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Family businesses reluctant to lay off staff, says new US research

Family businesses are less likely to lay off staff than publicly-listed companies even during times of recession, according to a new study out of Michigan.

Family businesses are less likely to lay off staff than publicly-listed companies even during times of recession, according to a new study out of Michigan.

Family Business Survey 2014, a joint venture from Grand Valley State University and Western Michigan University, found that 86% of family businesses in would prefer to reduce distributions to owners than to lay off staff.

The study, which had a sample based out of West Michigan, also found that 56% of owners would prefer to take a pay cut than lay off staff.

It also found family businesses in the region lagged public companies when it came to innovation.

Ellie Frey, director of independent advisory firm Family Business Alliance, which participated in the study, said the high level of loyalty shown towards employees stems from living in a close-knit community.

“Family business owners live and raise their family within the same community. Their kids go to the same schools, and the families see each other at church. So family businesses place a high value on their workforce because they are essentially members of the extended family,” Frey said.

According to Frey, the high value family businesses place on their workforce means that their owners are well respected within the community, often taking on leading roles.

“Our family business owners are leaders, philanthropists and community advocates. You can’t walk down the street and not see the impact of the family business community. Whether it’s the new hospital endowed by one family or the new office building erected by another,” she said.

The static nature of the family business workforce in West Michigan serves as “ballast” for the local community, according to Joseph Horak, director of the Family Owned Business Institute at Grand Valley State University.

The director said that publicly-listed companies, in contrast with local family businesses, are very quick to reduce the size of their workforce in order to survive a downturn. They are reportedly also more willing to take on debt.

The average family business surveyed was 50 years old. Nearly 11% were over 100 years old. Horak says this speaks to the unique and long standing presence of family businesses within the West Michigan community.

Family businesses in the survey worked predominately in the fields of manufacturing, transportation and communication (38%). The next largest demographic was retail with 20% of respondents.

The study also found 80% of family businesses wished to pass the firm on to the next generation, but only 19% had written a formal succession plan.

Horak said that the findings highlight the need for future programmes and workshops for family owned businesses in the areas of succession planning.


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