses'
decision-making processes. As he told the committee, family businesses:
...make long-range decisions. They are more stable because of
that and they are not prone to making snap decisions about firing people or
shutting down a division. They are prepared to ride out situations a lot more
than investor led businesses because the investors are only interested in what
happens to their money in the next 12 months as they may choose to sell out in
Professor Ken Moores told the committee that the long-term mindset of
family businesses provides resilience in times of economic downturn, greater
retention of labour and an effort to preserve their communities around them. He
The average CEO of a family business is there for about 20
years. The average CEO of a non-family firm is there for about 3.89 years and
going down. If you think about that for a moment, this is a person who has been
there, learnt their job and has got the time and capacity to pass it on to the
next generation, because they have learned a bit of wisdom. So there are a lot
of characteristics about these firms that really need to be understood.
The committee took evidence from Mr Steve Sampson, the fifth generation
owner of the Lionel Samson Sadliers Group—Australia's oldest family business.
Mr Samson noted that the company's long-term mindset created resilience
and a commitment to staff retention:
To give you our story, during the very tough times during the
1970s and 80s, when things were very, very tough, we made sure that we never
sacked any person who was an employee of our business, because that is what the
family wanted to do. They were willing to forgo a dividend, a profit, to make
sure that we supported and protected those employees. That is where you build
loyalty, that is where you build a foundation for a business that is different
to a corporate. The corporate is about the next quarter. The corporate is
about: how do we fly somebody in to solve this problem?—whereas family business
is about: how do we actually, long term, get through this together? The
government needs to know the size and scope of that. It is a solid foundation
to our economy that should be supported, because that is the resilient part of
our economy, and hence they should know all about it.
Professor Mary Barrett of the School of Management at the University of
Wollongong noted that the tenure of Chief Executive Officers (CEOs) in family
businesses is significantly longer than in the corporate world. She explained
that the CEOs of family businesses:
...are not jumping ship after three or four years like a lot of
CEOs are, for the quick rewards and the golden parachutes. I believe the figure
that somebody was groping for earlier is something like an average of 17 years,
compared with three or four years. It is an order of magnitude longer that CEOs
tend to stay there.
Mr Matthew Power explained that the long-term perspective of family
businesses is apparent in their decision-making processes. In particular, he
noted that family businesses are more prepared to have assets on their balance
sheets to provide long-term security:
Most family businesses take a very, very long term view about
things. They are looking to grow wealth not only for the current generation but
for future generations, and they do it in a very conservative way...
As a family business you take decisions that are going to
make sure that they are going to run for five, 10, 15 or 20 years, so you will
purchase a building, a piece of property or a piece of equipment not because of
its immediate return but rather because of its long-term return and security of
asset for the business, going forward, and to give the family assurance, going
forward. It is quite a different time perspective in terms of the
decision-making process. We do not have to answer to a corporate board, where
we are driven by final rate of return on investment, and you will notice that
if you look at a lot of the Australian public companies, they are divesting
themselves of assets, insofar as a big corporation like Bunnings does not own
its buildings. They rent their buildings because they do not want those assets
on their balance sheets—that reduces their rate of return on their asset usage.
The committee believes that these issues of the tenure of CEOs in family
businesses and the value of assets on family businesses' balance sheets could
be areas of public policy interest (see recommendation 10).
An aversion to risk
A corollary of the long-term mindset of family businesses is that in
general, they are also more conservative and risk-averse than non-family
businesses. A November 2012 article published in the Harvard Business Review
identified seven key differences between family firms and non-family firms that
could explain the greater resilience of family businesses. The first three of
these traits were as follows:
- family businesses keep their expenses under control and are
'frugal in good times and bad';
- family businesses tend to invest only in very strong projects. While
they miss opportunities in periods of expansion, in times of crisis they have
limited exposure (see chapter 9); and
- the firms studied were much less leveraged than the comparison
group. From 2001 to 2009, debt accounted for 37 per cent of the capital of family
firms compared to 47 per cent of non-family firms' capital.
These themes were also prominent in witnesses' and submitters' evidence
to this inquiry. Mr Des Caulfield, Director of MGI Australasia, told
the committee that while family businesses may not agree:
...as an observer and as an accountant who deals with them
nearly all the time, I can see that they are much more cautious than many and
were therefore better placed financially to handle the downturns in turnover
et cetera that occurred.
Mr Chris Lowe directly linked the long-term mindset of family businesses
with their cautious approach and aversion to risk. He explained this link well
in his submission:
Family owners and managers often tend to have lengthy tenures
and anticipate long careers, not only for themselves but for their offspring.
Therefore they can be parsimonious stewards – careful to ensure that today's
actions do not jeopardise the longer term prospects, or that an obsession with futuristic
ambitions does not rob the firm of resilience or sustainability. Family owners’
needs often span different time horizons: current needs such as income,
dividends, and secure employment of family members; intermediate term projects
and investments in capabilities and resources to perpetuate success across the
long tenures of most family CEOs; and long-term projects to ensure a robust
company for future generations. This is preservation of traditions from the
past increasing family security as it encourages productive talent that can
sustain the firm during periods of crisis or renewal, and family community
status that provides access to resources today and builds reputation for the
Some witnesses sought to qualify the image of family businesses as simply
risk-averse. Mrs Janice Taylor, the owner of a third generation Tasmanian
shipping business, told the committee that while the business is 'fairly
conservative', it is 'not frightened to take a little risk'.
Mr Robert Pennicott, the owner of Pennicott Wilderness Journeys, told the committee
that while the business prides itself on innovation, it is also 'a bit
conservative as well'.
Mrs Philippa Taylor, Chief Executive Officer of Family Business Australia (FBA),
described family business as a paradox: both conservative and at the same time 'extremely
Submitters gave three reasons for the risk-averse nature of family
businesses. First, it was argued that family businesses are not under pressure
to increase share value or generate large performance bonuses, which often leads
to short-term and sometimes high-risk strategies in corporations.
Second, family businesses are often constrained in the extent to which they can
borrow from financial institutions (see chapter 9).
And third, family business owners are conservative in their decision-making
because they stand to lose their personal possessions if they make poor
Skin in the game
Mr Matthew Power, a Canberra-based family business owner and the ACT
Chairman of Family Business Australia, contrasted the mindset of family
businesses and non-family businesses prior to the Global Financial Crisis. He
attributed the difference to the personal equity that family businesses have at
The reality is that if you have got a good project with good
numbers, it will get up. It is no different. During the pre-financial global
crisis period, there was a whole stack of projects that got up that simply
should not have—they were bad projects. Everybody was running on this whole
concept of this growth which was beyond normal and therefore it was going to
continue and there was money to be made—but they were bad projects before they
With us, we typically cannot operate like that—because it is
our house. Therefore, you are trying to be very, very conservative. If I have
to sign a piece of paper that says at some stage in the future if all goes
belly up my house is on the line and I am going to lose it all, you take a
very, very different perspective about whether you are going to go into the
project or not.
Mr Donald McKenzie, a former partner at KPMG and a long-time advocate of
family business, argued along similar lines:
In some instances I have seen some very aggressive family
businesses who have taken lending to the level that you probably would not see
in a lot of other businesses. But I guess inherently a family business operator...generally
has the family home on the line, basically just about lock, stock and barrel,
other than the things we can set up by protecting them in structures that we try
to do to protect some of the assets from things. They will tend to sit there
and say, 'Well, we do have a more conservative view, because if I get this
wrong not only have I lost my business but I have probably lost my home as
well.' So I guess that drives people to be a little bit more sensitive about
how they take investment risks.
A third characteristic of family businesses relates to the flexibility with
which they make decisions and employ staff. Family businesses are often
unencumbered by a board structure and can convene meetings and make decisions
at short notice. They have flat and informal organisational structures that
allow more responsiveness to immediate and unexpected challenges than hierarchically
In addition to flexible decision-making, the flat structure of many family
businesses engenders flexibility in employing and providing opportunities for staff.
Mr Taylor of T&T Corporation emphasised the importance of family
businesses' quick and responsive decision-making:
There have been numerous surveys that have confirmed the
advantages of family businesses compared to corporations. They are more
flexible and can adjust more quickly to change, mainly because there is a
concentration of ownership and you do not have to wait for a decision; you can
ring up mum, dad and the kids and almost make the decision in an afternoon.
Mrs Philippa Taylor of FBA expressed similar sentiments:
They [family businesses] are very capable of making quick
decisions. They do not have quarterly reporting in the way that a lot of
corporations do. They can bring the family together and say, 'There will be no
new Mercedes Benzes or utes this year because we're going to invest in some
research and development,' or 'We're going to pull the horns in.'
The issue of the flexibility of family businesses' practices also arose
in the context of career opportunities for women. Professor Moores told the
committee that on the basis of his research, the flexibility of family businesses'
working arrangements benefitted women. He claimed that family businesses tended
to be more accommodating of women in their need for time off work to raise a
As gender roles become more fluid in modern families, the flexibility of
family businesses will increasingly enable men to take up part-time work and
caring responsibilities. It is likely that many more family
businesses—particularly those conducted online—will have at least periods in
which wives assume full-time responsibility for the running of the business while
husbands assist in a part-time role. This could be an interesting trend to
Family businesses can also provide more flexible working practices in
relation to the payment of family members. Mr Alan Berechree, the owner and
manager of a family newsagency in Burnie, told the committee:
I do pay my children the same as the award wage, mainly for
ease of operation and because it takes all of the problems out of it. But also
there is a lot more flexibility there that you would not be able to ask of
employees. That is probably the bottom line. They work the couple of extra
hours or they come in for half-shifts, which legally you cannot do under the
Fair Work system.
The committee recognises that the issue of under-payment of family
members in family businesses is a matter of some controversy (see chapter 8).
While there is no data to gauge the extent to which this is happening, the
committee received some anecdotal evidence that the problem of underpayment may
not be as pronounced as it once was. Professor Moores noted:
As to this question of sweat equity and the lower rates of
pay, the family firms that I speak to nowadays—and they are probably the more
enlightened, I suppose, if we could call it that—tend to be not of that ilk.
These days—and given the last 20 years of conversations—you pay real wages for
real work and you do not necessarily want to have children beholden to the
Nonetheless, the committee flags the issue of non-payment and
underpayment of family members as an area of continuing concern. While it may
be true that there are fewer family businesses these days that underpay family
members, there are undoubtedly still many family businesses that emphasise that
proper payment for work is a secondary issue to the health of the business. The
argument, presumably, is that these arrangements assist the business, which in
turn assists the family to provide for all of its members. However, the
committee notes that registered businesses must comply with the terms of Fair
Work Act 2009, including the provisions on the underpayment of wages. This
issue is revisited in Chapter 8 of this report.
The 2012 Harvard Business Review article presented research that
found family-run businesses retained labour better than non-family firms.
The annual turnover of staff in family firms was nine per cent compared to 11
per cent for non-family firms. The article also observed that family businesses
generally do not rely on financial incentives to increase retention. Instead:
...they focus on creating a culture of commitment and purpose,
avoiding layoffs during downturns, promoting from within, and investing in
people. In our study we found that they spent far more on training: €885 a year
per employee on average, versus an average of €336 at nonfamily firms.
Similar arguments were put to the committee. Submitters and witnesses identified
the retention of staff as a key characteristic of family businesses. They noted
that this is consistent with the view of family businesses as long-term
planners with a conservative mindset and a need for staff that retain knowledge
and take on tasks outside their immediate duties. They also argue that staff remain
because they want to: they are treated better in family businesses than in
Mrs Janice Taylor, the director of the Hobart-based shipping company
Taylor Bros, emphasised her firm's commitment to its staff. As she told the
Consideration of staff is of prime importance. Some of the longer
serving members commenced straight from school, completed apprenticeships,
married, and now have young family members about to enter the workforce. These
people have worked alongside you and provided you with loyalty and support, and
have become extended members of your own family. Many of the younger newer
staff members look to these long serving people for guidance, and you need to ensure
that they receive the encouragement they need to follow in those footsteps. You
must extend to these people stability, knowledge, diversity of skills and
projects, ethics, work opportunity, workplace satisfaction, and mateship. In a
field as diverse as ours, the loss of long term skills and knowledge is
damaging, and retention of long term staff is the only way to ensure the
retention of this valuable asset.
Burnie Newsagent Mr Berechree told the committee that he currently
employs seven non-family staff members. Two of these staff members were
employed by Mr Berechree's late father in 1967 and in 1984.
Other witnesses, such as Mr Mark Kagan (formerly of Kagan Logistics), Mr Peter
Levi of Colorific and Mr Peter Taylor of T&T Corporation, emphasised that retaining
staff is a key part of the culture of family business.
Mr Taylor argued that there is a 'familyness' about belonging to a family
business which is of major benefit for the company.
Mr Levi explained:
For a business like ours, our people are everything to us and
I think that does distinguish family business very much from a lot of other
businesses. A lot of people in our team, a lot of our senior people, come to us
having worked in big business. They can no longer work with the culture of
politics that is prevalent naturally in big businesses and so our family values
are very important. Everyone who joins us signs a statement of family values as
part of the professionalism of our business.
FBA argued that the perception that they do not treat their staff well
is something that grates with family businesses. Mrs Taylor of FBA claimed that
family businesses are incredibly good employers. She cited the example of
Akubra Hats which:
...through two world wars and several recessions, have never
laid off a member of staff. The family themselves have taken pay cuts to keep
their staff—because a loyalty gets built up and the family employees become
part of the family.
Indeed, other family business owners sought to qualitatively
differentiate their treatment of staff to the way that non-businesses deal with
staff. Mr Samson noted that this difference was 'not necessarily all about the
wage', but rather:
People like working for a family business because of the
relationships and the way they are treated. So we see that as a way of securing
good people and keeping them.
Mr Mostyn agreed:
I think that family businesses tend to treat staff
differently to how they are employed in the larger corporates. And I think that
does play a part in keeping hold of staff. So I do think there is a difference.
We try and encourage a number of family-oriented things within the workforce
that I do not think exist outside. Yes, occasionally we lose people to a larger
corporate and quite often they come back to work for us, because they think the
grass is greener but they find out that it is not.
Community-based and community-oriented
An oft-cited characteristic of family businesses is the extent to which
they are engaged with, and contribute to, the community in which they operate.
This community-orientation is regarded by many as a key point of difference
between family businesses and non-family businesses.
FBA emphasised the role that family businesses play in contributing to
their community not only in terms of the services they provide and their
understanding of the community, but also their contribution to non-profit
organisations. Mrs Taylor made reference to the Dyson Bus Company, which in its
65 years of business has employed 5000 people. She told the committee that the Dyson
...are enormously embedded in that community. Without that
business there would be so many attributes and advantages in that community
that would disappear from footy clubs to others. I do believe they have an
enormously important role to play in the community and in the social fabric.
Mr Smorgon told the committee that family businesses are involved in
community activities that are 'well outside' their business interests. He
claimed that family businesses are at the top of the list of donors to
charitable organisations and 'give back more to the community than most other
Mr Lowe argued that a key point of difference between a multinational
and a family business is the family business's connection with, and service to,
the community. He argued that this contribution is not made by multinationals
who are only focused on delivering the terms of the contract.
The committee received accounts from family businesspeople themselves
about the contribution that their business has made to their local community.
Mr Michael Sharpe, the Joint Managing Director of the Gosford-based Sharpe
Bros Australia, gave the following summary of his firm's involvement with the
Our father, Ron Sharpe, joined the business and started
earth-moving works. Dad spent his life quietly helping others and was
acknowledged as Gosford council's 2005 citizen of the year. In 2006 he was
awarded the Order of Australia medal in recognition of his service to the
community of the Gosford region through a range of service and social welfare
My brothers, Richard and Hayden, and I continue that proud
tradition, helping the community whenever we can. As we grow and expand our
production as the third generation of Sharpe companies. We continue the
philosophy of providing support to community groups through donations,
sponsorships and volunteering. We have placed $25,000 over five years to
support Australian artists through the Gosford Regional Gallery. My brothers
and I feel that this long-term commitment has enabled the gallery to plan and
build the art prizes with the confidence of sponsorship dollars...
For many years the Sharpe family have all been involved with
community organisations, including chambers of commerce across the Central
Coast, Rotary International and Apex—just to name a few. We have been active in
our support to the Australian Olympic team, the Salvation Army Red Shield
Appeal, the Royal Volunteer Coastal Patrol, the Judo Federation of Australia,
HunterNet Co-operative and Family Business Australia, serving on board
positions and just helping where we can.
As a family we have been able to help raise funds and commit
donations to a full range of activities including medical research, volunteer
bush fire brigades, surf clubs, art galleries and sporting groups from tennis
clubs to judo clubs.
Our community works are interwoven with our business.
The committee received some comment from government agencies on the contribution
of family businesses to the community. DRALGAS told the committee that the Regional
Development Australia (RDA) Committees have highlighted that family businesses:
...are important and valued employers in regions and
communities; that they often provide essential goods and services to their
communities; that they often buy locally from other businesses when they can;
and that they often support clubs and community activities as part of the
social fabric of communities and regions.
Some witnesses emphasised the contribution of family businesses to the
community in terms of the loss that their demise has caused to local
communities. By way of illustration, Mr Donald McKenzie, a former partner
at KPMG, gave the following example:
The problem is that the consumer is, in the main, insensitive
or even ignorant to the needs of the family business operator. Take, for
example, the local golf professional. He has members of the club come into his
shop, borrow a demonstration club, receive some free advice, return the club
after a practice round and then go and buy the same club on the internet
because they can buy it for a lower price. The members have not understood that
if everyone did this it would mean one less family business into the future and
a further breakdown in the community social structure.
Mr McKenzie argued that there would be benefit in educating consumers
about the importance of family businesses to the community, and buying products
from local businesses. He claimed that if consumers do not recognise the impact
of their decisions to buy online, businesses within small municipalities will
close which could lead to some towns ceasing to exist.
The same argument was put by Mr Berechree:
It is vital that businesses in a community are supported by
their community. In Burnie there is a thing called rate differential, where the
CBD properties pay a higher percentage in rates than the houses and businesses
in the rest of the town. Ten years ago you used to justify that by the fact
that you are living off the support of that community. They are coming down
there and giving you a business and everything like that, so you are prepared
to pay a little bit extra. But now, the minute you lose the support of your
community—as they take the easy options of buying online or buying out of town
and all that sort of stuff—it is very hard to justify why you are doing it when
the softball club comes in and asks for a donation. It becomes harder and
harder to justify it if you are not getting the support of your community.
As we mentioned earlier, education is probably the important
thing because if I go out of business then nobody is going to be supporting the
softball club and the football club. That is what makes a region and makes a
small town. It is important that we have a level playing field. If somebody who
has an option to buy online is paying a GST component it is the same as they
would be paying if they were buying off us. With a level playing field the
customer gets the choice of who they are going to support. We have all bought
products online because it is cheaper, but it does not help the long term of
The committee recognises that many family businesses in Australia make a
significant contribution to their local community. Committee members, and
indeed all parliamentarians, frequently attend awards ceremonies and charity
fundraising events where the efforts and contributions of local businesses are
recognised. Many of these businesses are family businesses.
However, the committee believes that more could be done to publicise the
contribution that these businesses make to local communities. A new set of
awards could be created whereby parliamentarians are able to nominate a family business
in their own State (for Senators) or electorate (for Members).
The committee notes that FBA currently has an awards system in each
state and territory, as well as nationally, with the winners selected through a
broad-based nomination process. These awards are important. The committee's
suggestion would be in addition to these awards, with the objective of raising
parliamentarians' awareness of family businesses' contribution to the local
The committee suggests that the Department of Industry, Innovation,
Science, Research and Tertiary Education (DIISRTE) form a secretariat to
appoint a judging panel for the awards:
- one from Family Business Australia;
- a notable family business owner (perhaps a winner of a previous
- a DIISTRE official or an official from Enterprise Connect;
- a representative of a consultancy or a major bank;
- an academic with expertise in family business matters.
National Family Business Day, developed by Family Business
Australia (see chapter 1), would be an ideal forum to recognise formally
the winners, and to further raise the profile of family businesses within the
Australian Parliament. Sponsorship of the awards could be financed by the
adjudicating financial institution and consultancy.
Labour productivity, governance and performance
The committee also received comment on the possible influence that
family businesses' size and governance structures have on their productivity
and performance. This is an area of particular interest for the committee. If
family businesses' governance structures and decision-making patterns contribute
to higher growth and productivity than non-family firms, this should be a
matter of genuine public policy interest. It should lead government to consider
carefully the need for official data collection that is focussed on identifying
a correlation between firm performance and factors that are unique to family
In a 2011 paper, Mr Francesco Barbera and Professor Kenneth Moores
found that the contribution of labour productivity to the output of family
firms was much greater than the relative contribution of labour to comparable
non-family firms. The contribution of labour to output in family firms was also
significantly greater than that of capital to output in these firms. The
authors summarised their findings as follows:
This study has investigated the effect of family involvement
on Australian SMEs from 1995 to 1998, so we cannot claim to have definitively
established whether family firms are more or less productive than non-family firms;
however, we can claim that the assumption of homogeneous labour and capital
shares between family and non-family firms is inappropriate. Moreover, on the
basis of the unique characteristics of family firms, heterogeneous production
inputs do matter empirically. Therefore, if we account for the role for family
involvement and allow for unequal factor elasticities, perhaps we could better
understand the differences in production strategy, planning, and other
important productivity drivers between family and non-family firms. These
results hopefully shed further light on the unique attributes of family firms and
bring us closer to understanding the specific economic impact family
involvement may have on a firm level.
In evidence to the committee, Mr Barbera explained that family firms
tend to cluster in certain industries which are more labour intensive because
they tend to get more output from their labour force than non-family firms
would. He added:
The explanations that I offered in my paper were that they
are a more flexible labour force which is willing to work for less money if
need be and which has tacit knowledge because they have spent a large portion
of their life working in that firm and in multiple departments in the firm. So,
overall, the human capital in family firms is arguably much higher and thus
contributes more to output than it does in non-family firms.
Mr Lowe, who is currently conducting doctoral research into the links
between the governance and performance of family businesses, made the following
observations in his submission:
Some studies conclude the performance of family firms is
worse than non-family counterparts, which suggests that the family's desire for
capital preservation, stability, and risk aversion keep the firm from pursuing
strategies that might otherwise improve performances, but would also threaten
the family’s continued control. Conversely, research suggesting that family
firm performance is superior to others suggests that families are better
stewards of firm resources because of an overall aversion to managerial opportunism.
In evidence to the committee, Mr Lowe expanded on his PhD proposal:
I am trying to prove that the family business governance
model has cultural characteristics, capability and competitive advantages over
the multinational enterprise governance model in order to deliver on public
So in my PhD I will be outlining what those family business
and multinational enterprise governance capabilities are. Then I will be
formally quantifying that by way of a formal survey next year. I will be
starting off by holding some focus groups just before Christmas and after
Christmas with both Victorian-based [public transport] family business
operators and international-based [public transport] multinational enterprise
operators. I will be going to New Zealand, South Africa, England, Norway,
Sweden and Canada in order to do an international comparison of the governance
models and to formally quantify this competitive advantage which I suspect the
family businesses have. So far my research is anecdotal and it is qualified but
it is not quantified. But, in order to have government policy implications, I
need to quantify it.
Other submitters also drew attention to the mixed research evidence on
the performance of family businesses relative to non-family businesses. In
their submission, Professor Barrett, Dr Graves and Dr Thomas noted several
academic papers that focus on how family businesses' characteristics influence
SME growth, profitability and the propensity to export.
They observed that the findings of this research, in terms of the performance
of family businesses relative to non-family businesses, were mixed:
- A 2000 article by Mr Jon Hall and Mr Clem Tozer of the ABS,
for example, found that while management structure had a significant influence
in those SMEs that experienced rapid growth in turnover between 1994–95 and
1997–98, family businesses were less likely to have experienced rapid growth in
turnover and employment over the period.
- A 2005 article by Associate Professor Bernice Kotey of the
University of New England Business School examined the impact of firm size on
performance (as measured in terms of profits, growth, efficiency and liquidity).
It found that family SMEs perform at least as well as non-family SMEs, but that
larger family firms would benefit from improved management of employee
- Another 2005 article by Associate Professor Kotey found that small
family firms were less likely to pursue growth compared with similar non-family
firms. The growth of medium-sized family businesses was lower than similar sized
non-family firms. Management practices were less formal in family firms and the
gap between family and non-family firms in this area widened with growth. Small
family firms achieved greater profits than their non-family counterparts,
although this disparity disappeared at the medium-sized level.
Committee view on links between
governance and performance
The committee believes that research into those factors that contribute
to the performance of family businesses is an important and largely untapped
area of inquiry. The committee commends the completed research to the proposed Inter-Departmental
Committee (IDC) for its consideration. It believes that in terms of identifying
the public policy rationale for a definition of family business and the
collection of data, this research could hold some important leads.
To reiterate the point made in chapter 2, the IDC must be focused on the
policy need for this data. It may be that on the basis of these discussions—and
aided by the academic research—the IDC decides that data should be collected on
the profits, growth, labour productivity and capital productivity of family
businesses of different sizes.
The committee recommends that the Inter-Departmental Committee
consider the policy need for data on issues including the profits and growth of
family businesses of different sizes, and the labour and capital productivity
of these businesses.
The committee believes that the various characteristics of family
businesses discussed in this chapter warrant the attention of policy makers. As
part of the proposed IDC process, government agencies should reflect on whether
the benefits of gathering data to test the strength of these characteristics
outweigh the opportunity costs (in terms of other questions that could be put).
These characteristics should be considered in addition to the 'definitional'
and 'information' issues identified in Table 2.3.
There would need to be careful thought given to how these
characteristics might be gauged. Some of the consultancies' surveys simply ask
respondents whether they believe that family businesses value their staff more,
or contribute to the community more than other businesses. It is not surprising
that if they identify as a family business, they will tick these boxes.
If the IDC does decide to incorporate some of these family business
characteristics into a survey, the measures need to be concrete. They could
- the value of assets on balance sheets;
- debt to equity ratios;
- the tenure of Chief Executive Officers;
- the average number of years of employee service to the business; and
- the business' philanthropic contributions as reported to the ATO.
The committee recommends that the proposed Inter-Departmental Committee
assess whether data should be gathered to measure the key characteristics and
behaviours of family businesses. In particular, consideration should be given
- the value of assets on balance sheets;
- debt to equity ratios;
- the tenure of Chief Executive Officers;
- the average number of years of employee service to the business;
- philanthropic contributions, as reported to the Australian
The interest in these issues, of course, is how they compare with the
same indicators in non-family businesses. The committee understands that the
Business Characteristics Survey conducted by the ABS contains a section on
Business Performance Assessment.
Respondents were provided with a list of business performance measures (financial,
cost, operational quality, innovation, human resources and environmental) and
asked to indicate the extent to which they focussed on these measures.
Respondents were also provided with a list of performance indicators and
activities (income, range of products, productivity, profitability, social
contributions etc.) and were asked to self-assess whether any of these had
decreased, stayed the same, or increased compared to the previous year. If the
IDC does consider that data should be gathered on the issues identified in
Recommendation 9, the questions in the BCS Business Performance Assessment
would be useful.
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