Your story is important

By Ann Kinkade

This spring, a diverse group of family business leaders from across the country converged in Washington, D.C., for Family Enterprise USA’s (FEUSA) Capitol City Family Reunion—the first time a representative body of family enterprises has ever done so. It was educational, enlightening and energizing as we shared our personal stories, successes and challenges. Despite our many differences, we found many common characteristics and identified several shared values. These commonalities provide an opportunity to cultivate a shared public image and to educate the media, policymakers and others on public policy issues that impact us all.

 

Refreshingly, family businesses have many allies in Washington. Fully one-third of the current Congress (House and Senate) comprises those with either direct or close indirect ties to a family business, according to an FEUSA report, The Many Faces of Family Business. Speaker of the House John Boehner, and the other Senators and Representatives with whom we met, applauded the work we were doing and encouraged us to “keep it up!”

 

How do we “keep it up”? A major takeaway from our gathering was the critical need for family enterprises to speak collectively to lawmakers and the media to help them understand and appreciate the value of family businesses to our economy and our nation’s prosperity. “You have the story,” we were told repeatedly. We must educate in order to advocate, using our stories, especially when it comes to dispelling the myths about family enterprises.

 

Myth: Family enterprises represent a small subset of the business sector.

 

For years I taught a university course on family business ownership. At the beginning of the semester, students would often tell me that they were not sure if they wanted to work for a family business or, instead, a “regular business.” By the end of the semester, they understood that family businesses are the regular businesses.

 

Research by Dr. Joe Astrachan indicates that there are 5.5 million U.S. family businesses, employing 63% of the workforce and generating an impressive 57% of our GDP. Family-owned businesses cross almost every sector, including manufacturing, restaurants, retail, construction and service.

 

Perhaps the biggest key to the success of family enterprises is their long-term planning horizon. We are not driven by the opportunity to make short-term profit; instead we espouse “patient capital.” Research also shows that family business leadership tenure is four to five times longer than in non-family firms. All of this creates a stabilizing force within our companies, the communities in which we operate and our country overall. What’s good for family enterprises is good for everyone.

 

Family firms are resilient and have a propensity to retain employees even in a tough economy. More than half (54%) of FEUSA’s 2011 survey respondents indicated that they intended to hire more workers in the next year, while only 8% would be reducing their workforce. Many older firms in our survey pool demonstrated core strength in the face of the recession; one-third of businesses with 60-100 years of operation actually increased their workforce over the last two years! (Full survey results are available on the FEUSA website.)

 

Myth: Family businesses are small businesses.

 

I often hear this in conversations with policymakers, mainstream media, deans of universities and even family business owners themselves. True, many family-owned businesses are considered “small businesses,” but we also represent Fortune 500 companies and publicly traded companies. When family is involved in ownership or management, you can be sure the company shares values (such as integrity, patient capital and commitment to employees) with other family firms, regardless of size. As such, our issues aren’t always the same as “small business” interests.

 

Myth: The interests of family enterprises are met through industry trade associations or other groups.

 

Many of our survey respondents are members of industry trade associations; I applaud this because trade associations are adept at addressing industry-specific issues. While 72% of our respondents felt that lobbying on federal issues was somewhat to very important to them, 55% said their industry association didn’t differentiate the needs of family businesses compared with its other members—or said they didn’t belong to trade associations. Clearly, it’s important for family firms to have a collective organization that understands their specific needs and advocates on their behalf.

 

Myth: Family firms are more concerned with internal family issues than other business challenges.

 

There seems to be a growing awareness among family firms about the importance of addressing their internal issues. Family Business Magazine is an excellent resource that highlights challenges family firms have faced and narrates how we have overcome them.

 

FEUSA’s survey indicated that concerns about external issues, particularly government regulation and ongoing uncertainty, are a greater threat to their continuity than internal issues. In fact, well over half of respondents favored long-term predictability when it comes to the tax code, over more favorable short-term tax provisions. Support for long-term predictability vs. short-term benefit ran greatest among businesses with more than 30 years of operation. Established family businesses aren’t looking for preferential treatment from lawmakers. We want certainty.

 

Myth: The policy priorities of family firms are no different from other businesses.

 

Family firms often find themselves on an uneven playing field when considering the impact of laws on business.

 

One unfair policy burden on family businesses is the potential threat of reform that would alter the tax laws related to partnerships, S corporations, limited liability corporations or other so-called pass-through entities, and require that these business structures be treated as corporations for tax purposes. Many family-owned businesses are structured in this manner and such a reform would unfairly wreak havoc on them. The bigger question is, “When considering tax reform, how about developing a structure that supports family firm continuity—an FB Corporation, for example?”

 

Another example is a provision of the health care reform bill, which offers eligible employers a new tax credit to provide and pay for a portion of employee health insurance coverage. Sounds like a good idea. Unfortunately, it excludes family members of owners from counting as employees for purposes of the credit. For instance, if you are a family business owner with ten employees, but three of them are family members, you are ineligible for a tax credit for them.

 

There also exists the ongoing uncertainty surrounding the estate tax. Planning to anticipate and manage a family firm’s estate tax liability often takes years and significant resources (both financial and otherwise) that could be allocated to increasing productivity. It’s necessary, but it doesn’t add value to the firm. In worst-case tax burden scenarios, liquidation of assets or closing the business altogether is required. The amount of money collectively generated by the estate tax isn’t offset by the loss of business productivity, as has been cited in many studies.

 

Myth: The estate tax is an issue only for a few large family firms.

 

FEUSA’s 2011 survey suggests otherwise. Of the 300 family firm respondents, 65% said the estate tax was a “very important” issue that should be brought to the attention of federal policymakers. That sentiment was felt among family companies of all sizes, including firms with fewer than 100 employees, where 53% said it was “very important.” These data, as well as sharing your own personal experience with estate tax planning, are critical as lawmakers debate the future of estate tax rates expiring at the end of this year.

 

Dispelling the myths

 

As a family firm you can play an important role in dispelling these myths. Help the media and lawmakers understand and appreciate the value of family-owned enterprises to our recovering economy by sharing your story. The D.C. lawmakers we met with stressed the importance of being able to put a face on the issues that bring us together. They need to hear from you, whether you come to Washington, invite them to your place of business or align with others through FEUSA.

 

Invite the media and policymakers to your company and give them a tour. Ask what they think of when you say you are a family business. Partner with them to foster a productive and positive family business environment. Reach out to your local media to develop a relationship with them now; don’t wait for them to contact you when you face a crisis or other “issue.”

 

Family enterprises remain the one bright spot in a sluggish economy, and that’s a great success story to tell. Enterprising families need to work together to restore faith in the American dream by celebrating their historical achievements, and defining what is possible. Family Enterprise USA is committed to this mission. Through our membership organization, we highlight your positive contributions to our economy and society.

 

Keep it up!

 

Ann Kinkade is president of Family Enterprise USA, a national, non-profit 501(c)(3) organization that educates the general public, policymakers and the media about the collective issues facing family enterprises and publicly promotes their contributions to the common good (akinkade@familyenterpriseusa.org).

 

 

 


 

 

 

 

Copyright 2012 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permssion from the publisher. For reprint information, contact bwenger@familybusinessmagazine.com.

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September/October 2012

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