Editor’s note: This column first appeared in Comstock’s magazine in Sacramento. It is part of a package of articles about family businesses, including several profiling FBA members.
The line from “The Godfather,” “It’s not personal, it’s strictly business,” does not apply to the members of a family business. For us, there are a wide range of emotions that start at an early age as we realize that we are part of something that consumes our parents’ time, including conversations at dinner and the holidays. These emotions continue into adulthood and certainly drive many decisions regarding our futures.
But the one emotion that stays with us whether we join the family business or choose another profession is pride and the desire to see the family business prosper into the next generation.
How does pride drive operating a family business? That depends on your generation. For the founding generation, your heart and soul goes into building a business that you hope will stand the test of time and attract the next generation to participate in keeping it going. For the next generation, you want to make the previous generation proud of your decisions and the direction you take the business. But you also seek to create the opportunity and atmosphere to entice the next generation to join the business.
My family is part of a multi-family business that sells and services tractors as a primary line. My grandkids don’t ask if Grandpa or Mom or Dad are at work; they ask if they are at the “tractor farm.” Those thoughts are cute and make us want to work even harder to cultivate a business that they will have the opportunity to operate someday.
What traits make up a successful family business? Family Business magazine’s editor-in-chief Amy Cosper recently identified five traits that I think are core parts of every successful family business:
Stability. We generally adopt a long-term perspective, focusing on legacy and generational continuity.
Authenticity. We thrive on personal relationships and genuine connections. Most of us are unapologetic and crystal clear about what we stand for.
Values. We are guided by core values and principles established by founders and embraced by generations and branches of a family tree.
Employee focus. We prioritize employees’ well-being and consider them a part of our extended family.
Community. We have deep-rooted connections within our local communities.
To be successful, we need advisors who can provide clear-eyed advice to family members about how best to maximize the value of their share of the family business. Unfortunately, this also often includes recommending if we would be better off financially by selling the business and moving out of California.
In many cases we would be. But what our advisors often do not recognize is that the emotional attachment to seeing the family business prosper and be passed on to the next generation is stronger than the desire to just make money and move on.
In our region, there are two organizations that really understand the emotions of being part of a family business. One is the Family Business Association of California, the only organization solely representing the interests of family businesses at our Capitol. As FBA’s chairman, I often meet with legislators, many of whom will fondly comment about coming from a family business even as they enact new laws and regulations that make it more difficult for their family to run their business. I imagine that must make for some interesting conversations at their family gatherings.
Another is the Capital Region Family Business Center, a nonprofit run by family businesses trying to figure out how to perpetuate their business to the next generation. Both organizations have clear missions, and I encourage all family businesses in our region to strongly consider joining them.
There is a lot of talk today about the purpose of business. The classic viewpoint is that it’s to maximize the return on investment for the shareholders. But others argue that businesses must expand their purpose to include multiple stakeholders — not just shareholders but also employees and their community.
The funny thing is, family businesses have been doing both for ages. The only way to perpetuate a family business is to make decisions that make sense for the long term. The business must be profitable and beneficial to the shareholders today, but it can’t just satisfy the stock market or a private equity partnership in the short term. The same logic applies to taking care of employees, customers and the communities that we serve. We must create an environment that allows for long-term success in all those areas.
Family businesses are the rock of our state’s economy and its communities. FBA will continue doing everything we can to educate our officials that they need to keep that in mind when devising new laws and regulations that, when you add them up, make owning a successful family business more and more difficult.
A wide range of emotions run deep within family businesses, from the anxiety about keeping it running to the simple pride of being part of a history. But in the end, it is worth every drop of emotion to create a future that benefits so many.
Ken Monroe is the president of Holt of California, a family-owned business since 1931 and a Caterpillar dealer for 16 counties, from Yuba City to Merced. He is also chairman of the Family Business Association of California.
Our guest contributor says that many family-owned businesses may leave California or sell out to larger corporations if Assembly Constitutional Amendment 1 becomes law.
California is notorious for being one of the worst places in the nation to do business. For years, businesses have dealt with the high cost of living, onerous and expensive regulations, complex employment laws and, of course, high taxes.
In fact, Chief Executive magazine consistently ranks the Golden State as having the country’s worst business climate, while the Tax Foundation ranks California 48th, ahead of only New York and New Jersey.
But thanks to Proposition 13, property taxes at least remain in the relatively moderate range and are predictable. In addition, local governments must obtain approval from two-thirds of the voters in most cases to raise local sales taxes, parcel taxes and general obligation bonds that are repaid via property tax bills. However, a proposal to make it easier to raise those taxes is quietly gaining momentum in the Legislature. Assembly Constitutional Amendment 1 last week was placed in the suspense file by the Assembly Appropriations Committee but is still very much alive and is scheduled for a hearing on Sept. 1. Should this constitutional amendment become law, it may well be the straw that breaks the back of many California family businesses. The California Taxpayers Association estimates that ACA 1 could increase local taxes by $255 million a year.
ACA 1 would reduce the two-thirds requirement for any “infrastructure” project with an easier-to-obtain 55% threshold. And the way infrastructure is defined, most tax increases would be covered. A fact sheet released by proponents makes it clear that raising taxes is the goal. It points out that just half of the tax proposals requiring a two-thirds vote are enacted, compared to 80% of school bonds, which can be approved with a 55% majority. Additionally, it notes that nearly 80% of tax measures needing a two-thirds vote received more than 55%.
While all businesses are affected by actions taken by lawmakers and regulators in Sacramento and at city hall, family businesses are often impacted especially hard. Most California family businesses are in the small to medium-sized range. Most don’t have the revenues that large corporations have to hire teams of lawyers and accountants to figure out the best way to cope with higher taxes and expensive regulations.
Family businesses should be supported, not burdened further. We are focused on the long term, not the next quarter. We are deeply rooted in our communities. And seven out of 10 family businesses have more than one generation of employee families working for us ⏤ loyalty few major corporations can match.
This isn’t the first time this measure has come before the Legislature, and in past years it failed to gain traction. This year, however, proponents of higher taxes seem to have momentum – even newly installed Assembly Speaker Robert Rivas is a coauthor.
As the Howard Jarvis Taxpayers Association puts it, “ACA 1 is a tax increase, and worse — it’s an engine to raise taxes over and over again in every local election, just by calling any government spending ‘infrastructure,’ even if it’s really for salaries, programs or to free up existing revenue to cover pension liabilities.”
If we lose the protections against higher property tax bills, on top of all the other factors that drive up the cost of doing business, you’re going to see more businesses leaving California or at least moving operations to more business- friendly areas. Family businesses that can’t move will be more likely to sell to larger companies that won’t necessarily have the same commitment to their communities and their employees.
And that would be a blow to communities supporting the measure that would be far greater than any increased tax revenue they might receive. We urge lawmakers to keep that in mind and defeat ACA 1.
Local governments want to make it easier to raise your taxes by reducing the majority needed from voters from two-thirds to just 55%. If passed by the Legislature this month, ACA 1 could appear on the 2024 statewide ballot. In an op-ed in the Sacramento Business Journal, I warn that if this measure becomes law, it could be the final straw for many California family businesses, in addition to all the other taxes, fees, and regulations the state imposes. FBA will always continue fighting to protect California family businesses at the state Capitol and we are urging lawmakers to vote no. You can read it here. (subscription may be required).
The Family Business Association of California is celebrating its 10th anniversary this year. While that may not be a record for longevity compared to many of the highly effective trade associations that have advocated on behalf of large and small businesses in California for decades, it is unique in that the FBA is the only organization that solely represents family businesses that have operated in California for as many as 100 years or more.
Too often, the interests of California’s estimated 1.4 million family-owned businesses – a critically important and large sector of California’s economy – were not considered as state officials made decisions about taxes, laws and regulations affecting the business community. Too often, as the old political saying goes, because family businesses weren’t at the table when these decisions were being made, we were on the menu. That’s especially true when it comes to perhaps our top priority – the need to keep our businesses family-owned from generation to generation.
The primary difference between family businesses in California and other businesses is our desire to stay in California, provide stable employment, participate in our local economies and take the long view of success. Family businesses are not bound by driving quarterly results but instead are generally focused on long-term financial success, satisfied customers and engaged employees. However, bills passed by the Legislature often do more harm than good to those many family businesses committed to our communities.
During its decade of working to promote family businesses in California, FBA has achieved a number of significant accomplishments, including:
Killing legislation to create a new inheritance tax that would have inhibited the passing of family businesses to the next generation.
Introducing legislation to add a definition of family business to state law.
Stopping proposals to limit how families move assets.
And helping defeat the “split-roll” property tax initiative and “single-payer” health care proposal, both of which would have cost our members billions of dollars per year.
These victories were important because the success and continuation of family businesses are essential to our state’s future prosperity. Studies have shown that nationally, family businesses generate 57% of the nation’s GDP, employ 63% of the workforce and create 75% of all new jobs.
Furthermore, in addition to our economic impact, family businesses serve as the foundation for our communities. Studies show that we engage in higher levels of philanthropic giving, donate more to local causes and have better records of environmental stewardship than businesses as a whole. In addition, we tend to invest more in our employees’ training and benefits, are more likely to promote women to executive management and are less likely to lay off workers in tough economic times.
Unfortunately, our elected officials and regulators need to be working to make it easier, not harder, for these essential companies to grow and thrive. Too often, however, that is not the case. Over 2,000 bills were introduced during the most recent legislative session and, according to CalTax, those with a fiscal impact would have imposed more than $198.9 billion a year in higher taxes and fees. As the 2023 session draws near, the state is looking at a projected $25 billion budget deficit that would grow much larger if the state and nation enters a recession. It is inevitable that many lawmakers will seek to increase taxes and add more regulations.
It is well documented that these taxes and regulations drive many businesses out of California leaving the deeply rooted family businesses of California as an even more important foundation for supporting our local economies. However, while it is becoming more difficult for us to successfully operate, many legislators seem to think that we will always be here no matter what they do, making profits that can be taxed.
So FBA will continue working with partners in the business community and with business-friendly legislators from both parties who understand that adding more and more complex and expensive requirements will only further damage our economy and our quality of life.
And that’s why FBA will ensure that family businesses remain at the table, and not on the menu, in Sacramento
Monroe is president of Holt of California and Chairman of the Family Business Association.
The ongoing debate about businesses moving out of California rages on, with business groups pointing to the number of headquarters moving out of California and many of our politicians pointing to California’s rank as the fifth-largest economy in the world with tech start-ups still growing.
Most family businesses have many key performance indicators (KPIs) they use to measure their success, and well-managed companies focus on the critical few KPIs that will present a major issue for the business if they turn down.
Unfortunately, besides their poll numbers and fundraising for future elections, many politicians don’t seem to focus on critical indicators. But one irrefutable negative indicator that they should be watching and start doing something about is the loss of a congressional seat. Our politicians proudly boast that legislation passed in California will be the lead for the rest of the country, but for the first time in 171 years, California’s political voice is getting a little softer as our population actually decreased in 2020.
Most family businesses try to ensure a stable, consistent workplace by treating employees like family, and as a result many choose to stay with that company for their entire careers. At my family business, Holt of California, we ask our employees to complete an exit interview if they leave the company. That allows us to look at overall trends and enables us to make adjustments if there appears to be an area where employee satisfaction lags.
Over the past few years, we have seen an increase in the number of employees leaving for other states. In the past two years alone, we have had 30 employees leave the state. All were hardworking, excellent employees and none are easily replaced. While with employees who are leaving our company but staying in California we can modify compensation, vacation and other benefits to get them to stay or come back, there is little we can do to convince employees who have decided to leave the state to stay. In fact, many employees who left the company but remained in California came back to work for us after discovering the grass is not always greener elsewhere. We have only had one come back from out of state.
Reasons to leave the state vary. Many follow their adult children who moved elsewhere to look for opportunity. But many others leave to improve their own qu
ality of life, citing California’s high cost of living, the homeless crisis and cultural issues. Statistics show that the majority of people moving out are blue-collar families with children who have had enough and see a better future elsewhere. In short, the reason California has always grown is why our population is declining: people see the way to a better life elsewhere.
California’s 1.4 million family businesses employ 7 million Californians. However, the impacts from COVID-19 have created a significant challenge for our members to find enough employees to get the job done. Just look at all the help-wanted banners you see as you drive down the street. It is difficult to find enough new employees to serve our customers and the last thing we need is employees leaving the state for good. Unless corrected, the shrinking workforce that we are seeing will damage California’s ability to continue to maintain that high economic worldwide status we so proudly proclaim as a final measure of our success.
Perhaps our politicians need to develop an exit interview for the productive residents leaving the state and use the information to adjust their policies to encourage people to stay and help family businesses recruit those that left back to the companies and jobs that they once loved.
