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: [email protected]
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 nonfamily 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 nonfamily 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
Small
Medium
230
232
63
189
261
130
419
493
193
1105
Wholesale Trade
Micro
Small
Medium
95
92
33
65
131
66
160
223
99
482
Retail Trade
Micro
Small
Medium
86
59
21
58
52
20
144
111
41
296
Property & Business Services
Micro
Small
Medium
104
20
10
132
87
31
236
107
41
384
1045
(46%)
1222
(54%)
2267
TOTAL
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, nonparametric/distribution free techniques of statistical analysis are employed
exclusively. For the first three variables in Table 2 this takes the form of MannWhitney 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
proprietors,
partners or
directors. (%
& median)
Micro
99.1% (2)
93.1% (1.3)
.000*
Micro
100% (2)
93.8% (1.7)
.020*
Small
99.6% (2)
82.4% (1.3)
.000*
Small
98.9% (2)
77.1% (1.3)
.000*
Med.
98.4% (2)
72.3% (1)
Med.
100% (2.7)
72.7% (1)
2. Other
managerial
employees.
(% & median)
Micro
27% (0)
25.4 (0)
.000*
(MW)
.718
Micro
37.9% (0)
38.5% (0)
.000*
(MW)
.942
Small
84.5% (2)
92.3% (2.3)
.006*
Small
84.8% (2.3)
91.6% (3)
.113
Med
100% (5.3)
98.5 (6.7)
Med
100% (7)
98.5% (8.2)
3. Total
management
team.
(median
number)
Micro
2
1.7
.324
(MW)
.000*
Micro
2
2
.480
(MW)
.145
Small
4
4
.734
Small
5
4.7
.477
Med
7
7.7
Med
9.7
9.5
4. Formal
strategic or
business plan.
(%)
Micro
14.8%
13.3%
.928
(MW)
.670
Micro
11.6%
15.5%
.864
(MW)
.499
Small
36.3%
42.4%
.179
Small
35.6%
50.4%
.033*
Med
47.5%
63%
Med
43.8%
65.2%
5. Compared
performance
with other
businesses.
(%)
Micro
6.5%
6.9%
.044*
(X2)
.884
Micro
14.7%
13.8%
.044*
(X2)
.875
Small
17.2%
17.2%
1.00
Small
27.2%
28.2%
.861
Med
20.6%
31.5%
Med
36.4%
43.9%
6. Carried out
budget
forecasting.
(%)
Micro
33.5%
30.7%
.114
(X2)
.543
Micro
40%
47.7%
.471
(X2)
.335
Small
67.2%
71.3%
.333
Small
70.7%
77.1%
.227
Med
79.4%
76.9%
Med
72.7%
90.9%
7. Created
regular
income/expen
diture reports.
(%)
Micro
55.7%
51.3%
.702
(X2)
.376
Micro
58.9%
72.3%
.017*
(X2)
.083**
Small
86.2%
83.9%
.476
Small
84.8%
85.5%
.883
Med
92.1%
84.6%
Med
97%
90.9%
8. Tertiary
qualifications
of major
decision
maker.
Upper = any.
Lower =
business.
(%)
Micro
19.1%
19.6%
.148
(X2)
.908
Micro
17.9%
18.5%
.267
(X2)
.927
Small
24.1%
35.2%
.007*
Small
28.3%
25.2%
.609
Med
27%
46.9%
Med
21.2%
28.8%
Micro
6.1%
5.3%
.008*
(X2)
.727
Micro
3.2%
9.2%
.419
(X2)
.102
Small
10.8%
14.6%
.209
Small
16.3%
16.8%
.923
Med
15.9%
27.7%
.071**
(X2)
Med
9.1%
22.7%
.097**
(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
proprietors,
partners or
directors. (% &
median)
Micro
98.8% (2)
96.6% (1)
.000*
Micro
98.1% (2)
93.9% (1.3)
.000*
Small
100% (2)
86.5% (1.7)
.003*
Small
100% (2)
93.1% (2)
.859
Med.
100% (2)
70% (1.3)
Med.
100% (2)
71% (2)
2. Other
managerial
employees. (%
& median)
Micro
26.7% (0)
25.9% (0)
.005*
(MW)
.907
Micro
21.2% (0)
33.3% (0)
.988
(MW)
.039*
Small
84.7% (2)
80.8% (1.7)
.581
Small
90% (2)
81.6% (1.7)
.368
Med
100% (8.7)
100% (6)
Med
90% (2.7)
96.8% (9)
3. Total
management
team.
(median
number)
Micro
2
1.7
1.00
(MW)
.000*
Micro
2
1.7
.393
(MW)
.196
Small
4
3.3
.053**
Small
4.5
4.3
.904
Med
11.3
7.3
Med
6
11.3
4. Formal
strategic or
business plan.
(%)
Micro
16.5%
13.2%
.001*
(MW)
.610
Micro
13.8%
24.6%
.060**
(MW)
.051**
Small
25%
30%
.564
Small
26.3%
47.6%
.091**
Med
45%
63.2%
Med
40%
66.7%
5. Compared
performance
with other
businesses. (%)
Micro
15.1%
20.7%
.256
(X2)
.386
Micro
6.7%
20.5%
.136
(X2)
.003*
Small
45.8%
40.4%
.568
Small
45%
36.8%
.495
Med
76.2%
70%
Med
50%
58.1%
6. Carried out
budget
forecasting.
(%)
Micro
30.2%
25.9%
.655
(X2)
.569
Micro
34.6%
44.7%
.655
(X2)
.117
Small
55.9%
59.6%
.695
Small
70%
72.4%
.828
Med
71.4%
80%
Med
60%
87.1%
7. Created
regular
income/expendi
ture reports. (%)
Micro
50%
39.7%
.523
(X2)
.222
Micro
50%
54.5%
.060**
(X2)
.488
Small
83.1%
71.2%
.134
Small
85%
82.8%
.809
Med
85.7%
85%
Med
100%
90.3%
8. Tertiary
qualifications of
major decision
maker.
Upper = any.
Lower =
business.
(%)
Micro
14%
17.2%
.948
(X2)
.591
Micro
48.1%
39.4%
.307
(X2)
.181
Small
13.6%
25%
.125
Small
30%
29.9%
.992
Med
23.8%
40%
.265
(X2)
Med
50%
25.8%
.153
(X2)
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
(X2)
Med
40%
9.7%
.027*
(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 fulltime 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.
14
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
Trade
Retail Trade
2
2
4
8
3
2
2
7
4
1
3
8
Property &
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
1. Working proprietors, partners or
directors. (%)
Lowest - highest response across
industries
Micro
98.1% to 100%
Small
98.9% to 100%
Medium
98.4% to 100%
Micro
21.2% to 37.9%
Small
84.5% to 90%
2. Other managerial employees. (%)
Medium
3. Total management team.
(median number)
4. Formal strategic or business plan.
(%)
5. Compared performance with other
businesses. (%)
6. Carried out budget forecasting.
(%)
7. Created regular income/expenditure
reports. (%)
8. Major decision-maker tertiary degree
(%)
9. Major decision-maker business degree
(%)
90% to 100%
Micro
2 to 2
Small
4 to 5
Medium
6 to 11.3
Micro
11.6% to 16.5%
Small
25% to 36.3%
Medium
40% to 47.5%
Micro
6.5% to 15.1%
Small
17.2% to 45.8%
Medium
20.6% to 76.2%
Micro
30.2% to 40%
Small
55.9% to 70.7%
Medium
60% to 79.4%
Micro
50% to 58.9%
Small
83.1% to 86.2%
Medium
85.7% to 100%
Micro
14% to 48.1%
Small
13.6% to 30%
Medium
21.2% to 50%
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.
REFERENCES
Astrachan, J., & Shanker, M. (2003). Family businesses’ contribution to the U.S.
economy: A closer look. Family Business Review, 16(3), 211-219.
Barry, B. (1989). The development of organization structure in the family firm.
Family Business Review, 2(3), 293-315.
Chaganti, R., & Schneer, J. A. (1994). A study of the impact of owner's mode of entry
on venture performance and management patterns. Journal of Business Venturing, 9,
243-260.
Cromie, S., Stephenson, B., & Monteith, D. (1995). The management of family firms:
An empirical investigation. International Small Business Journal, 13(4), 11-34.
20
Daily, C. M., & Dollinger, M. J. (1991). Family firms are different. Review of
Business (Summer/Fall), 3-5.
European Commission (1996). SMEs: recommendation of the commission. Official
Journal of the European Communities, L107(6), 1-2.
Gasson, R., Crow, G., Errington, A., Hutson, J., Marsden, T., & Winter, D. M. (1988).
The farm as a family business: A review. Journal of Agricultural Economics, 39(1),
1-41.
King, S. W., Solomon, G. T., & Fernald, L. W. Jr. (2001). Issues in growing a family
business: A strategic human resource model. Journal of Small Business Management,
39(1), 3-13.
Moores, K., & Mula, J. (2000). The salience of market, bureaucratic, and clan controls
in the management of family firm transitions: Some tentative Australian evidence.
Family Business Review, 13(2), 91-106.
Ram, M., & Holliday, R. (1993). Relative merits: Family culture and kinship in small
firms. Sociology, 27(4), 629-648.
Reid, R. S., & Adams, J. S. (2001). Human resource management - a survey of
practices within family and non-family firms. Journal of European Industrial
Training, 25(6), 310-320.
21
Sharma, P., Chrisman, J. J., & Chua, J. H. (1997). Strategic management of the family
business: Past research and future challenges. Family Business Review, 10(1), 1-28.
Smith, M. (forthcoming(a)) Family businesses are not always different: An empirical
comparison of some managerial characteristics of family and non-family SMEs across
nine Australian industry sectors.
Smith, M. (forthcoming(b)) An empirical comparison of the managerial development
of family and non-family SMEs from Australia’s manufacturing sector.
Van den Berghe, L. A. A., & Carchon, S. (2002). Corporate governance practices in
Flemish family businesses. Corporate Governance an International Review, 10(3),
225-245.
Westhead, P. (1997). Ambitions 'external' environment and strategic factor differences
between family and non-family companies. Entrepreneurship & Regional
Development, 9, 127-157.
Westhead, P., Cowling, M., & Howorth, C. (2001). The development of family
companies: Management and ownership imperatives. Family Business Review, 14(4),
369-385.
22