ARE FAMILY FIRMS REALLY THAT DIFFERENT?

An empirical examination of some managerial differences between

family and non-family SMEs when industry and size are accounted
for.

Mr Max Smith

Lecturer, School of Commerce,

The Flinders University of South Australia,

GPO Box 2100,

Adelaide South Australia 5001.

Telephone: +61 8 82013897

Facsimile: +61 8 82012644

Email: Max.Smith@flinders.edu.au

SCHOOL OF COMMERCE
RESEARCH PAPER SERIES: 05-6
ISSN: 1441-3906
Acknowledgments

Acknowledgement is made to Professor Richard McMahon, Head, School of

Commerce, Flinders University, who generously provided access to his ‘cleaned up’

version of the BLS CURF data used in this study.

2
 ARE FAMILY FIRMS REALLY THAT DIFFERENT?
An empirical examination of some managerial differences between
family and non-family SMEs when industry and size are accounted
for.

Abstract

This study utilises data gathered from 2267 SMEs by the Australian Bureau of

Statistic’s Business Longitudinal Survey (BLS) between 1995/96 and 1997/98. The

context of these firms is controlled for by examining them according to industry and

firm size. By dividing the numerous combinations of resulting groups into family and

non-family businesses the study was able to determine statistically significant

differences between the latter two groups’ responses to managerial type questions

posed in the BLS.

The findings indicate that when size and industry are accounted for, the managerial

differences between family and non-family businesses are much smaller than

portrayed in much of the literature. Little support was found for the contentions that

family firms make less use of formal internal controls, have smaller management

teams, have fewer owner/directors with tertiary degrees and make less use of business

plans. Likewise, the proposition that the degree of difference between family and

non-family micro-firms would be less than that for larger firms is not supported, as is

the proposition that the degree of difference would be much less in the retail trade

industry. However, there was found to be variation between industries and

widespread significant differences between family and non-family firms in the

number of working proprietors, partners or directors. Overall, it appears that both

industry and firm size need to be accounted for when examining differences between

family and non-family firms if the results are to be meaningful.

3
INTRODUCTION

Studies on the differences between family and non-family businesses management are

relatively abundant (Cromie, Stephenson & Monteith 1995; Daily & Dollinger 1991;

King, Solomon & Fernald, Jr. 2001; Reid & Adams 2001; Sharma, Chrisman & Chua

1997; Westhead 1997; Westhead, Cowling & Howorth 2001). However, the findings

from some of these studies conflict with each other and their methodology has been

criticised for not controlling for firm context (Sharma et al 1997; Westhead 1997).

This study deals with these shortcomings by empirically examining some managerial

differences between family and non-family businesses after first controlling for firm

size and industry.

PAST RESEARCH

Family businesses have been observed to have significant managerial differences

from non-family businesses in some areas. For example, the governance of family

businesses is considered more complex when compared to non-family businesses

(King et al 2001; Reid & Adams 2001; Sharma et al 1997; Westhead et al 2001). In

addition, the tenure of family CEOs is generally longer than the tenure of CEOs in

non-family businesses (Barry 1989; Cromie et al 1995; Reid & Adams 2001; Van den

Berghe & Carchon 2002; Westhead et al 2001). Related to this is the number of

family members in top management positions in family firms. For instance, Moores

and Mula (2000) found that nearly 25 per cent of the senior management of family

firms were family members and 80 per cent of these firms had directors who were

family members. These family members form part of the clan control mechanisms

favoured by family firms (Moores & Mula 2000).

1
Family firms have also been found to ‘rely less on the use of formal internal control

systems’ (Daily & Dollinger 1991, p.5), although Moores and Mula (2000) found that

bureaucratic forms of control did increase with development stage. In addition,

family firms are said by some researchers to be characterized by smaller management

teams than non-family businesses (Cromie et al 1995, Van den Berghe & Carchon

2002), although Westhead et al’s (2001) study found no significant difference

between the two groups in this regard. According to Reid and Adams (2001), family

firms are also less likely to have owner/directors who hold a university degree,

although Cromie et al’s (1995) study found no significant differences between family

and non-family firms in the number of firms whose managers have degrees.

Reid and Adams’ (2001) study also found that a smaller percentage of family

businesses had a business plan compared to non-family businesses, but the difference

(65% versus 77%) was not significant. Similarly, Westhead’s (1997) study provided

weak support for the ‘proposition that planning-related issues would be emphasized

by non-family rather than family companies’ (p. 145). Both these studies provide

limited support for Chaganti and Schneer’s (1994) finding that planning is less

prevalent in family firms. Qualifying this is Cromie et al’s (1995) finding ‘that

planning was particularly prevalent in family firms with a long-term focus on securing

family wealth’ (Westhead 1997, p. 153). The literature on planning practices within

family businesses is therefore another area of ambiguity.

Much of the research referred to above appears to suffer from the problems identified

by Westhead (1997) who critiqued prior studies on family businesses. These

problems include a ‘lack of consensus surrounding the definition of a family firm’ (p.

2
128), the predominant use of data from listed rather than unquoted companies, the

tendency to just describe family businesses, the lack of comparative studies between

family and non-family businesses (particularly those capable of measuring differences

between them), and the lack of control for contextual variables such as industry and

firm age. Similar sentiments are expressed by Sharma et al (1997) who note that

‘investigation of homogeneous populations of family firms is essential for progress in

the field’ (p. 3).

In an attempt to address many of these concerns and clear up some of the ambiguity,

Smith’s (forthcoming (a)) study examined responses to managerial type questions

from 2230 incorporated small to medium enterprises (SMEs) segmented into nine

industry sectors, thus providing a reasonable degree of context to the firms under

investigation The results show that the managerial differences between family and

non-family businesses are far from universal across industries. None of the

management variables examined had consistent differences between family and non-

family firms across sectors. Family businesses were found to have most statistical

differences from non-family businesses in the ‘property & business services’,

‘wholesale trade’, and ‘manufacturing’ industries. Even here the direction of these

family business differences varied in some cases from those anticipated given past

research in the area. The industries with very few statistical differences between

family and non-family businesses were the ‘transport & storage’ and ‘retail trade’

sectors.

3
RESEARCH QUESTION

This exploratory study has one broad research question: what is the nature of

managerial differences between family and non-family SMEs when industry and size

of the firm are controlled for?

The absence of empirical studies providing a similar level of context makes further

refining the question difficult. However, the key point from Smith’s (forthcoming

(a)) study was ‘the need for a shift away from the “family businesses are different”

paradigm to a new paradigm that says that, among other things, the degree of

difference between family and non-family businesses is dependent on the industry

they operate in’ (Smith forthcoming (a), p.20). Accordingly -

Proposition 1: There will be variation between industries in the level of differences

between family and non-family firms’ managerial characteristics.

Smith’s (forthcoming (a)) study ranked the level of difference between industries by

summing the incidence of significant differences found between family and non-

family businesses across the same nine variables examined in this study. In that

study, ‘property & business services’ was ranked the industry with most differences

between family and non-family firms, having a significant difference in eight of the

nine cases. This was followed by ‘wholesale trade’ and ‘manufacturing’ who both

recorded seven significant differences. ‘retail trade’ on the other hand, was ranked as

one of the two industries that had very little difference between family and non-family

businesses with only one significant difference across the nine possible. Accordingly

4
Proposition 2: The level of difference between family and non-family firms’

managerial characteristics will be much less for the ‘retail trade’ industry relative to

the ‘property & business services’, ‘wholesale trade’ and ‘manufacturing’ industries.

The organizational and operational complexity of firms with less than 10 employees is

likely to be much less than that for firms with a relatively large number of employees.

In the former case, the required managerial practices and characteristics of both

family and non-family firms are likely to be very basic with owner-managers

undertaking a ‘jack-of-all-trades’ type managerial role. In addition, many firms at

this level will be emerging (first generation) family businesses in their own right. As

such, it is likely the level of managerial difference between family and non-family

firms of this size will be less than for those of larger firms. Accordingly –

Proposition 3: The level of difference between micro-sized family and non-family

firms’ managerial characteristics will be less than those for small and medium sized

family and non-family businesses.

By their very nature, family firms are more likely to have working owners intimately

involved in the running of the business, and this is reflected in the longer tenure of

family firm CEOs reported in the literature. This contention is supported by Smith’s

(forthcoming (b)) study which showed that as Australian manufacturing family firms

evolve from low growth to moderate and high growth firms, the percentage of family

firms with working proprietors, partners or directors remains constant at around 100

per cent. This is not the case for Australian manufacturing non-family businesses

however, for these the percentage of such staff drops off to around 50 per cent by the

5
time the high growth stage has been reached. Although growth and size are not the

same thing, they are related and tend to reflect organizational complexity.

Accordingly –

Proposition 4: The percentage of family firms with working proprietors, partners or

directors will remain relatively constant across all three firm sizes at around 100 per

cent, while the percentage of these staff in non-family businesses will diminish with

the size of the firm.

RESEARCH SAMPLE AND METHODOLOGY

To address the research question while avoiding the methodological problems

identified, this study utilizes data from a panel of 2267 Australian SMEs segmented

into four industry groups. Context is controlled for by dividing the firms in each of

these industries into micro, small and medium sized firms and then further

subdividing them into family and non-family businesses. Responses from the latter

two groups to managerial type questions were then compared for any statistically

significant differences.

The panel of firms utilized in this study had each provided four consecutive years of

data via Australia’s Business Longitudinal Survey (BLS). This survey was

undertaken by the Australian Bureau of Statistics (ABS) for the years 1994-95 to

1997-98 on behalf of the federal government. The integrity of the survey was

enhanced by the employment of various imputation techniques, including matching

with other data files available to the ABS, to deal with any missing data. In addition,

because the Australian Statistician could legally enforce the provision of appropriate

6
responses to questionnaires, response rates were very high by conventional research

standards – typically exceeding 90 per cent. The integrity of the panel was enhanced

by ‘cleaning up’ the data, that is, by omitting those cases containing logical

inconsistencies. It was not possible to examine all of the nine industry groups

employed in Smith’s (forthcoming (a)) original study due to insufficient case numbers

in those industries omitted.

Definition of Variables

For the purposes of this study a firm is classified as a micro-business if it has 1-10

employees, a small business if it has 11-49 employees and a medium sized business if

it has 50-199 employees. These definitions are in accord with the European

Commission’s (1996) official size definitions for SMEs in all but the latter case,

which for them is 50-250 employees. Unfortunately, it was not possible to match the

Commission’s definition due to the inherent limitations of the BLS data released to

researchers. One of the measures used by the ABS to ensure the confidentiality of

surveyed respondents was to limit the data contained in it’s confidentialised unit

record file (CURF) release to businesses employing less than 200 people.

In this study a firm is classified as a family business if it meets three criterions. The

first is that put forward by Gasson, Crow, Errington, Hutson, Marsden and Winter

(1988) and Ram and Holiday (1993); namely, ‘whether members of an “emotional

kinship group” perceive their firm as being a family business’ (Westhead et al 2001,

p. 370). Thus, firms who answered in the affirmative to the BLS question: ‘Do you

consider this business to be a family business?’ were considered to have satisfied this

criterion.

7
The second criterion relates to another definition of family business used by other

researchers; namely, ‘whether a firm is managed by members drawn from a single

dominant family group’ (Westhead et al 2001, p. 370). This criterion was considered

met if a firm responded in the affirmative to the BLS question: ‘Do you consider this

business to be a family business because family members are working directors or

proprietors?’

The final criterion addresses another method used to distinguish family businesses

from other firms; namely, does the family in question hold more than 50 per cent of

the shares in the firm (Cromie et al 1995, Westhead et al 2001). This criterion was

considered satisfied if a firm reported greater than 50 per cent of it’s equity was held

by family, either working or non-working, for at least one of the years of the survey.

The use of these criteria as determinants of a family business classification would

appear to place these firms in the middle of Astrachan and Shanker’s (2003) Family

Business Universe. The resultant breakdown of the panel’s family and non-family

businesses across industry sectors is shown in Table 1.

The BLS questions used to address the family business criteria were not introduced

until the 1995-96 survey. Consequently, only data from the last three years of the

BLS is used in this study. The first variable examined, ‘Working proprietors, partners

or directors’ is derived from responses to the question: Number of Working

Proprietors, Partners or Directors? The percentage figures shown in Table 2 are the

three-year mean of the percentage of firms who had at least one working proprietor,

partner or director employed in the three years under study. The figures in brackets

8
following the percentages is the median of the three-year average of the number of

such persons employed.

Table 1
Distribution of family and non-family firms across industry sectors

Family Firms Non-Family Firms Total

Manufacturing
Micro 230 189 419
Small 232 261 493
Medium 63 130 193
1105
Wholesale Trade
Micro 95 65 160
Small 92 131 223
Medium 33 66 99
482
Retail Trade
Micro 86 58 144
Small 59 52 111
Medium 21 20 41
296
Property & Business Services
Micro 104 132 236
Small 20 87 107
Medium 10 31 41
384

TOTAL 1045 1222 2267

(46%) (54%)

The second variable shown on Table 2 is derived from responses to the question:

Number of Other Full-Time Managerial Employees? Once again, the percentage

figures shown is the three-year mean of the percentage of firms who had at least one

other full-time managerial employee employed during the three years under study.

The figures in brackets following the percentages is the median of the three-year

average of the number of such persons employed.

9
The third variable, ‘Total management team’, was created by adding the responses

from the three year means of the previous two variables: Number of: Working

Proprietors, Partners or Directors? and Number of Other Full-Time Managerial

Employees? The results at item 3 in Table 2 therefore show the median size of each

group’s management team after having averaged the results over three years.

The fourth item, indicative of strategic management practices, is dichotomous and

derives from ‘yes’ or ‘no’ responses to the 1995-96 to 1996-97 questions: Did this

business use any of the following business practices – Documented formal strategic

plan? or A formal business plan? The 1997-98 question was worded ‘A formal

strategic or business plan?’ making amalgamation of the two questions unnecessary.

The percentage figures shown in Table 2 are the three-year means of the percentage of

firms who responded in the affirmative for at least two out of the three years

examined.

The fifth variable examined in this study, indicative of marketing management

practices, is also dichotomous and derives from ‘yes’ or ‘no’ responses to the

question: Did this business compare performance with other businesses? Once again,

the percentages shown are the three-year means of the percentage of firms who

responded in the affirmative for at least two out of the three years.

The sixth and seventh variables are both indicative of financial management practices

and are once again dichotomous. They derive from ‘yes’ or ‘no’ responses to the

questions: Did this business use budget forecasting? and Does this business create

regular income/expenditure reports? Once again, the percentages shown are the three-

10
year means of the percentage of firms who responded in the affirmative for at least

two out of the three years.

The final items, shown in the eighth row of Table 2, are both dichotomous and relate

to the tertiary qualifications of the firm’s major decision maker. The upper

percentage figures derive from responses to the question: What is the highest

education level obtained by the major decision-maker? The figures at the top of this

row show those firms who indicated tertiary qualifications. The lower percentages in

this row are firms whose major decision maker had tertiary qualifications and who

also responded in the affirmative to the dichotomous question: If tertiary

qualifications, are they in business management, commerce or administration? In

order to avoid ambiguity, only those firms who indicated they had a major decision

maker were examined.

The variables used in this research are either categorical in nature or, if metric, have

irregular distributional properties (that is, they are non-normally distributed). The

transformation of metric variables to produce normal distributions is avoided because

of the difficulties of interpretation often created by such procedures. Thus, non-

parametric/distribution free techniques of statistical analysis are employed

exclusively. For the first three variables in Table 2 this takes the form of Mann-

Whitney U tests, while for the rest, Pearson’s Chi-Square test was used to determine

statistically significant differences between family and non-family businesses.

RESEARCH FINDINGS

11
 Table 2
Managerial Differences between Family and Non-Family Firms
Manufacturing Wholesale Trade
FB NFB Sig. FB NFB Sig.
1. Working Micro 99.1% (2) 93.1% (1.3) .000* Micro 100% (2) 93.8% (1.7) .020*
proprietors,
partners or Small 99.6% (2) 82.4% (1.3) .000* Small 98.9% (2) 77.1% (1.3) .000*
directors. (%
Med. 98.4% (2) 72.3% (1) .000* Med. 100% (2.7) 72.7% (1) .000*
& median) (MW) (MW)
2. Other Micro 27% (0) 25.4 (0) .718 Micro 37.9% (0) 38.5% (0) .942
managerial
employees. Small 84.5% (2) 92.3% (2.3) .006* Small 84.8% (2.3) 91.6% (3) .113
(% & median)
Med 100% (5.3) 98.5 (6.7) .324 Med 100% (7) 98.5% (8.2) .480
(MW) (MW)
3. Total Micro 2 1.7 .000* Micro 2 2 .145
management
team. Small 4 4 .734 Small 5 4.7 .477
(median
Med 7 7.7 .928 Med 9.7 9.5 .864
number) (MW) (MW)
4. Formal Micro 14.8% 13.3% .670 Micro 11.6% 15.5% .499
strategic or
business plan. Small 36.3% 42.4% .179 Small 35.6% 50.4% .033*
(%)
Med 47.5% 63% .044* Med 43.8% 65.2% .044*
(X2) (X2)
5. Compared Micro 6.5% 6.9% .884 Micro 14.7% 13.8% .875
performance
with other Small 17.2% 17.2% 1.00 Small 27.2% 28.2% .861
businesses.
Med 20.6% 31.5% .114 Med 36.4% 43.9% .471
(%) (X2) (X2)
6. Carried out Micro 33.5% 30.7% .543 Micro 40% 47.7% .335
budget
forecasting. Small 67.2% 71.3% .333 Small 70.7% 77.1% .227
(%)
Med 79.4% 76.9% .702 Med 72.7% 90.9% .017*
(X2) (X2)
7. Created Micro 55.7% 51.3% .376 Micro 58.9% 72.3% .083**
regular
income/expen Small 86.2% 83.9% .476 Small 84.8% 85.5% .883
diture reports.
Med 92.1% 84.6% .148 Med 97% 90.9% .267
(%) (X2) (X2)
8. Tertiary Micro 19.1% 19.6% .908 Micro 17.9% 18.5% .927
qualifications
of major Small 24.1% 35.2% .007* Small 28.3% 25.2% .609
decision
Med 27% 46.9% .008* Med 21.2% 28.8% .419
maker. (X2) (X2)
Upper = any. Micro 6.1% 5.3% .727 Micro 3.2% 9.2% .102
Lower =
business. Small 10.8% 14.6% .209 Small 16.3% 16.8% .923
(%)
Med 15.9% 27.7% .071** Med 9.1% 22.7% .097**
(X2) (X2)
* = 5% level.
**= 10% level.
MW = Mann-Whitney U test
X2 = Pearson Chi-Square

12
 Table 2 (Cont.)
Managerial Differences between Family and Non-Family Firms
Retail Trade Property and Business Services
FB NFB Sig. FB NFB Sig.
1. Working Micro 98.8% (2) 96.6% (1) .000* Micro 98.1% (2) 93.9% (1.3) .000*
proprietors,
partners or Small 100% (2) 86.5% (1.7) .003* Small 100% (2) 93.1% (2) .859
directors. (% &
Med. 100% (2) 70% (1.3) .005* Med. 100% (2) 71% (2) .988
median) (MW) (MW)
2. Other Micro 26.7% (0) 25.9% (0) .907 Micro 21.2% (0) 33.3% (0) .039*
managerial
employees. (% Small 84.7% (2) 80.8% (1.7) .581 Small 90% (2) 81.6% (1.7) .368
& median)
Med 100% (8.7) 100% (6) 1.00 Med 90% (2.7) 96.8% (9) .393
(MW) (MW)
3. Total Micro 2 1.7 .000* Micro 2 1.7 .196
management
team. Small 4 3.3 .053** Small 4.5 4.3 .904
(median
Med 11.3 7.3 .001* Med 6 11.3 .060**
number) (MW) (MW)
4. Formal Micro 16.5% 13.2% .610 Micro 13.8% 24.6% .051**
strategic or
business plan. Small 25% 30% .564 Small 26.3% 47.6% .091**
(%)
Med 45% 63.2% .256 Med 40% 66.7% .136
(X2) (X2)
5. Compared Micro 15.1% 20.7% .386 Micro 6.7% 20.5% .003*
performance
with other Small 45.8% 40.4% .568 Small 45% 36.8% .495
businesses. (%)
Med 76.2% 70% .655 Med 50% 58.1% .655
(X2) (X2)
6. Carried out Micro 30.2% 25.9% .569 Micro 34.6% 44.7% .117
budget
forecasting. Small 55.9% 59.6% .695 Small 70% 72.4% .828
(%)
Med 71.4% 80% .523 Med 60% 87.1% .060**
(X2) (X2)
7. Created Micro 50% 39.7% .222 Micro 50% 54.5% .488
regular
income/expendi Small 83.1% 71.2% .134 Small 85% 82.8% .809
ture reports. (%)
Med 85.7% 85% .948 Med 100% 90.3% .307
(X2) (X2)
8. Tertiary Micro 14% 17.2% .591 Micro 48.1% 39.4% .181
qualifications of
major decision Small 13.6% 25% .125 Small 30% 29.9% .992
maker.
Med 23.8% 40% .265 Med 50% 25.8% .153
Upper = any. (X2) (X2)
Lower =
business. Micro 5.8% 0% .062** Micro 24% 20.5% .510
(%)
Small 6.8% 15.4% .145 Small 15% 13.8% .889

Med 19% 35% .249 Med 40% 9.7% .027*

(X2) (X2)
* = 5% level.
**= 10% level.
MW = Mann-Whitney U test
X2 = Pearson Chi-Square

13
The results in Table 2 show family firms have a significantly higher usage of working

proprietors, partners and directors than non-family firms in ten out of the twelve

possible combinations of industry and size. However, in contrast to this, there is only

a significant difference (less) between family and non-family firms’ use of other full-

time managerial employees in two instances. There are only five instances of

significant differences between family and non-family firms in regard to the size of

their total management teams and surprisingly, four of these show family businesses

having a larger team than non-family businesses. The retail trade industry stands out

for this variable with family firms from all three size categories having significantly

larger management teams.

There are also five cases where family firms’ use of business plans is significantly

less than non-family businesses. For the next three items, comparing performance,

budget forecasting and income/expenditure reports, there is very little significant

difference between family and non-family businesses with only one, two and one out

of twelve respectively. A similar situation is apparent for general tertiary

qualifications of the major decision-maker, while tertiary qualifications of a business

nature increase to four out of twelve. In the later case however, three of the four

differences is for medium sized firms across three different industries.

Table 3 shows that the range of significant differences across industries is not large

and similarly, the range of significant differences across firm size is not great.

Unexpectedly, small sized firms rather than micro-firms show the least difference

between family and non-family businesses.

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 Table 3
Significant Differences across Industries and Firm Size
Micro Small Medium Total
(9 possible) (9 possible) (9 possible) (27 possible)
Manufacturing 2 3 4 9

Wholesale 2 2 4 8
Trade
Retail Trade 3 2 2 7

Property & 4 1 3 8
Business Svcs
Overall 11 8 13 32
(36 possible) (36 possible) (36 possible) (108 possible)

DISCUSSION AND CONCLUSION

Overall, the striking aspect of these results is the lack of difference between family

and non-family firms in all but one variable when both size and industry are

accounted for. In fact, when the first variable, ‘working proprietors, partners or

directors’ is omitted, the results show 22 significant differences out of a possible 96;

that is, differences in approximately 23 per cent of cases. In Smith’s (forthcoming

(a)) study, where only industry was accounted for, similar calculations yield double

this percentage at 46 per cent of cases (although this comparison is muddied

somewhat by the fact that the latter study examined nine industries and only utilised

incorporated firms while the present study only examines four industries with both

incorporated and unincorporated firms).

When variables other than ‘working proprietors, partners or directors’ are examined

according to the numerous combinations of industry and firm size, only one (medium

sized firms for the business qualifications of major decision-maker variable) shows

significant differences between family and non-family firms in a majority of

industries. Even then, the direction of one of these (property & business services) is

15
the opposite to the other two. It therefore appears that when both industry and the size

of the firm are accounted for, the differences between family and non-family

businesses in relation to these variables are less than expected given the literature, and

the differences that are there are not concentrated in any particular combination of

size and industry.

This is not to say there are no differences between industries. The range of responses

from family firms in all four industries to the variables examined are shown in Table

4. As can be seen, in some cases the difference between industries is quite large.

However, the results indicate that in the vast majority of cases these same differences

are apparent for non-family businesses as well.

Another aspect of a broad appraisal of the results is that in nearly all cases other than

that of ‘working proprietors’, as the size of the firm increases, so too does the

incidence of the respective managerial practice or characteristic, regardless of industry

or whether the firm is a family business or not. Such results are consistent with

Moores and Mula’s (2000) findings and provide intuitive support for other literature

outlining the evolution of management practices as firms grow; however, they also

supports Westhead’s (1997) call for greater firm context when carrying out family

business research.

Although the results show a relatively wide variation in the type of significant

differences across industries, the level of differences across industries (Table 3) is

actually very similar with a low of seven, a high of nine, and two industries with eight

16
 Table 4
Range of Family Firm responses across industries
Managerial characteristic or behaviour Lowest - highest response across
industries
1. Working proprietors, partners or Micro 98.1% to 100%
directors. (%)
Small 98.9% to 100%

Medium 98.4% to 100%

2. Other managerial employees. (%)
Micro 21.2% to 37.9%

Small 84.5% to 90%

Medium 90% to 100%

3. Total management team.
(median number) Micro 2 to 2

Small 4 to 5

Medium 6 to 11.3
4. Formal strategic or business plan.
(%) Micro 11.6% to 16.5%

Small 25% to 36.3%

Medium 40% to 47.5%

5. Compared performance with other
businesses. (%) Micro 6.5% to 15.1%

Small 17.2% to 45.8%

Medium 20.6% to 76.2%

6. Carried out budget forecasting.
(%) Micro 30.2% to 40%

Small 55.9% to 70.7%

Medium 60% to 79.4%

7. Created regular income/expenditure
reports. (%) Micro 50% to 58.9%

Small 83.1% to 86.2%

Medium 85.7% to 100%

8. Major decision-maker tertiary degree
(%) Micro 14% to 48.1%

Small 13.6% to 30%

Medium 21.2% to 50%

9. Major decision-maker business degree
(%) Micro 3.2% to 24%

Small 6.8% to 16.3%

Medium 9.1% to 40%

17
significant differences each. For proposition 1 (variation in level of difference

between industries) then, the results are mixed and only provide weak support for it’s

contention.

For proposition 2 (retail trade differences much less) the results are even less

supportive. Although the industry results in Table 3 show ‘retail trade’ as the

industry with the lowest level of significant differences, the difference in level is only

marginal. That is, the level of difference in the retail trade industry is only less, rather

than ‘much less’ than other industries. This contrasts markedly from the industry

results generated in Smith’s (forthcoming (a)) study where the size of the firm was not

accounted for.

The results also provide mixed support for proposition 3 (micro-firms less different).

When the results in Table 3 are examined by industry, it is apparent that in the

‘manufacturing’ and ‘wholesale trade’ industries (particularly the former) the level of

differences between family and non-family firms increases with the size of the firm.

However, for the remaining two industries the opposite is the case, and overall, it is

small sized firms who have the lowest level of differences. In fact, small sized family

firms in the ‘property and business services’ industry only differ from non-family

firms in their use of formal business plans.

The persistently high level of working proprietors, partners or directors across

industry and firm size shown in this study, and across growth stages shown in Smith’s

(forthcoming (b)) earlier study, not surprisingly confirm this as an enduring and

fundamental difference between family and non-family businesses. However, the

18
results for non-family firms in relation to this variable, although relatively consistent

across industries, show a steady decline as firm size increases. Interestingly, the level

of decline is not as deep as that found for high growth SMEs in Smith’s (forthcoming

(a)) study. However, the results are still consistent with and provide strong support

for proposition 4.

This aspect of the findings is also consistent with the literature claiming the tenure of

family business CEOs is longer than that of non-family firm CEOs, although this

evidence is circumstantial and not conclusive. In contrast to this, the results provide

no support for literature claiming family businesses have less formal internal control

systems, smaller management teams, fewer owner/directors holding university

degrees or lower use of business plans relative to non-family businesses.

Overall, the study demonstrates that the size of a firm is an extremely important

contextual variable to account for. The contrast between the results shown here and

Smith’s (forthcoming (a)) earlier study, which accounted for industry but not size, are

appreciable. This indicates that both contextual elements probably need to be

accounted for when examining differences between family and non-family firms if the

results are to be meaningful. As it is, these results tend to imply that the managerial

differences between the two groups (at least up to the 199 employee size) are not as

great as that portrayed in much of the literature.

As a consequence, these results should provide strong motivation for new empirical

studies that control for a similar level of context. Replication studies, both in

Australia and other locations, are called for. Additional studies in Australia would be

19
useful not just to confirm these findings but also to overcome the study’s key

weakness, viz., the age of the survey data. New studies in Australia would outline the

contemporary situation in this area and, if changes have occurred, identify any trends

that may have developed; while overseas studies of this nature would help ascertain if

the results reported here are globally universal or not. Future studies that control for a

similar level of context should also be carried out in other functional areas of a firm’s

operations. Perhaps then, most of the circumstances where family businesses truly

differ from non-family businesses can be identified and investigation can begin on the

causes of these observed variations.

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Cromie, S., Stephenson, B., & Monteith, D. (1995). The management of family firms:

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