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).
Edelman’s annual Trust Barometer reported earlier this year that worldwide, business was the only institution – not government, not NGOs, not media – that was trusted by the 32,000 respondents from 28 countries. (Trust was defined as 60-100% trusting that sector.)
The trust in business generally was led by people’s support of family businesses. Fully 67% trusted family-owned businesses to do what’s right, compared to 58% for privately held companies, 55% for publicly traded firms, and just 50% for state-owned companies.
Family Business magazine’s editor-in-chief Amy Cosper recently provided some reasons she thought that was the case. To begin with, she said the fabric of family businesses is built on deeply ingrained values, unwavering commitment and doing the right thing.
Other trust-builders in family business include:
Stability: Family businesses often adopt a long-term perspective, focusing on legacy and generational continuity.
Authenticity: Family businesses thrive on personal relationships and genuine connections. Most are unapologetic and crystal about what they stand for.
Values: Family businesses are guided by core values and principles established by founders and embraced by generations and branches of a family tree.
Employee focus: Family businesses prioritize employees’ well-being, considering them a part of their extended family.
Community: Family businesses have deep-rooted connections within their local communities.
These attributes are why FBA believes public policy in California and elsewhere should support strong and healthy family businesses, not continue to make it harder for them to survive and be passed along to the next generation.
We have a new member, Professional Dynamics, Inc. of El Dorado Hills. The company was founded in 1981 by Betti Anders and is now managed by 2nd generation Kaleo Anders. For over 40 years, PDI has demonstrated the ability to reduce excessive treatment, indemnity, and litigation costs of Workers’ Compensation claims.
The company utilizes licensed nurses and utilization review physicians with an expertise in Workers’ Compensation to provide high-level managed care services to both injured workers and their employers, thereby facilitating an expedient recovery and return to employment.
A Sacramento County Superior Court judge recently rejected a lawsuit challenging the constitutionality of a law prohibiting local elected officials from voting on matters involving the people and companies who contribute to their campaigns. FBA is the lead plaintiff in the case.
In his ruling, Judge Richard K. Sueyoshi determined the law, which went into effect in January, does not violate either the state or federal constitutions. FBA and the other plaintiffs issued the following statement in response to the ruling:
The Coalition of Business Associations and Elected Officials is disappointed by the ruling against its challenge of SB 1439’s constitutionality.
This law will effectively bar small business owners from participating in the local political process. This is an infringement upon the first amendment right to freedom of speech and to petition the government. This right has historically been protected both federally and by the California Supreme Court.
Although Senator Glazer argues that this law will end ‘pay-to-play’ corruption by special interests, the only interests affected by SB 1439 are those of businesses. SB 1439 hypocritically does not apply to labor or union special interests, as they both have been carved out an exemption in the law’s language and therefore will be allowed to donate up to $5,500 without forcing the recusal of a vote from a local elected official.
Also of note is that SB 1439 does not apply to elected officials at the state level. Senator Glazer says he was motivated to author this legislation out of concern that $250 in aggregated contributions from representatives of a company threatens the ability of locally elected leaders to make fair and independent decisions that are in the best interest of their communities. We challenge Senator Glazer and others to lead by example and abide by the campaign contribution limits detailed in SB 1439 to similarly avoid any question or suggestion of ‘pay-to-play’ related to decisions they make which may impact small business or other so-called interest groups. As Senator Glazer said at his press conference today, his advice to local elected officials is simply, ‘Just don’t take the money.’
We remain concerned about the weaponization of this law by NIMBY organizations seeking to block new housing or competing business interests looking to prevent competitor business growth. While we consider future legal options to protect the important constitutional right to freedom of speech, we call upon the FPPC to monitor and report to the public on nefarious abuse of this law.
