From the October 1996 issue of Entrepreneur

The family that stays in business together prospers together--and takes its investors along for the ride, or so says a recent study.

"Over the last 20- and 10-year periods, we have found family-controlled firms that are publicly traded are an excellent [investment] value," says Robert Kleiman, associate professor of finance at Oakland University in Rochester, Michigan. Kleiman conducted the study with NetMarquee Online Services, an Internet marketing firm.

Over a 20-year period, the value of stocks of the largest publicly held family firms outpaced returns on the Standard & Poor 500 Index and the Nasdaq Composite by 16.4 percent to 14 percent, Kleiman found. This has good implications for the economy, Kleiman says, because 60 percent to 75 percent of American businesses are family-owned, and they are responsible for about half the nation's gross national product.

"Families want to preserve their legacy and status in a social and community setting. And [family companies] tend to be more agile and less bureaucratic in decision-making," says Kleiman, 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 not be as interested in increasing investor value as they are in increasing their own salaries and perks."

Other factors benefiting family firms, Kleiman says: They tend to be less diversified and more focused on an area where they have a competitive advantage. They also tend to take a longer-term view toward growth.

Of Great Interest

Regislation currently navigating its way through Congress will enable banks to offer small businesses interest-bearing checking accounts.

Current law prohibits such accounts, and in response banks have established "sweep" accounts, where funds are automatically transferred from a checking account to a third party outside the banking system, such as a mutual fund, to earn interest overnight before being brought back in for the next day's business. These are costly accounts to maintain; consequently, most banks only offer them to their biggest customers.

Introduced by Rep. Jack Metcalf (R-WA), a member of the House Banking and Financial Services Committee, the bill would allow all banks to pay interest on small-business checking accounts. The bill has been introduced as part of the Small Business Banking Act of 1996 and had been discussed at a congressional hearing. Metcalf says that if it does not come up for a vote before Congress adjourns this month, he or one of the co-sponsors intends to reintroduce the legislation in the next session.

Saving Graces

As part of its ongoing 401(k) fraud prevention campaign, the U.S. Department of Labor has instituted a new rule requiring employers to deposit employee contributions to their pension plans no later than 15 business days following the end of the month in which the funds were withheld.

With the exception of some collectively bargained plans, this modification takes effect February 3, 1997, for all employers who offer 401(k) plans to their employees. However, if there is a "compelling and occasional reason" an employer cannot deposit these funds by the new deadline, the company can request a 10-day extension.

The rule replaces an older one that allowed employers a maximum grace period of 90 days to deposit contributions. The Department of Labor estimates the new requirement will give plan participants an estimated $76 million in additional returns in 1997 because of the extra time the money will be in the plans.

The Labor Department is also considering a number of other changes designed to protect employer-sponsored pension plans, including a proposal that a company be allowed to invest no more than 10 percent of 401(k) funds in its own corporate stock.