Country Experiences in Identifying Enterprise Groups and Incorporating them into Statistical Business Registers Workshop on Business Registers and their Role in Business Statistics in the Eastern UNECE Region - 5 October 2009

Developing Enterprise Groups Definitions Existing situation Issues

The Context Businesses are becoming more complex Accounting systems differ from their operating structures Structures cross national boundaries

Statistical Units (EU Standard) Enterprise Group – group of legal units or enterprises under common control Enterprise – smallest group of legal units within an enterprise group with a certain degree of autonomy Legal Unit – the administrative unit, usually from a system requiring the registration of businesses, usually equating to an enterprise

The Statistical Business Register (BR) In the past the BR was a list of establishments (local kind of activity units or local units) – e.g. factories, mines, shops Now most BR have moved to a list of legal units, often showing the relationship between the legal unit and its establishments In the European Union, countries have developed (or are developing) systems holding relationships between legal units

Main types of legal unit Incorporated (often called a company or corporation) Partnership Sole proprietor Government (central, state or local) Non-profit

The Concept of an Enterprise Group The enterprise group is a cluster of legal units under common control This is usually through the ownership of shares The owning legal unit may have direct or indirect control through >50% of the shares or, occasionally, through a controlling interest at board level A legal unit can be controlled by only one legal unit but other legal units may have a minority interest

Enterprise Groups All enterprise groups are defined by the relationship between one legal unit and its immediate parent This generates a complete tree structure The legal units form a cluster of control One legal unit is the group head – this is usually an incorporated business but may be a government body or non-profit organisation

US DE GB FR GB AU Example of a Global Cluster of Control CLUSTER OF CONTROL

Truncated Enterprise Groups The truncated enterprise group is the cluster of legal units within a country Legal units can operate only in one enterprise Enterprises based on more than one legal unit are allowed, provided all of the legal units are in the same truncated enterprise group

US GB AU DE FR Truncated Enterprise Group for GB (and DE and FR)

US DE GB FR GB AU The Global Group

Truncated Enterprise Group: 4 legal units = 2 enterprises

Stages of development 1Maintaining a list of establishments, usually though a census of businesses 2Using administrative sources for identifying legal units (business registration, tax systems etc) 3Relating establishments to their legal units 4Creating enterprises based on legal units, for the more complex businesses 5Creating ownership relationships to form enterprise groups

Sources for enterprise groups Administrative sources (e.g. company accounts, National Bank Solvency Centre (Serbia)) Statistical surveys (e.g. annual structural business statistics requesting ownership details) Private sector databases (e.g. Dun and Bradstreet, Bureau van Dijk, Experian) Profiling (direct contract with businesses through visit, telephone or mail – feasible only for a few large businesses)

Quality of sources (1) Not all information on relationships is public Sources are incomplete and not standardised Structures are often complex and include lots of legal units that are not active

Quality of sources (2) Businesses change their structures frequently Businesses have operational structures that differ from their administrative structures Acquisitions and mergers are common but take time to settle down

Technical issues (1) Business registers are often large They generally hold list of business units but not the relationships between them Even when they hold relationships, it is difficult to manage changes in the relationships

Technical issues (2) It is expensive to capture information on relationships Changes to structures may be notified only after a delay or not at all Changes may be notified out of sequence

Country of Ownership The immediate owner is the legal unit with a controlling interest The ultimate beneficial owner or global group head controls all legal units in the group The country of the owner is the country of registration This is difficult where “tax havens” are used or where there is a family group or a natural person runs the group

Sharing Data As many important enterprise groups operate outside national boundaries, the statistical office may not have the authority to collect information for the whole group Even within the national boundaries, it may not be possible to share information between authorities Private data suppliers will usually not have complete access to information

The Role in Statistical Systems With all of these difficulties, why bother?  Statistical data collection could have under or over coverage, both nationally and globally  Foreign Affiliate Trade Statistics require knowledge of all owners and subsidiaries outside the national boundaries  Foreign Direct Investment Statistics require knowledge of immediate owners and subsidiaries outside the national boundaries 

Is it worth it? The European Union (EU) thinks it worthwhile:  Business Registers Regulation  EuroGroups Register project A Business Register with enterprise groups can provide a direct route to substituting survey data by administrative (accounting) data

What steps can be taken?