Opinions expressed by BIZ Experiences contributors are their own.
The family that stays in business together prosperstogether--and takes its investors along for the ride, or so says arecent study.
"Over the last 20- and 10-year periods, we have foundfamily-controlled firms that are publicly traded are an excellent[investment] value," says Robert Kleiman, associate professorof finance at Oakland University in Rochester, Michigan. Kleimanconducted the study with NetMarquee Online Services, an Internetmarketing firm.
Over a 20-year period, the value of stocks of the largestpublicly held family firms outpaced returns on the Standard &Poor 500 Index and the Nasdaq Composite by 16.4 percent to 14percent, Kleiman found. This has good implications for the economy,Kleiman says, because 60 percent to 75 percent of Americanbusinesses are family-owned, and they are responsible for abouthalf the nation's gross national product.
"Families want to preserve their legacy and status in asocial and community setting. And [family companies] tend to bemore agile and less bureaucratic in decision-making," saysKleiman, explaining the edge family firms seem to have. "Also,ownership and management are one and the same [in family firms],compared to many publicly held companies where management may notbe as interested in increasing investor value as they are inincreasing their own salaries and perks."
Other factors benefiting family firms, Kleiman says: They tendto be less diversified and more focused on an area where they havea competitive advantage. They also tend to take a longer-term viewtoward growth.
Of Great Interest
Regislation currently navigating its way through Congress willenable banks to offer small businesses interest-bearing checkingaccounts.
Current law prohibits such accounts, and in response banks haveestablished "sweep" accounts, where funds areautomatically transferred from a checking account to a third partyoutside the banking system, such as a mutual fund, to earn interestovernight before being brought back in for the next day'sbusiness. These are costly accounts to maintain; consequently, mostbanks only offer them to their biggest customers.
Introduced by Rep. Jack Metcalf (R-WA), a member of the HouseBanking and Financial Services Committee, the bill would allow allbanks to pay interest on small-business checking accounts. The billhas been introduced as part of the Small Business Banking Act of1996 and had been discussed at a congressional hearing. Metcalfsays that if it does not come up for a vote before Congressadjourns this month, he or one of the co-sponsors intends toreintroduce the legislation in the next session.
Saving Graces
As part of its ongoing 401(k) fraud prevention campaign, theU.S. Department of Labor has instituted a new rule requiringemployers to deposit employee contributions to their pension plansno later than 15 business days following the end of the month inwhich the funds were withheld.
With the exception of some collectively bargained plans, thismodification takes effect February 3, 1997, for all employers whooffer 401(k) plans to their employees. However, if there is a"compelling and occasional reason" an employer cannotdeposit these funds by the new deadline, the company can request a10-day extension.
The rule replaces an older one that allowed employers a maximumgrace period of 90 days to deposit contributions. The Department ofLabor estimates the new requirement will give plan participants anestimated $76 million in additional returns in 1997 because of theextra time the money will be in the plans.
The Labor Department is also considering a number of otherchanges designed to protect employer-sponsored pension plans,including a proposal that a company be allowed to invest no morethan 10 percent of 401(k) funds in its own corporate stock.
