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Defining ‘family business’: Did Credit Suisse get it wrong?

A recent study by Credit Suisse Group AG, cited by the financial news site 24/7 Wall St., found that family-controlled public companies outperform non-family companies on several metrics. According to the “Credit Suisse Global Family” analysis, as reported by 24/7 Wall St., family businesses have a 4.3% higher return on equity than the benchmark, and a cash flow return on investment that is more than 9% higher. (The “Credit Suisse Global Family” index is limited to companies with a market cap that exceeds $1 billion.)

This news is nice to hear, especially since it confirms earlier studies. For example, Morgan Stanley reported in 2005 that family businesses listed on the S&P 500 outperformed the index in 2000-04 by 4.4% over one year, 19.6% over three years and 109.7% over five years. And a 2003 study by researchers Ron Anderson and David Reeb found that return on assets for companies still controlled by the founding family was 6.65% higher on average than for non-family businesses.

All well and good. But when I examined the companies in the latest Credit Suisse study, something seemed amiss.

The 24/7 Wall St. article identified the top 10 U.S. companies from the Credit Suisse Global Family list. The first company is no big surprise: Wal-Mart. Descendants of founder Sam Walton have a stake of about 50% in the retail giant, and the late founder’s grandson-in-law Greg Penner just succeeded his father-in-law, Rob Walton, as the company chairman. Though it’s publicly traded, Wal-Mart certainly qualifies as a family firm.

But farther down the list, things get murkier. Oracle? Google? Facebook? Kinder Morgan? Nike? Does anyone other than Credit Suisse consider those to be family companies?

What makes a company a family business? No one knows for sure. As researchers Melissa Shanker and Joseph Astrachan wrote in Family Business Magazine’s Spring 1996 issue, “When pressed, even experts in the field have trouble articulating a precise definition.”

When Shanker and Astrachan set out to measure the impact of family businesses on the U.S. economy in the 1990s, they didn’t settle on one definition -- they used three alternatives. To quote from our article:

• In the broadest and most inclusive definition, family has an influence over strategy and major policies, and has at least stated the intention of keeping the business in the family. Family members may own significant portions of stock and sit on the board, but none necessarily work in the business.

• The middle group is defined by the same criteria, plus one other: The founder, or descendants of the founder, still run the company on a daily basis.

• The tightest definition includes only firms in which multiple generations participate; family members are involved in daily operations, and more than one of them has significant management responsibilities.

Dan Rottenberg, my predecessor, came up with his own definition in 2000:

• A single family controls the company’s ownership.

• Members of the controlling family are currently active in top management.

• The family has been involved in the company for at least two generations -- or seems likely to be.

• The company must pass an indefinable “feel test”: Does it feel like a family business?

In compiling its “Global Family” list, Credit Suisse used a simple criterion: Companies on the list have a family shareholding of at least 20% of shares outstanding. But while Larry Ellison (Oracle), Larry Page and Sergey Brin (Google), Mark Zuckerberg (Facebook), Richard Kinder (Kinder Morgan) and Phil Knight (Nike) own large stakes in the companies they founded, their companies feel more like sole proprietorships (or, in the case of Google, a two-person partnership) than family businesses. In my view, they don’t fit any of Shanker and Astrachan’s definitions, nor do they fit Rottenberg’s.

If the U.S. government required companies to register as family businesses (as businesses must register as C or S corporations or LLCs, or file for IPOs), researchers would have an easier job of identifying which ones qualify as family firms and which ones don’t. But given business families’ desire for privacy and dislike of government regulation, that seems unlikely to happen in the U.S. anytime soon.

One thing is clear, no matter which definition of “family business” you prefer: There is plenty of room for debate on the issue.

Bringing gender diversity to your board

Last month our sister publication Directors & Boards hosted a webinar entitled “Women on Boards: Teeing Up Talent for Your Board’s Future.” The program presented recent research studies linking gender diversity in the boardroom to improved financial performance, better decision making and an enhanced corporate image, among other advantages.

The webinar focused primarily on public company boards, but much of the discussion was also relevant to privately held family companies. Nancy E. Sheppard, founder and CEO of Women2Boards -- a referral service for women director candidates -- provided evidence demonstrating how the presence of female board members can help a company. Among the studies Sheppard cited were the following:

• A 2013 report from Credit Suisse on gender diversity and corporate performance, based on the performance of 2,360 companies globally, found that “companies with one or more women on the board have delivered higher average returns on equity, lower gearing, better average growth and higher price/book value multiples over the course of the last six years.”

• Aaron A. Dhir of York University’s Osgoode Hall Law School found that gender diversity on boards results in enhanced dialogue; better decision making, especially around the value of dissent; more effective risk mitigation and crisis management; higher-quality monitoring of and guidance to management; positive changes to the boardroom environment and culture; and more orderly and systematic board work.

• A 2015 analysis by MSCI Inc. found companies that invest in gender diversity at high levels are less likely to fall prey to fraud, corruption and governance-related controversies.

Family businesses have been making slow progress in this area. A report in the March/April 2015 issue of Family Business Magazine focusing on women directors noted, “Over the past three decades, an increasing number of business families have recognized that granting leadership opportunities to qualified women makes good business sense. But in most family companies with women directors, the women who serve on the board are members of the family that controls the company. Women independent directors are still a rarity.”

In our article, Susan Stautberg, CEO, co-founder and co-chair of WomenCorporateDirectors (a global membership organization for female directors), said, “Boards can’t afford to have directors who all think alike. They need men and women who will bring the best ideas to the table and offer the broad thinking companies need to deal with the challenges they face.”

In addition to Sheppard of Women2Boards, speakers who participated in Directors & Boards’ webinar were Jim Kristie, D&B’s editor; Jeffry Powell, executive vice president of Diligent Board Member Services; and Gabrielle Greene-Sulzberger, who is a director at Whole Foods and Stage Stores and a general partner in the private equity fund Rustic Canyon/Fontis Partners (and the wife of Arthur Sulzberger Jr., publisher and chairman of the family-controlled, publicly traded New York Times). A replay of the webinar is available, free of charge, here.

What ‘Consumer Reports’ missed in its ‘Made in America’ exposé

In its current issue (dated July 2015), Consumer Reports explains that the “Made in America” label often gets misused, and the standards for permissible use of the label are confusing. The article listed a number of U.S. companies whose products are not 100% made in America with all-American components.

The Consumer Reports article noted that nearly 80% of U.S. consumers say they would rather buy an American-made products than an important one, and 60% say they would be willing to pay 10% more for an item made in America.

We at Family Business Magazine thought Consumer Reports missed something: an appreciation of U.S. family businesses whose products are 100% made in America by American workers.

I wrote a letter to the editor of Consumer Reports, which you can read below.

A coalition of family business education programs across the country -- spearheaded by Ira Bryck, director of the UMass Amherst Family Business Center -- has developed a website,, to highlight family companies committed to making their products in the USA.

Here’s what I wrote to Consumer Reports:

To the Editor:

I read with interest your July 2015 article “Made in America.” You provided a public service by explaining that the Federal Trade Commission’s standards for acceptable use of the “Made in the USA” label are confusing, and that some manufacturers misuse the label.

Your article helpfully included a list of American companies whose products contain components made outside the country or assembled overseas.

At the same time, it is important to note that there are American family businesses that are committed to making their products here in the USA and employing American workers.

Family businesses face the same competitive issues as other companies, which is why many family firms have opted to use overseas labor or materials. However, one can indeed find family businesses whose products are truly “Made in America.” Here is a sampling:

• Just Born Candy, makers of Peeps, Mike and Ike and other brands:

• The Wiffle Ball Inc., producing equipment for the classic backyard game since 1953:

• K’nex, makers of the popular building toy:

• Thorlo Inc., sock makers:

• Annin Flagmakers, American flags made in America:


Barbara Spector

Editor-in-Chief & Associate Publisher

Family Business Magazine


Podcast discusses ‘Daughters in Charge’

I recently participated in the “Daughters in Charge” podcast, hosted by family business consultant Amy Katz, Ph.D.

Amy and I discussed trends related to women in family businesses. Among other topics, we talked about the various roles available to family business daughters, even if they don’t work for the family’s operating company.

Listen to the podcast here:

A nuanced view of family enterprise longevity

As I have noted before, leading scholars in the field of family enterprise have debunked the notion that selling a family business -- even one that has been in the family for many generations -- represents a “failure” or that sustaining a family business indefinitely is always a desirable goal.

A landmark study published in Family Business Review in 2012 -- known as the FFI/Goodman Study on Longevity in Family Firms -- assessed more than 100 business families from around the world and found that nearly 90% owned multiple businesses, and that over their history, these families had spun off an average of 1.5 companies. In other words, these successful business families do not hesitate to sell businesses when circumstances warrant doing so.

Current thinking in the field emphasizes that value is created by a family rather than a family business. Families who are continuing to invest together profitably and harmoniously after selling their operating company -- such as the Power family, featured on the cover of Family Business Magazine’s May/June 2014 issue, or the Agnew family, who appear on our May/June 2015 cover -- represent what family enterprise is all about.

Dave Power and his family sold J.D. Power and Associates to McGraw-Hill in 2005. Dan Agnew and his family merged their beverage distributorships with another family beverage company in 2008 and then sold the merged company in 2012. Both families capitalized on attractive opportunities and are continuing to work together to create wealth, engage in philanthropy, and develop governance structures to ensure long-term sustainability

In a recent edition of The Practitioner, an online publication of the Family Firm Institute, Patricia Angus notes that the myth of the family business as monolith (that a family controls only one business) has had dangerous implications for estate planning.

Angus, a consultant on philanthropy and family governance and an adjunct professor at Columbia Business School, writes: “Trust agreements often prohibit sale of a family business, or at least relieve the trustee of the duty to diversify so that the family business can be held in trust. Provisions forcing the retention of the business can be so inflexible that they can have adverse consequences for the family and enterprise…. A mandate, even if unspoken, to keep a business intact can become quite troublesome; a little flexibility can go a long way to help the family over the long run.”

In other words, think about your real long-term goal. Is it to perpetuate a particular operating company, no matter what the marketplace conditions may be, or to continue collaborating on ventures that provide income and satisfaction to family members? Think about your family’s future entrepreneurs, and make sure you aren’t tying their hands.

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