Keeping It All in the Family
St. Louis, Mo., entrepreneurs and siblings Michael and Steven Roberts embrace the notion of keeping the family business in the family and say all African-American entrepreneurs should do the same.
But as the economy continues its slow, modest recovery, the dynamics of small and midsized family owned businesses are being challenged. The Roberts brothers, whose $460-plus million Roberts Brothers Properties L.L.C. consists of everything from hotels and other real estate developments to TV and radio stations from coast to coast, insist that holding on to these businesses is the key to establishing and maintaining intergenerational wealth in the Black community. In 2010, Black Enterprise magazine ranked Roberts Brothers the 41st-largest African American-owned business in the country, with revenues at about $92 million.
Dearth of Black businesses
A recent poll of Standard & Poors (S&P) 500 firms by ReGeneration Partners (www.regenerations-partners
.com), a Dallas, Texas, small-business consulting firm, shows that the greatest part of America’s wealth is directly tied to family owned businesses. Family firms comprise between 80 percent and 90 percent of all business enterprises in North America, contribute about $5 trillion to the economy and employ 62 percent of the entire U.S. workforce. The oldest family owned business in the U.S. is the Avedis Zildjian Company of Norwell, Mass. Founded in 1623 in Istanbul, Turkey, the cymbal manufacturer was brought to the United States when the family moved here in 1929. Worldwide, the oldest family owned business still operating as such is the Hoshi Roykan Hotel in Komatsu, Japan, founded in 717. There is a noticeable dearth of African-American family owned businesses in the data.
“Black folks need legacy and we must have consistent and positive examples for our future generations,” says Michael Roberts, CEO of Roberts Brothers. “The successes by today’s African-American business owners can be emulated by future generations of Black entrepreneurs.” He adds that African-American business owners would leave a legacy for future generations by making forays into various industries.
One positive example of African-American legacy is the architecture, engineering and construction firm McKissack & McKissack, which has its roots in slavery. Brothers Moses and Calvin Lunsford McKissack, whose father and grandfather were taught the building trade as slaves, established the country’s first African American-owned architectural firm in 1905. William DeBerry, the youngest son of Moses, took the helm in 1968 and proceeded to nurture the talents of his three daughters, all of whom excelled in the fields of architecture and engineering. In 1990, daughter Deryl branched out on her own with McKissack & McKissack. Five generations after the first McKissack firm came into being, McKissack & McKissack represents a 100 percent family, African American- and woman-owned firm with $15 billion in construction and ranked by Architectural Record as one of the Top 250 Architectural Firms in the nation.
With more recent roots, but perhaps more famous, is Ebony and Jet magazines publisher Johnson Publishing Co., the largest African American-owned publishing firm in the country. Established in 1942 by John H. Johnson, it is run today by daughter Linda Johnson-Rice, CEO.
A report released earlier this year by the U.S. Census Bureau puts the net wealth of white households at 20 times that of African-American households and 18 times that of Hispanic households — the largest gap in history.
Establishing and securing intergenerational wealth often starts with the launch of a small business, says John Rogers Jr., president of Ariel Investments L.L.C in Chicago. Rogers’ firm oversees more than $5.5 billion in assets for dozens of global clients. “There’s no question that entrepreneurship is the key to eliminating the wealth gap between the social and ethnic classes in this country,” he says, adding that just as his own father introduced him to the world of business, finance and money management at a young age, he has done the same for his daughter, Victoria, and hopes to one day pass the reigns of Ariel Investments on to her.
Steven Lehr, a West Caldwell, N.J., attorney who specializes in family business and estate planning, says entrepreneurs should establish a succession plan as quickly as possible and continue to revamp the plan as the business grows. This long-range planning results in an orderly and legally painless transfer of ownership upon the death of the founder of the company. It also helps the family to avoid a huge tax bill from the federal government. “Tax and inheritance laws have changed significantly in the past few years,” Lehr says. “I advise clients that if they don’t have a succession plan in place, Uncle Sam has one already in place for you.”
A tough economy and intense competition have forced some small and family owned business owners to seek creative, and sometimes unscrupulous, ways to preserve their legacy. A case in point is the practice of “double dipping” in the U.S. Small Business Administration’s 8(a) program. The program is designed to help certified small, minority and women-owned business enterprises (MWBEs) secure contracts with the federal government, thereby enabling them to grow. Notwithstanding the rigorous and often laborious certification process, some of the nation’s most successful MWBEs got their start through the 8(a) program.
However, a recent report by Bloomberg News and a subsequent investigation by SBA officials revealed a disturbing double-dipping trend among some of the MWBE firms benefitting from the program. In this context, double-dipping is the practice whereby the same businessowner operates multiple businesses from the same address and uses the individual businesses to participate or members of their families participating more than once in the 8(a) program. In a statement to the press earlier this year, an SBA spokesperson said the agency is conducting an analysis of all 8(a) firms to identify and correct anomalies. “The agency is working to improve its capacity to cross-check program records and provide more intense scrutiny to applicants while stepping up enforcement against bad actors,” the statement read. Dozens of the errant companies listed by the SBA include family owned businesses.
Among these is the Watts Window Cleaning & Janitorial Co., in Philadelphia, Penn., started in 1952 by Theartis Watts. When Watts passed away in 2000, his second-oldest daughter, Yvette, took over as CEO. The bustling little business continued to thrive and hold its own in a tough and competitive industry, until earlier this year when federal officials from the SBA accused Watts and her 87-year-old mother of operating two companies at the same address and obtaining more than $6.6 million in federal contracts. Watts did not respond to a request for comment. However, in an interview several years ago with this reporter, she said, “This business was my father’s life and dream. I have no intention of losing it or tarnishing the image he built.”
In a statement to the media following the investigation by the SBA, Missouri state Rep. Sam Graves said, “Legitimate small businesses are put at a huge competitive disadvantage when bad actors lie about their small business status and don’t play by the rules.”
How to keep it in the family
Succession industry experts offer the following advice for leaving a legacy:
• Consider a comprehensive estate plan — a must for any outgoing shareholder.
• Gather, analyze and share financial information about the company and its owners. The data should include tax records, value of the business and organizational structure.
• Make continued business leadership a goal. Plan meetings with family member owners to discuss and review goals and objectives of the company.
• Outline a plan that will determine how much the primary owner of the business should pass on to children or heirs.
“I advocate a slow and steady approach to investing and always encourage people to think about and plan for the future,” says Rogers of Ariel Investments.