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What about family businesses?

POSTED: June 27, 2014 12:00 p.m.
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According to research conducted by the Cox Family Enterprise Center, 80 percent of the world's businesses are family-owned, and 60 percent in the U.S. In fact, in this country, family-run businesses account for more than half of the gross domestic product.

Perhaps neither of the first two statistics are surprising. But, consider that nearly 35 percent of Fortune 500 companies are family-owned businesses. Many large companies also fall into this category, including Ford, Wal-Mart, Lowes and Ikea.

What impact do family-owned companies have? They account for 60 percent of total U.S. employment, and 78 percent of all new jobs. In regard to gender issues, more than 25 percent of family firms expect the next CEO to be a woman.
Despite the diversity in terms of size and industry, family businesses have several characteristics in common. A 2012 article in the Occupational Digest published by the British Psychological Society, "What’s So Special About Family Firms?," discusses some of these characteristics.

First, many family businesses are run by owners who have a long-term and generational perspective. In many cases, they see themselves as stewards for the future.

Second, family businesses tend to operate more informally than other businesses. Handshake deals are not uncommon, and things can get done more quickly.

Third, trust-based relationships are an important part of how and with whom they do business. Family businesses form more long-term relationships with suppliers and advisors.

Fourth, meritocracy is not always at work within family businesses. It’s not always the best person who gets hired and promoted. Family nepotism can lead to underperforming companies.

With family businesses making up such an important part of the economy, it’s important that we understand how family businesses view the current economic and regulatory environment.

Family businesses are increasingly concerned about the role government policy is playing in their business planning and future growth. Last year’s Family Enterprise USA Annual Survey of family firms indicated that 91 percent, up from 82 percent the year before, said that external factors were a greater threat to the future of their family business. According to the survey, this indicates “an even more heightened sensitivity to the role government policy and uncertainty is playing in business planning and development."

As to government policies affecting family businesses, and all business for that matter, it keeps coming back to the same public policy issues in no particular order. This list is also not all-inclusive: the size of government deficits, reforming the tax code, immigration reform, health care and the minimum wage.

With the current political divide and 2014 being an election year, there is little doubt that much of what worries family business leaders will remain uncertain and will not be resolved.

John Hoffmire is director of the Impact Bond Fund at Saïd Business School at Oxford University and directs the School of Business and Poverty at the Wisconsin School of Business at UW-Madison. He runs Progress Through Business, a nonprofit group promoting economic development. Jerry Kalish, Hoffmire’s colleague at Progress Through Business, did the research for this article.

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