Outline for Family Business Research

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Overview of Family Businesses (FBs) and associated characteristics (good or bad) a) Lit review for prevalence of family business, definitions, impacts, etc. b) Stewardship perspective (Miller, Le Breton-Miller & Scholnick 2007; investigated, found empirical support) i) Long-term orientation that allows it to make investments that pay off over the long term (Colli, 2002) ii) Long CEO tenure in family firms (Gomez-Mejia et al., 2001) also allows leaders to make strategic commitments to customers, employees, and the communities that support them iii) Greater commitment to employees (1) Greater investment in training (2) More flexible and inclusive working conditions (3) slower to lay off in recession (higher retention) (confirmed(?) by Family Enterprise USA 2012 Survey of Family Firms) c) Stagnation perspective (Miller, Le Breton-Miller & Scholnick 2007; investigated, did NOT find empirical support) i) Lack access to resources (capital markets) because they wish to retain control, leading to slower growth ii) Conservative in terms of risk, overestimates risk in expansion/new markets iii) Less ambitious growth goals iv) Short-lived (do not survive as long as non-Family Businesses Economic Impacts of Family Owned Businesses a) Define what constitutes a Family Business i) Shanker & Astrachan 1996 (most attractive for quantifying CA firms and impact) (1) Broad (least family involvement) (a) Effective family control of strategic direction (b) Intended to remain in family (c) Shanker & Astrachan assume 100% of sole proprietorships, 60% of private partnerships and corporations, and 60% of public companies (2) Middle (some family involvement) (a) Founder or descendent runs company (b) Legal control of voting stock (3) Narrow (a) Multiple generations involved (b) Family directly involved in running and owning business (c) More than one family member with significant management responsibility (d) Shanker & Astrachan assume 35% of sole proprietorships, 21% of private partnerships and corporations, and 21% of public companies ii) Poza 2004 (lit review finds 21 different definitions over 250 studies) (1) Ownership control (15 percent or higher) by two or more members of a family or a partnership of families (2) Strategic influence by family members on the management of the firm whether by being active in management, by continuing to shape the culture, or by serving as advisors or board members

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(3) Concern for family relationship (4) The dream (or possibility) of continuity across generations iii) PWC Survey (2010-2011) (1) A family business is an enterprise in which the majority of the votes are held by the person who established or acquired the firm (or by his or her spouse, parents, children or childrens direct heirs); (2) at least one representative of the family is involved in the management or administration of the firm; (3) and, where the company is listed, the person who established or acquired the firm (or his or her family) possesses 25% of the voting rights through his or her share capital and at least one family member sits on the board. b) Statistics for US (nationwide) i) Number/Share of firms (1) Broad Definition = 90% (20.3 million) (Shankar & Astrachan 1996) (2) Narrow Definition = 18% (4.1 million) (Shankar & Astrachan 1996) (3) Can update to 2007 (http://www.irs.gov/pub/irs-soi/09fallbulsoleprop.pdf) ii) Share of GDP (1) Broad Definition = 49% (Shankar & Astrachan 1996) (2) Narrow Definition = 12% (Shankar & Astrachan 1996) (3) Update to 2011 (http://www.sba.gov/sites/default/files/2011_Data_Tables.xls) iii) Share of workforce (employment) (1) Broad Definition = 59% (Shankar & Astrachan 1996) (2) Narrow Definition = 15% (Shankar & Astrachan 1996) (3) Update to 2011 (http://www.sba.gov/sites/default/files/2011_Data_Tables.xls) iv) Share of new jobs created (1) Broad Definition = 78% (Shankar & Astrachan 1996) (2) Narrow Definition = 19% (Shankar & Astrachan 1996) (3) Update to 2011 (http://www.sba.gov/sites/default/files/2011_Data_Tables.xls) c) Statistics for CA (need to estimate) i) Number/Share of firms (1) Use Broad and Narrow definitions (2) Most recent IRS data for states is from 2007 (unclear if farms included) http://www.irs.gov/pub/irs-soi/09fallbulsoleprop.pdf ii) Share of GDP (1) Use Broad and Narrow definitions (2) CA data: unclear if the data are available for CA specifically, could scale from US. State GDP for 2010 available from BEA iii) Share of workforce (employment) (1) Use Broad and Narrow definitions (2) CA data: SBA, Census Data (http://www.sba.gov/advocacy/848/41391) iv) Share of new jobs created (1) Use Broad and Narrow definitions (2) CA data: SBA, Census Data (http://www.sba.gov/advocacy/848/41391)
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FBs Concerns/Priorities from Existing Surveys a) Family Enterprise USA 2012 Survey of Family Firms (national)

b) PWC 2010-11 Survey (international, with US broken out) c) Any CA specific? (none yet identified)
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Tax Issues Related to Succession of FBs a) Federal i) Estate Taxes (Succession as part of estate) ii) Capital Gains Implications iii) Other(?) b) State i) Capital Gains Implications ii) Property Taxes (transfer triggers re-assessment) iii) Other(?) Estimating Fiscal Impacts to CA if FBs granted state tax exemptions a) Bottom-up i) Estimate number of FBs in CA ii) Estimate % undergoing transfer each year (surveys indicate 20-25% each year) iii) Estimate avg property tax implication (deferral of increase in taxable value) iv) Estimate avg capital gains tax implication (size times rate) b) Top-down i) Take total property tax revenues and estimate % from FB succession ii) Take total capital gains tax revenues and estimate % from FB succession

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