Why family business has government's attention

Family businesses represent a significant part of the Australian economy. They are found in all sectors; they come in all shapes and sizes, from the local deli run by two cousins, to a mid-size transport company run by mum, dad and the kids, right up to the billion dollar former Smorgon Steel Corporation.

Family Business Australia, the peak body for large family businesses and an important ally in increasing government and community attention on family businesses, cite research that shows that nearly 70 per cent of all businesses in Australia were family-owned. Data from 2006 estimated that the worth of family businesses to our economy was more than $4.3 trillion. Backing them up in at least one sector is the Australian Bureau of Agricultural and Resource Economics and Sciences who determined that 95 per cent of Australian farms are likely to be family businesses. With statistics like these and anecdotes from the sector one thing is certain – it is time to acknowledge the importance of family business.

The Joint Parliamentary Committee on Corporations and Financial Service’s seven month inquiry took us from rural Tasmania to inner-city Sydney, and we heard from more than 70 witnesses. We received extensive evidence from those in the industry that family businesses operate in unique ways that differ from non-family businesses and we were convinced that family business owners do possess a set of values and principles that differ from non-family businesses with which they share the market.   

The Committee was told of the staid nature of family businesses, that they are more prudent and risk averse, and tend to carry less debt. Witnesses proudly asserted that family businesses are more committed to retaining staff than their non-family competitors and that the family nature of the business enhances industrial relations, thanks to relationships based on care and mutual benefit. The sector asserted that family businesses, due to their often locally engaged workforce and neighbourhood ties, make a significant contribution through charities and not-for-profits in the communities in which they operate. They argued that productivity gains, innovative capacity and safe and supportive workplaces were enabled through the longevity of their intergenerational administration. If all this is proven then these are valuable attributes that we as a government should uphold and protect.

What was made clear by all witnesses is that family businesses, no matter the size, face challenges unique to the sector that warrant closer attention.  One common thread came through in all the evidence presented to us – not having an official definition of what constitutes a family business is hurting the sector. 

While there is a steady flow of informal information about family business beginning to surface, and a growing pool of international statistics, accurate local data has been hard to come by. Critically, a definition needs to be developed and agreed with the sector. In order to enable that advance, the key recommendation made by the Committee was for the establishment of an Inter-Departmental Committee, made up of Federal Government Departments such as Industry and Innovation, Employment, and Treasury, and will include Federal Agencies such as the ABS and the Bureau of Agricultural Resource Economics. If the recommendation is accepted by Government the IDC, as its first order of business, would work to determine suitable definition of what constitutes a family business. Only with that first base established can we hope to better support the family business sector. 

Another key and pressing issue facing the family business sector in the next five to ten years is succession planning. The committee received evidence from Pitcher Partners who submitted that: “The smoothness of this (intergenerational) transfer will impact the prosperity of the Australian economy but no government policy exists to support the effectiveness of this transfer.” Evidence received at Committee shows that Australian family businesses have not adequately planned for succession despite the impending retirement of their baby-boomer owners – with best estimates showing that upwards of 60 per cent of business owners plan to retire between 2006 and 2016 and that 75 per cent of those owners have no exit strategy.  It seems clear enough then that government has a role to play in assisting the sector and ensuring that these businesses are adequately supported and advised through the process. 

With the importance of continuance in many models of family business, it has been argued that there is considerably more value in assisting an existing business successfully transition, than in building a new one. Indeed, research cited shows that a successful succession preserves five jobs, where a new enterprise generates only two.

It’s time we knew more about everything to do with family business.

Deborah O’Neill MP is the chair of the Parliamentary Joint Committee on Corporations and Financial Services.