Family Businesses Create the Most Jobs

YOUNGSTOWN, Ohio — Family businesses account for 64% of U.S. gross domestic product, generate 62% of the country’s employment and account for 78% of all job creation.

Family-owned businesses are the backbone of the American economy. Studies have shown about 35% of Fortune 500 companies are family-controlled and represent the full spectrum of American companies from small businesses to major corporations.

According to the U.S. Census Bureau, family firms comprise 90% of all business enterprises in North America. Here are some facts about family businesses:

• Research shows that family businesses are less likely to lay off employees regardless of financial performance.

• The mean age of family control in the family’s core company is 60.2 years.

• More than 30% of all family-owned businesses make the transition into the second generation; 12% will still be viable into the third generation, with only 3% of all family businesses operating at the fourth-generation level and  beyond.

• Recent research indicates, however, that the first transition has changed to 19% in the last five years. This is thought to result from millennials not wanting to take over the traditional family business, but perhaps selling and using the proceeds to start a different, but still family controlled, enterprise.

• Of primary importance among family firm wealth holders is transferring not only their financial wealth but also their values surrounding their wealth to subsequent generations. Primary values taught include encouraging children to earn their own money, philanthropy, charitable giving and volunteering.

• Family businesses retain talent better than their competitors do. Only 9% of family businesses workforces turned over annually (11% at non-family firms), finds a Harvard Business Review study. They create a culture of commitment and purpose, avoiding layoffs during downturns, promoting from within and investing in people.

Family businesses have strong entrepreneurial activity across time. On average and over the family’s history these families controlled 6.1 firms, created 5.4 firms, added 2.7 firms through merger and acquisition activity, spun off 1.5 firms and shifted industry focus 2.1 times. These families exhibit a high level of rearranging the portfolio of activities through founding activity, mergers and acquisitions, as well as divestments.

• In S&P 500 companies, return-on-investment is greater in family businesses, with a 6.65% greater return than non-family firms.

• Family-owned businesses practice good governance. A Harvard Business Review study showed 94% of surveyed family firms were controlled by supervisory or advisory boards. Family representation on these boards averaged 31%, demonstrating a clear separation between family and business in most cases.

• Family businesses leaders focus on the next generation, not the next quarter. They tend to embrace strategies that put customers and employees first and emphasize social responsibility.

• A study of 114 family firms and 1,200 other large companies for their organizational health found that family-owned businesses score significantly higher on things like worker motivation and leadership.

• Currently, 24% of family businesses are led by a female CEO or president, and 31.3% of family businesses surveyed indicate that the next successor is a female. Nearly 60% of all family-owned businesses have women in top management team positions.

• Over the past five years, female-owned family businesses have increased by 37%. Female-owned family firms are typically 10 years younger than male-owned firms and more are first-generation businesses.

Source: Conway Center for Family Business