In 2008 and 2009, the U.S. labor market lost 8.4 million jobs, or 6.1 percent of all payroll employment. This was the most dramatic job shortage from any recession since the Great Depression. By comparison, in the deep recession that began in 1981, job loss was 3.1 percent, or only about half as severe. As the nation recovers, family-owned businesses have come out of the recession as stronger and more nimble companies. According to Dr. JoAnne Norton, a consultant with the Family Business Consulting Group based in Chicago, Illinois, 60 percent of Americans own or work for a familyowned business, and many of them are actively outperforming their non-family-controlled competitors. The ownership structure of family businesses often makes for a long-term orientation that traditional public firms may lack, giving them an upper hand in challenging times. A study published in the Harvard Business Review contends that during good economic times, family-run companies do not earn as much money as companies with a more dispersed ownership structure; but when the economy slumps, family firms outshine their peers. When the Review studied business cycles from 1997 to 2009, they found that the average long-term financial performance was higher for family businesses than for non-family businesses in every country they examined. While public companies
focus on maximizing profits, family-operated businesses are likely to develop unique characteristics that keep them resilient during even the most challenging times.
Personal Patience The family firm is in many ways the epitome of “patient capital.” These businesses are willing to invest for the long term and do not suffer from the constraints imposed on their competitors by the quarterly reporting cycle and the need for quick returns. “When a business thinks long-term, it doesn’t have to squeeze every penny out of an upturn,” said George Nelson, Jr., CEO of Louisiana Companies and Querbes & Nelson, independent risk management and insurance firms, and the chairman of Centenary’s Board of Trustees. “A business should be real sure it takes care of managing funds on the downside. For non-family-owned businesses, there may be more inclination to take risks, and if it doesn’t work out, you just say ‘oops’ and work somewhere else. If your father and grandfather ran it before you, you sure don’t want to be the one who kills it.” Nelson, who is third-generation at Querbes & Nelson, argues that because owners of family businesses have a more personal connection to the money that is spent, they are more risk-averse and less likely to take on debt. Companies that took on too much debt in the early years of the Great Recession simply could not generate enough cash flow to pay their bills causing more than 170,000 small businesses in the U.S. to close between 2008 and 2010, according to analysis by the Business Journals of U.S. Census Bureau data.
BY THE NUMBERS
60 50 35 90
percent of America’s employment comes from family businesses percent of the U.S. gross domestic product is from family businesses percent of Fortune 500 companies are family-controlled percent of business enterprises in North America are family firms