Family business in australia: What do we know?

Rowena Barrett is director of the Family and Small Business Research Unit, Monash University, Melbourne. Glennis Hanley is a research associate with the Family and Small Business Research Unit.

An ageing population means the number of business owners seeking to leave their businesses over the next few years is ever increasing. But recent research suggests succession planning needs to be a much higher priority. Rowena Barrett and Glennis Hanley report

Australia is not just a country of kangaroos, beaches, rock stars, and crocodile hunters. It is a country of 20m people with diverse ethnicities, experiences, and working lives.
 
It is also a country where small businesses and family firms proliferate the economy. Many Australians live along the eastern seaboard – home to the two most populous cities, Sydney and Melbourne. Melbourne's Monash University is one of the top universities in Australia and recently formed the Family and Small Business Research Unit (FSBRU) where academics and practitioners actively research the phenomenon of the family business and small business generally.

Family business conjures up a 'mom-and-pop' image for many people. Although most Australian small businesses are family-owned, not all family businesses are small. Large and £internationally known family firms include Kerry Packer's Publishing and Broadcasting Ltd, Gerry Harvey's Harvey Norman Holdings and Frank Lowry's Westfield Group. Rupert Murdoch's News Corporation is one that Australia looks set to lose to the US. News Corp's plan to shift its primary sharemarket listing to New York has considerably ramifications for Australia. The depth of the Australian market may be reduced if it is removed from the Australian Stock Exchange (ASX) Top 200. Against this gloom is the A$26 billion merger of the three listed Westfield entities – Westfield Holdings, Westfield Trust and Westfield America. The Lowry family has no plans to list the new Westfield Group in the US and instead plans to grow the business, despite it already being the largest shopping centre group in the world. Growth is no stranger to this family business with Westfield Holdings enjoying an unbroken 43 years of profit growth. No mean feat for a man who started out with a deli in suburban Sydney. A smaller but internationally recognised family firm is Nad's. Nad's is one of Australia's fastest growing private companies with multi-million dollar exports of its hair removal gel. In 2001 Americans spent more than $60m on Nad's products and it has become number one in its category in just four years beating traditional rivals, Sally Hansen and Nair. In 2002 Sue Ismiel, the founder of Nad's, won the prestigious Sydney Business Review Business Woman of the Year.

The significant overlap between the small business and family business sectors is a known phenomenon in the US, UK and in Europe. In Australia the Australian Bureau of Statistics tells us there are 1.16m private sector firms employing just over 6.9m people. Of these, 96% or 1.12m are small firms with another 100,000 or so small agriculture, fishing and forestry firms.

Studies in family business are few and far between. Family business research of any kind in Australia is relatively new and there are only a small number of researchers across Australia who are interested in this field. Unlike the US, few Australian universities have family business programs but there is, however, a growing interest from an array of professional advisors in family business. Politicians are also beginning to wake up to the sector and at the Family Business Australia conference in August this year the federal minister for small business, Joe Hockey and opposition spokesperson on small business, Bob McMullan outlined their political party's plans for family business. This is the first time such senior politicians have been known to do so.

So, what do we know?
The 1997 Monash University survey is the most widely cited source of information about family business in Australia. This survey found that family business owners were more likely to be over 50 years old, tertiary qualified, married and Australian born. Their businesses were more likely to operate in the manufacturing, wholesale and retail sectors and have been operating for over 30 years with an average growth rate of 15%. The average size of these firms was around 34 full-time employees but later generation firms were more likely to be larger than earlier generation ones.

Using a rigorous accounting based definition Monash University researchers Nick Mroczkowski and George Tanewski show that more than 27% of companies listed on the ASX are family controlled. Family owned businesses are said to account for 83% of all Australian businesses and employ about 50% of the Australian private sector workforce. And according to the Boyd Partners/RMIT survey, the wealth of Australian family businesses is A$3.6trn.

Perhaps US researcher Gallo put it best: family business is essentially the same in every country in the world in terms of problems, issues and interests. One issue that is consistent over time in family business research is that while Australian family business people think succession planning is important they are not actively planning for succession be it management or ownership succession. The 1997 Monash survey found that 70% of family business owners thought succession and retirement planning was important but only 12% had a documented plan.

Australia has an ageing population and this has profound implications for the numbers of business owners seeking to exit their businesses over the next few years. For example the most recent statistics from the Australian Bureau of Statistics on characteristics of small business owners said 33% of small business owners were aged over 50 and this figure has increased at an annual rate of 3.7%. This has implications for GDP with an estimate that the impact of business exits is around 3-4% GDP and about 10% of the total job losses each year. When the Boyd Partner/RMIT survey shows some A$1.6trn in net assets is on the line from the 50% of family firms they surveyed saying they wanted to sell, then there is a looming problem in Australia as a result of a lack of succession planning. Behind the ageing population is a declining fertility rate and in the 2004 federal budget the treasurer Peter Costello, announcing a one-off payment of A$3000 rising to A$5000 in 2008 for new babies, urged Australians to 'do their patriotic duty' and procreate.

For many business owners succession planning is about exiting the business and many will rely on the sale of their business to fund their retirement. The recent survey by CPA Australia showed that 17% of the small business owners they surveyed intended to leave their business in the next two years and another 22% in the next five years. In terms of the exit strategies for these people 25% said they would prefer to sell or pass their business onto a child or family member but only 38% of those surveyed had a succession plan. As to what would prompt those without a succession plan to make one, the results were diverse but the highest response was one well-recognised – 'if there was someone to take over from me', 9% said that would encourage them to plan.

In family business, where succession planning is all about relationships, there is always the question of the process of choosing a successor where there may be more than one potential candidate. Recently at a FSBRU succession planning workshop we heard how one Australian family firm, Tobin Brothers Funerals Group, managed this process. Tobin Bros was established in 1934 by four brothers and today 13 members of the Tobin family work in the business employing 130 staff with a turnover in excess of A$20m. Martin Tobin, the current managing director is third generation and succeeded his father Des to the top job. But it wasn't inevitable that Martin would get the job and only through a thorough process of assessing potential internal and external family members against a set of agreed role criteria that Martin emerged as leader. These criteria included tertiary qualifications, communication, time management and IT skills, leadership qualities and an ability to handle stress. Once identified as the possible leader Martin embarked on a detailed development program including exposure to all parts of the business and studying for an MBA before Des stepped back and eventually moved into the role of executive chairman. The success of this succession was that an enlightened leader drove a process that was communicated to all throughout the business at every stage.

While this is a shining example of succession in an Australian family business this is not necessarily the norm. Just the issue of using criteria to decide how family members should join or leave a business is not overwhelmingly supp­orted as a study of Australian and New Zealand family business found. This study sponsored by Grant Thornton and conducted out of the University of Canterbury (NZ), found only 55% of the 163 Australian family businesses agreed such criteria should be used. This study found the highest agreement (79%) with the statement 'family and business affairs should be kept separate'. But if there isn't a plan of how to do this then the reality is the opposite happens. As a result many Australian family businesses, like their counterparts in the US, Canada, UK and Europe, will struggle to survive beyond the first generation and family legacies will be lost.