Duration: 10/01/2006 to 09/30/2011

Administrative Advisor(s):

NIFA Reps:

Non-Technical Summary

Statement of Issues and Justification

Family owned firms comprise the majority of firms in the United States (Heck & Stafford, 2001). The economy depends on them. Family firms generate over 50 % of the gross business revenue in the U.S. In 1996 family firm owners created 69.9 million jobs, reflecting 54.8 % of all American jobs. Family firms dominate agriculture, wholesale, and retail sectors of the economy, indicating substantial impact. On the other hand, large numbers of firms close before their fifth year of operation. Given the heavy dependence of the economy on these small family owned firms, ascertaining what is associated with their survival and growth, and identifying the effects of policies on them is vitally important.

The economies of rural areas are more dependent on family owned firms than other regions. The Midwest, for example, is more dependent on farming and ranching. At the same time, family owned firms have a disproportionate impact on the economy of the Midwest. Family owned farms are family owned businesses. Also, most farm families have at least one off-farm job, and the majority of these jobs are for family owned firms. In other words, rural areas have economies that are dependent on risky enterprises. The majority of family owned firms are also small. Small firms have a lower success rate than larger firms and are inherently riskier enterprises. Farms are also risky enterprises. Given the heavy dependence of rural communities on such enterprises, ascertaining what is associated with family owned firm sustainability is particularly important for rural America.

The well being of rural communities and their citizens is closely linked to the health of locally owned family firms. A relatively large number of family-owned firms are located in rural communities and the owners were residing there before they owned the business. Thus, the challenge is not convincing rural Americans to start firms, but how to grow these firms and prevent business closure. However, these firms have a short average life span and the majority is small or very small. Thus, it is vital to identify predictors of family firm survival and success and understand the role policy can play.

The Internal Revenue Service lists U.S. non-farm business receipts for 1996 at approximately $16.8 trillion (U.S. Census Bureau, 1999). According to the 1997 National Family business Survey (NFBS), non-farm family firms generated $8.6 trillion in gross revenue in that same year. Using these figures, family firms produced 51 % of all business revenue. Of the $8.6 trillion, $3.5 trillion was generated by non-agricultural firms in rural areas. Nonagricultural family firms were responsible for the majority of corporate receipts and all proprietors business income in 1996. The impact of these firms was greatest in the Midwest and least in the Northeast, although their economic impact was substantial throughout the U.S. In all regions, their economic impact was greatest in rural areas.

Family firms dominate some sectors of the economy, particularly the wholesale and retail sectors. Agricultural family firms are evenly split between farms and other businesses. Almost all farms are family owned. According to the United States Department of Agriculture, only 1.4 % of farms are not family owned (U.S. Census Bureau, 1999). Measuring farm income is particularly inexact because of government price support programs, but it is clear that family firms account for most of it. Family firms also generated 75.4 % of business receipts in the wholesale and retail sector. The 1997 NFBS classified firms according to the 1995 North American Industrial Classification system (NAICS) developed to monitor trade under the North American Free Trade Agreement. Family firms in the wholesale, retail, storage and transportation sectors generated $5.1 trillion of the $6.8 trillion attributed to all firms in these NAICS classifications (U.S. Census Bureau, 1999). Family firms have least impact on the education and health sectors of the economy. According to the 1997 NFBS, family firms generated only 9.6 % of the revenues in the same sectors.

Another measure of economic impact of family firms is job creation. If business managing owners are included in employment statistics, family firms employed 62.5 % of civilian employees in 1996. Employment statistics are categorized as agricultural jobs and nonagricultural jobs. Family businesses generated 97 % of agricultural jobs and 52 % of nonagricultural jobs in 1996. In the 1997 NFBS, non-farm agricultural firms employed 3.3 million people. As firms grow they logically employ more people.

Family businesses are not only engines of economic growth, but they are critical players in the social and political development of communities. Another measure of the impact of family owned firms on the community is leadership the owners provide and the donation of time, goods, and services to local institutions. A recent study by the National Federation of Independent Business (NFIB) found that 91 % of small business owners contributed to their local communities by volunteering, donating cash or making in-kind contributions (Dennis, 2004 b). Nearly 75 % said they volunteered at least 12 hours a month. In the National Family Business Study 2000 Panel, 41 % of rural family firm owners had served in a community leadership position. Between 1997 and 2000, at least 65 % of rural owners had contributed financial or technical assistance to community development efforts. In that same time interval, 91 % provided donations to local schools and youth programs.

Older businesses owned by individuals with more human capital are most likely to make substantial contributions of time to their communities, especially in more economically vulnerable rural areas. Bessers (1999) study of small town business owners found that the owners of older businesses and those with more employees were more likely to be committed, and provide leadership to the community. Further, the owners education and age were positively related to leadership. Owners were also more likely to demonstrate community commitment than business managers. In another study of small town business operators, Besser (1998) found operator education, business age, and collective community action to be significant predictors of community leadership. Fitzgerald, Haynes, Schrank and Danes (2005) found that individuals with very positive attitudes about their local communities were more likely to serve in leadership positions and make financial and technical contributions to the community. In addition, individuals with more education were more likely to participate as civic leaders in elected or appointed positions, while individuals with more household wealth and profitable businesses were more likely to provide financial and technical assistance to their communities. In addition, business owners in the most economically vulnerable communities were most likely to provide technical and financial assistance.

Vital, vibrant communities depend on successful family businesses. Policy makers must recognize the many contributions of family businesses and forge rural development policies that not only help sustain existing businesses and fuel engines of economic growth, but encourage human capital development. Successful businesses depend on support from healthy families. A community culture of businesses and families pulling together for the collective good of the community is critically important. Family businesses are the cornerstones of many communities, creating income and wealth for their owners and employees, donating to local organizations, providing civic leadership and making other contributions. Moreover, more financially successful households and businesses are more likely to make substantial financial contributions to communities, especially those in more economically vulnerable areas.

Many businesses do not survive more than five years. This lack of survival is often attributed to poor business management such as timing of the launch, location or inadequate financing. Personal and family reasons also account for business closures. Natural and manmade events are another reason for business closure. In identifying effective policies to encourage entrepreneurship it is necessary to account for these correlates of business success or failure. Businesses are most likely to close within a year of opening, the launch period. Many businesses that survive their launch period close at a later date. The most frequently researched reasons for success and failure are business management practices. In the NFBS 2000 Panel, financial problems were also one of the major reasons for business closure. Financial problems were indicated as a major non-personal reason for business closure. Olson, Zuiker, Danes, Stafford, Heck and Duncan (2003) found that business characteristics and the owners business management practices accounted for most of the variance in business gross revenue, the most common measure of business success.

Another frequent reason for business closure or success is the family. Many small businesses survive because the family works without pay or uses family assets to secure a loan. Olson et al. (2003) found that the family and how the family managed the interface with the business accounted for 22 % of the variance in business gross revenue and 33 % of the variance in perceived success of the business. In the NFBS 2000 Panel, 69 % of the respondents who had closed their business between 1997 and 2000 did so for personal or family reasons. In rural areas personal and family reasons were even more prevalent motives for closure. At least 74 % of those who closed their business did so for personal or family reasons.

Some businesses also close due to unexpected disruptions for which they are unprepared. These disruptions may be due to natural or man-made disasters. As we have seen in the recent aftermath of hurricane Katrina, the cost of this type of business demise has a ripple effect far beyond that of the loss of the individual business. Jobs are lost, other businesses suffer revenue losses when employees lose jobs, fewer tax dollars are collected, and the normal four to seven turns of a dollar in the community is greatly diminished. Clearly, the successful survival of households and businesses is an important key to the successful survival of a community. According to Herbert Mitchell, Associate Administrator, Office of Disaster Assistance, Small Business Administration, as many as 40 % of small businesses directly hit by a serious natural disaster like hurricane Katrina do not survive (Dennis, 2004 a). According to Brown (1993), 80 % of businesses surveyed in Europe and America that lack a crisis plan and testing of it go out of businesses within two years after suffering a major disaster. Hiles (1992) contends that 70% lose business efficiency within the first two days of a disaster and can lose three quarters of their business as a result.

An NFIB study reported that at least 30 % of respondents had been closed at least 24 hours in the previous three years because of a natural disaster. Of those businesses experiencing a natural disaster within the previous three years, 62 % reported that the biggest problems were loss of sales and customers, and uninsured losses (Dennis, 2004 a). Lack of adequate insurance coverage had a significant impact on the ability of the business to continue. Extreme impacts of natural disasters tend to be highly concentrated and were defined as resulting in closure of a week or more and losses or damage of $100,000 or more. Only two to three % of small businesses reported extreme impacts. The most common reason for closure was related to extreme cold, ice and snow. Others experienced closures due to other weather events. The most destructive events were wind-related, tornados, hurricanes and typhoons. Fires, extreme heat, earthquakes, landslides and sink holes resulted in minimal closures.

Many disastrous business disruptions are man-made. Before the explosion at the Murrah Federal Building and the terrorism experienced in New York City and Washington, D. C. on September 11, 2001, most executives and owners anticipated that their worst nightmare would be an earthquake, tornado or loss of a building to fire. Few had considered that business necessities such as electrical power, telecommunications and transportation would be disrupted, or that thousands could die in a single catastrophic event. Since September 11, business continuity and disaster recovery have gained in importance (Chabrow & Garvey, 2001), yet many businesses are still unprepared for major disruptions.

Man-made disasters were reported by 10 % of the surveyed businesses in the NFIB survey (Dennis, 2004 a); these were primarily terrorism related. Twelve percent experienced economic disruptions such as highway construction, road re-routing and urban renewal. Most reported that they had not been notified of such changes. One-third were impacted by computer viruses. Twenty-one percent experienced power losses for at least 24 hours and often the loss was not weather related. Twenty percent had backup power sources such as a generator. Only 38 % of the surveyed businesses had emergency preparedness plans and most of those had communicated it to their employees. The remaining 62 % were gambling that their businesses would not experience any sort of disruptions. Other types of man-made events or shocks to the community that are outside of the control of the community include the loss of a health care system (Doeksen, 2000), globalization (CSREES, 2001), the changing nature of traditional agriculture (Drabenstott and Sheaff, 2001), rapid, nearly uncontrolled growth or rapid out-migration, declining tax bases, lack of available capital (Drabenstott, 1999), and the lack of local leadership (Beaulieu, 2001).

Regional Research Project NE 167 has demonstrated the feasibility of finding and interviewing a random sample of family owned firms using a household sampling frame and obtaining a high response rate. NE 167 also successfully interviewed a stratified random sample of 708 family firm owners. As Heck and Trent (1999) noted, the response rate was over 70 %, even though the interviews were 45 minutes long. For 673 families, two interviews were obtained, one for the business owner and one for the household manager. That project also obtained a relatively large number of interviews from rural locations. NE 167 also successfully re-interviewed participating business owning families in 2000 (Winter, Danes, Koh, Fredericks & Paul, 2004).

It remains critical to conduct this research as a multi-state effort. A multi-state effort increases resources available to conduct this research and improves the generalizability of results. As noted, family business success and failure have multiple antecedents. Collecting data from many states yields data that have sufficient variability, allows for control of antecedents, and the identification of effects attributed to policies, families, and business management practices. Without results from the proposed project, we will continue to make inferences about entrepreneurship, policy, and community economic development based on research that ignores the critical role of family in business survival and growth. Results from the 1997 NFBS and NFBS 2000 Panel have demonstrated the undercounting of family firms when business sampling frames are used. These two data sets are also the only data sets on family or private firms that are generalizable and contain data about the family and its effect on the business. Using samples that omit very small businesses and ignoring the effect of the family both yield estimates that are biased. It is evident that studies using business and household sampling frames, as well as family and business related variables, are needed to advance research on rural and community development.

Successfully completing the proposed research will provide useful information for family firm owners, economic and community development officials, and policy makers. The results of this research will provide information to business-owning families that will enable them to improve their management practices. Results will also provide economic and community development officials with estimates of the impact of these businesses on their communities and will allow more effective assessment of the costs and benefits of proposed actions. Policy makers will additionally gain estimates of the impact of a select set of policies on family firms and, indirectly, on communities and economies.

Related, Current and Previous Work

The literature about the survival and success of family firms can be divided into research on success and research on failure. The research on survival and success includes measurement of success and predictors of success. The research on failure has examined reasons for closure and the effects of unexpected events, both natural and man-made.

The Sustainable Family Business Model (SFB) (Stafford, Duncan, Danes & Winter, 1999) informed the design and organization of research activities in NE 167 and has been referred to in the family firm literature as a major innovation (Trent and Astrachan, 1999, p. v.). This research model draws from family systems theory and behavioral theories of firm management, giving equal recognition to the family and business systems and to the interplay between them in achieving mutual sustainability (Stafford et al., 1999). In contrast to traditional models of firm and entrepreneurial success (Cramton, 1993), the SFB Model locates entrepreneurship and the firm within the social context of the family. This is an approach which has subsequently been validated by Aldrichs work (1999) on social networks of family-owned firms. The SFB Model allows for environmental influences on firm success and is an appropriate model to guide the proposed research.

The SFB Model provides a framework for understanding how the resources, processes, and success of both the firm and the family influence the sustainability of family owned firms (Stafford et al., 1999). The model is flexible enough to address the issues related to either the family or the firm independently and in conjunction with each other, although it also portrays sustainability of the family firm as a functional outcome of two interacting systems rather than an incidental outcome of two separable systems. The SFB Model implies that the sustainability of a family firm is a function of both firm success and family functionality (Stafford et al., 1999). The model also implies that an individual in either system may affect parts of both systems (Heck & Trent, 1999).

The SFB Model incorporates change as a major premise. Furthermore, the SFB Model recognizes that different processes occur in each system during times of stability and times of change (Danes, Rueter, Kwon & Doherty, 2002; Stewart & Danes, 2001). Ward (1997) indicated that the long-term sustainability of any family firm depends on its ability to anticipate and respond to change. Modified patterns of interaction are needed for a family firm to remain healthy when responding to changes that occur during normative transitions or non-normative crises in either the family or the firm system (Danes, 1999; Danes et al., 2002). During times of change, the modified patterns of interpersonal and resource interactions are adjusted at the intersection of the family and firm systems to sustain that family firm (Stafford et al., 1999).

Firm Success is multidimensional. Measures of firm success may be objective or subjective in form (Paige & Littrell, 2002). Using both types of success measures, success has been found to consist of multiple distinct components. Typical objective indicators of firm success include such measures of firm performance as return on assets, growth in sales, annual sales, profits, number of employees, and survival rates (Miner, 1997). Profit and firm survival are distinct components of firm performance and the factors that affect profit are not necessarily the same as those that influence survival. For example, using size of firm, large firms are more likely to survive, however small firms tend to be more profitable (Kalleberg & Leicht, 1991).

While the majority of firm studies utilize objective economic measures of performance, a growing number incorporate subjective measures that examine the non-economic dimensions of firm performance to address the measurement problems associated with the use of financial data alone (Kotey, 1997). Subjective perceptions of firm success provide more insights into the owners satisfaction with a family owned firm. Subjective, non-pecuniary measures of firm success take into account customer satisfaction, personal development, and a sense of personal achievement (Rosenblatt, de Mik, Anderson & Johnson, 1985). The owners commitment to or passion for the firm is another variable that may influence perception of success (Stanforth & Muske, 2001).

Owners characteristics have been linked to firm success. Firm income, profitability and survival have been linked to certain owner characteristics such as education, age, managerial skills and experience, and to some extent, gender (being male), all of which have been found to contribute positively to higher earnings (Rowe, Haynes & Bentley, 1993). The firm manager's age, gender, and perception of firm success have been identified as predictors of firm survival (Winter, Danes, Koh, Fredericks & Paul, 2004). The owner's age and lack of experience and management skills negatively influence success of firms (Hoy & Verser, 1994).

Firm characteristics age, size, and location also have been found to influence profitability, income, growth, and survival rates. For example, new and small firms, and those that are home-based earned less income than firms that are older, larger and are physically located outside of the home (Olson, Zuiker, Danes, Stafford, Heck & Duncan, 2003).

Firm success also increases when family members help in the firm and provide emotional support to the owner (Green & Pryde, 1989). It is negatively affected by heavy family demands and goal conflict between active and non active family members (Hoy & Verser, 1994), and by different levels of tension within the firm (Danes & Olson, 2003; Lee, 2003). Perception of firm success is influenced by dynamics within the family in family owned firms. For example, family success has been found to positively impact perception of firm success, but not vice versa (Masuo, Fong, Yanagida & Cabal, 2001) and increased satisfaction of the household manager with the familys integrity has been positively linked to the firm managers perception of the firm success (Duncan, Stafford & Zuiker, 2003). Additionally, the family system and its responses to disruption significantly affect gross revenues and owners perceived firm success (Olson et al., 2003).

Family success is similar to firm success in its multidimensionality. Various concepts, including family quality of life and family integrity or functionality, are associated with that of family success. Family quality of life is thought to be an important indicator of overall quality of life (Rettig & Leichtentritt, 1999). Quality of life measures tend to examine particular domains, such as satisfaction with marriage and family life, friends, or financial well being, and can be either objective or subjective. Subjective perceptions are considered to be more relevant in assessing quality of life because they tend to reveal more about a persons satisfaction with his/her life (Olson, McCubbin, Barnes, Larsen, Muxen & Wilson, 1983). Subjective perceptions measure an individuals life experiences and his/her perception of the degree to which his/her emotional and material needs are satisfied in the family system rather than the conditions of life in general and the environment in which an individual functions (Rettig and Leichtentritt, 1999).

Satisfaction with life quality generally follows the same pattern as marital and family satisfaction, both of which are outcome variables typically used to reflect happiness with the overall functioning of the family (Olson, et al., 1983). Satisfaction is a reflection of the differences between objective attributes and ones expectations and aspirations with respect to important aspects of ones life. Satisfaction with most aspects of life tends to be positively associated with education, employment status, job satisfaction, health, and advancing age (Orbuch, House, Mero & Webster, 1996).

Family integrity, defined as a set of attributes that characterizes how a family appraises, operates and/or behaves (McCubbin & Thompson, 1991), is another concept that can be used to examine family success. Family integrity, as measured by the Family APGAR, has been found to be associated with achievement of a familys primary goalthe higher the family integrity, the higher the rate of goal achievement. A similar relationship has been found between family integrity and perception of overall success of the firm in home based owned firms (Duncan, Stafford & Zuiker, 2003). Increases in satisfaction with family integrity are also associated with decreases in family tension related to conflicts within the family over the family firm (Danes, Zuiker, Kean & Arbuthnot, 1999).

Management of firm and family interactions has been found to affect the success of both the firm and the family. The long held belief that work and family life are separate spheres of activity that operate independently of each other has been challenged by studies that suggest that there are extensive, positive and negative bi-directional influenceswork conditions and outcomes that affect family life and vice versa (Heck & Trent, 1999; Stafford, Duncan, Danes & Winter, 1999; Duncan, Stafford & Zuiker, 2003; Stafford, et al., 2003. Joint influences include: (a) the type of occupation and the amount of income associated with the workers role in the economy, (b) the combined effects of work-role characteristics and the demands associated with being a spouse or parent, and (c) the husbands and wifes combined work role characteristics and how these combined demands are coordinated. These effects reflect the mutual interdependence of aspects of work and family life and are thought to influence perception of quality of life (Voydanoff, 1987).

Beyond the inter-dynamics between spouses who own family firms, five other strategies indicate the types of adjustments made as a result of change at the intersection of firm and family systems: (a) reallocating family resources, (b) reallocating firm resources, (c) intertwining tasks, (d) using volunteer help, and (e) hiring outside help. Except for the intertwining of tasks, men and women do not differ in their use of these types of adjustment strategies (Fitzgerald, Winter, Miller, & Paul, 2001). Rather, it is whether the person holds one or both the firm and household manager roles that predict the willingness to draw resources from the family to support the firm. Younger firm owners are more likely to draw on family resources than are the older ones. Firm owners who manage both the firm and the family, particularly women, are more likely to intertwine tasks between the family and the firm. Reallocation of firm resources occur more with larger family sizes and with the presence of other workers in the firm, an indication that reallocation depends upon the needs and availability of additional human capital. Older, well-educated firm owners with more established firms are more likely to use volunteer help to run the firm than are younger firm owners, indicating the availability of a social network from which to call upon when needed. Larger firms are more likely to hire additional workers when needed because they have the mechanisms and income stream to add paid labor.

In general, the small firm finance research has missed the intermingling of family and firm finances in business-owning families. It has concentrated on models of profit maximization and the risk tolerance preferences of the owner-manager, the financial and regulatory structure of corporate financial markets or used samples from the upper bounds of what constitutes a "small" firm (Haynes & Avery, 1997). Haynes, Walker, Rowe & Hong (1999) found that two-thirds of family firms intermingled household and firm finances indicating that the finances of firm and family are inextricably intertwined. Firm to family intermingling was more likely to occur when the location of the firm was in a rural or small town as opposed to an urban area or if the firm borrowed money or operated as a corporation, both C and S. When investigating family-to-firm intermingling, sole proprietorships were more likely to use family resources in the firm than other types of firms as were those who borrowed money, younger owners, and owners without children.

The intermingling of financial resources is not necessarily completely positive and without cost. A potential negative is the inability to capture these interchanges in the financial records of either the family or the firm. The lack of such data, while confusing for the familys financial picture, may be catastrophic to a firm. Simply put, the firm does not know if it is making a profit and may be jeopardizing its long-term future. The need to establish and maintain separate financial accounts is crucial to firm management (Burns & Bolton, 2001). Separation of firm and personal records remains a key in helping the firm plan and respond to bankers and governmental entities. Separation of accounts is recommended by such entities as the U.S. Small Business Administration (2001) and the U. S. Internal Revenue Service (1995). Another potential negative includes the inability to repay the debt at the time needed; when borrowing capital the lending agency assumes the money will be used in the business. Intermingling of money makes it virtually impossible to predict the impact of the loan on firm success.

One area of firm and family interaction is that of leadership and ownership succession of the family firm. Succession involves planning and preparing for the eventual transition of leadership in any firm, but in a family firm it is often a family member who becomes the successor. Transfer of ownership of the firm can occur in many ways, but when keeping the firm in the family is a goal, ownership transfer can be complicated by issues such as property transfer taxes and family desire to treat heirs equally. Many families do not adequately plan for succession and the change of leadership and ownership may be disruptive to both family and firm instead of gradual and normal.

Although planning is recommended, many families still fail to plan in a timely manner. In 1996, over 86 million family-owned firms were without adequate planning (Heck & Trent, 1999). According to Cliffe (1998) by 2008, 50 % of family-owned firms will change management. This research indicates that over 66 % of the firms lacked a written strategic plan and most of these companies had no succession plan in place. Lee, Jasper & Goebel (2003) found that of 673 family owned firms only 20 % had written succession plans. Additionally, only about 14 % had developed a net worth statement and only 13 % had met with a financial planner or firm consultant to discuss ownership transition plans.

Business and family disruptions can also occur because of events outside of the control of either system. The capacity of family and firm to respond to disruptive events can be build by planning for crises and implementing mitigation strategies to respond in the event of disruptions. Typically, firms have risk management plans in place to protect assets from events such as fire, storm, flood, and theftall events that can disrupt normal business. However, since September 11, 2001 it has become clear that the typical risk management plan is now insufficient. There are numerous studies that show that businesses are generally unprepared for such events as weather disasters and terrorism unless they have a crisis plan that goes beyond the typical risk management strategy of purchasing various forms of insurance. Therefore it is important to understand how family businesses and their households plan for crises and the adjustment strategy portfolios they have available to respond.

Another important dimension of understanding how businesses and families respond to external crises and to issues surrounding ownership success is the policy dimension. Public policy is a factor in the ability of families and businesses to respond to disruptions and successfully maintain households and businesses. Recent reports from Hurricane Katrina areas cite conflicts between government agencies, lack of response in housing residents, and zoning regulations as examples of problems that have hindered recovery and may ultimately lead to the demise of affected businesses and severe costs to family households. We need better understanding of what policies aid planning, response and recovery. Furthermore, tax policy has long been noted as a significant factor influencing the ability of family business owners to plan for ownership succession and be able to transfer both business and family assets in a manner satisfactory for both the welfare of the family and the welfare of the family business.

Firm and community interaction has another important dimension, that of the impact of business behavior on the community. Niehm, Swinney, & Miller (in review) used the NFBS 2000 panel to study small firm community social responsibility (CSR) using a national sample. Another unique contribution was their exclusive focus on family-owned firms, and firms located in small rural communities with populations of 10,000 or less. The majority of firms in their sub-sample were involved in agriculture, service and retail sectors and the family business operators were fairly homogeneous in terms of their demographic profile. They identified the following three factors in the analysis: commitment to community (willingness to expend resources to help the community, satisfaction with the community, and community appreciation for the business); community support (support through donation of finances, time and other resources to benefit the community); and sense of community (business operators perception of community needs, quality of life in the community). Results supported the multi-dimensional nature of CSR for small family businesses. CSR was an identifiable strategic business orientation for family firms in small communities. The factor most important to family business operators was commitment to the community which explained nearly 25 % of the variance in perceived CSR. And, although family owned businesses were not able to contribute much in terms of financial donations due to resource limitations in size and score, they do provide support through donations of time and expertise.

Commitment to community predicted perceived subjective and objective business success. The results suggests that family owned businesses do receive reciprocal benefits from giving to the community and that benefits increase as the firm grows in size and scope. The family business owners view of business and community contributions may indeed impact business behaviors and strategies that ultimately enhance family business financial success, yet family businesses hold distinct perspectives of socially responsible behavior. Fitzgerald, Haynes, Schrank & Danes (2005) focused on the participation of family businesses in socially responsible activities in four areas including serving in leadership positions in the community; holding an elected or appointed community office; providing financial or technical assistance in community development and planning; and providing donations to local schools or youth programs. The most robust result was that individuals with very positive attitudes about their local communities were more likely to serve in leadership positions and make financial and technical contributions to the community. In addition, individuals with more education were more likely to participate as civic leaders in elected or appointed positions, while individuals with more household wealth and profitable businesses were more likely to provide financial and technical assistance to their communities.

Objectives

1. Analyze the effect of internal and external events and policy changes on<ol type=a> <li>family businesses <li>and the consequent, indirect effects on communities.</ol>
   
2. Analyze the effects of family businesses and communities on the vitality of each. <ol type=a> <li>analyze the effects of family businesses on rural and urban community vitality. (e.g. social and economic impacts) <li>analyze the effects of community on family business vitality.</ol>
   

Methods

This research project will examine the impact of selected life events and public programs and policies on family businesses and, in turn, assess how these impacts influence the contributions of the family business to the community. In the first step, this study will examine the impact of these life events and public policy initiatives on the family business, where the actions taken by family and business in response to the life events and policy changes will be explored. This study will examine how these life events and policy changes influence the contributions of the family and business to the community. The life events will include major life events, such as marriage, divorce, birth, deaths and migrations. The changes in public policy will include policies such as those creating concentration in the banking industry, where there are fewer and larger banks in the community; IRS tax rules allowing accelerated depreciation of assets; the introduction of Health Savings Accounts; and other important policy changes, for example The objectives of this project will be achieved by collecting information about various internal (life) events, external (business) events, and public policies and programs in the community. To collect the event history data, questions will be asked about the major life events experienced by the owner and business, the owners involvement in the community, contribution to the community and their opinions about the impact of policies and programs designed to stimulate economic development (Allison, 1984). The event history analysis is ideal for the first objective of this project since the method will allow researchers to describe and estimate changes in structures, strategies, resource allocations, and processes by family-owned businesses and their families caused by internal and external events. The event history analysis will further allow us to investigate the effect of internal and external events and policy changes on business vitality and community vitality. Analyzing the impact of family business on rural and urban community vitality; and conversely, analyzing the impact of community on family business vitality requires operationalizing the contributions of family business to communities, community vitality, contributions of communities to family business and family and business vitality. Family businesses make important economic and social contributions to the community. The economic contributions include the sales, profits, jobs and other economic activity generated by the family business. Social contributions include activities such as donating time, money, goods and services to local organizations; providing civic leadership; and contributing a sense of connectedness and cohesiveness within the rural community in combination with other family businesses. The National Family Business Survey reports gross sales, net profits, market value of the business, book value of the business, and number of family and non-family employees of the business in 1996 and 1999. The social contributions of the business, including the owners involvement in the community as an elected or appointed community official, a leader of a civic or other organization, a supplier of financial or technical assistance in community development and planning, and a provider of donation to local schools or youth programs, are available in the National Family Business Survey for 1999 only. Community vitality is measured by the economic vulnerability of the community. The two waves of the National Family Business Survey were supplemented with community variables to assess the social and economic vulnerability of the community. These two waves of the National Family Business Survey were supplemented with community variables to assess the social and economic vulnerability of the community (Haynes, Muske, Fitzgerald, & Fong, 2004). Six economic- and five sociological-concepts comprise the socio-economic vulnerability scale which includes 18 separate variables. This scale captures the social and economic dimensions of vulnerability using a diverse set of factors to assess the impact of vulnerability on the family and business. The two most important concepts (and measures) were the rate of growth in total earnings in the county, which measured the change in earned income from 1992 to 1997; and the rate of change in total population, which measured the change in total county population from 1990 to 1997. Counties were considered vulnerable if either the rate of growth in earnings or populations change were zero or negative. Other items were added to scale to support the concepts of economic and social vulnerability. The items added to the scale to support the notion of economic vulnerability included the following: farming dependency, percent of earnings in farming, percent of earnings in agricultural services, non-federal physicians, number of hospital beds, poverty rate, median income, dependence on mining, unemployment rate, net migration, Beale code, urban influence, percentage of people 25 years of age or older with less than a high school education or with fours of college or more, median age and proportion of minorities. This information was compiled by Cornell Institute for Social and Economic Research in 1999 and will be updated using more current information. Operationalizing the impact of the community utilizes two indices included in the National Family Business Survey for 1999. The first index asks business owners to agree or disagree with a series of statements about their attitude toward the local community. The index utilizes nine questions, which address the business manager's assistance to other businesses, business environment, customers shopping outside of the local community, contact with local development organizations, maintenance of the community's infrastructure, quality of life, consideration of the family in development projects, and the communitys appeal to young people. The second index examines the business owners perception of the community's attitude toward the business. The second index addresses community's concern for the fate of the business, attitude toward remaining in the community, pride toward your community, expending resources to help the town, finding someone in the community to talk with and people working together to get things done. Family and business vitality are assessed using data from the 1997 and 2000 National Family Business Surveys. Family vitality is operationalized using financial and non-financial variables. Financial vitality is measured by changes in household income, savings and investing, market value of household assets, cash flow problems and debts. Non-financial vitality is measured by changes in goal achievement, family functionality (APGAR), tensions and perceptions of satisfaction with life. Business vitality is operationalized with financial measures, including gross sales, profits, jobs and other economic activity generated by the family business; and non-financial measures, including goal achievement and perceptions of business success. Through the event history analysis, life events such as deaths, births, migrations, marriages, and divorces will be analyzed. Further, business events such as regional or national changes, legislative and/or policy related, zoning, taxation, homeland security, changes in banking policies, changes in IRS accelerated depreciation on capital purchase, and change from medical savings accounts to health savings will be also examined in this project. By definition, occurrence of an event assumes a preceding time interval that represents its nonoccurrence. Specifically, a certain time period or duration of nonoccurrence must exist in order for an occurrence to be recognized as an event. Even history analysis is ideal to study duration data, which represent the nonoccurrence of a given event. To enhance the possibility that the 1997 individuals could be located in 2000, every six months between the surveys, the research group mailed a one-page summary of research results to each household interviewed in 1997. Address correction by the U.S. Postal Service was requested, and addresses in the data base were updated. Only 61 of the 708 households could not be located; 93 households were contacted, but refused to be interviewed. Data were gathered in 2000 from 553 households, more than three-fourths of the 708 households surveyed in 1997. This project will collect a third wave of data from the original sample, where the business manager was interviewed (708 observations). The third wave of data should enable this project to contact about 400 observations, or about three-fourths of the 553 household contacted in 2000. A new questionnaire will be designed for the third wave with more comprehensive questions on the internal and external events and public programs and policies impacting the family and business. This new survey will require 30 minutes or less of the business managers' time. If funding is available this research team would like to collect additional data using a business, rather than a household, list. This sample would allow researchers to examine events and policy changes with a larger sample of medium-sized businesses. This research project will describe and estimate changes in structures, strategies, resource allocations, and processes by family-owned businesses and their families caused by internal and external events; will estimate the effect of internal external events on business vitality; and examine the importance of changes in public policy on the vitality of the family business. This section specifies a series of analytical models that address these objectives. The model below will examine the impact of internal and external events on the vitality of the family business: BV = f (IEV, EEV; FD, BD, FM, BM) where: BV = business vitality (measured by gross sales, net profits, subjective measure of goal achievement, and perceived business success); IEV = internal event (births, deaths, marriages, divorces, and migrations); EEV = external events (9-11, regional or national changes, taxation, homeland security, etc.); FD= family's personal and demographic characteristics of the business and household managers; BD = business' demographic characteristics of business owner and family; FM = family management practices, and BM = business management practices. This descriptive analysis examines the impact of internal and external events on the vitality of the family business which will be measured by gross sales, net profits, subjective measure of goal achievement and perceived business success. Ordinary Least Squares (OLS) analysis will be employed for the model estimation. The model below will examine the impact of major changes in public policy on the vitality of the family business: BV = f (PPC; FD, BD, FM, BM) where: BV = business vitality, PPC = major changes in public policy (possible internal choices or external mandates such as food safety, patriot act, Sarbanes/Oxley act, immigration, tax structure changes, government aid and tax incentives); and All other variables are defined above. This descriptive analysis examines whether major changes in public policy increase/decrease the vitality of the family business. The Ordinary Least Squares (OLS) analysis will be utilized to analyze this model. The model below will estimate the impact of internal and external events on vitality of the community: CV = f (IEV, EEV; FD, BD, FM, BM) where: CV = community vitality,and All other variables are defined above. This model investigates the impact of internal and external events on the vitality of the community where the business is located. The model below will examine the impact of public policy changes on the vitality of the community: CV = f (PPC; FD, BD, FM, BM) where: INTERBC =interconnectedness of business and community,and All other variables are defined above. This model examines whether changes in public policies and programs influence the vitality of the community, where communities may respond differently to changes in public policies and programs. The model below will examine the impact of interaction effects between the life events and changes in public policies on business vitality: BV = f (EV*PPC; FD, BD, FM, BM) where: EV = internal and external life events, and All other variables are defined above The model below will examine the impact of interaction effects between the life events and changes in public policies on community vitality: CV = f (EV, PPC, EV*PPC; FD, BD, FM, BM) where: EV = internal and external life events, and All variables are defined above These two models examine the impact of interaction between life events and changes in public policy on the vitality of the family business and community. The Ordinary Least Squares (OLS) analysis will be utilized to estimate these models. The final model will examine the relationship between family business and community vitality, which is specified as follows: CV = f (BV; FD, BD, FM, BM) where: All variables are defined above. These models examine the influence of life events and changes in public policy and programs on the vitality of the family business and community; and in turn, carefully assesses the impact of business vitality on community vitality. Most importantly, this study will establish the importance of successful family business on the maintenance and growth of healthy communities.

Measurement of Progress and Results

Outputs

• " Quantification of the economic and social contributions of family businesses to their local, state and national economies and communities.
• " Broadening of literature on family functioning, management of overlapping family and business issues and demands, and family business viability.
• " Better understanding of the impact of events and disruptions on households and family businesses.
• " Development of outreach programming and Extension materials for business owners, their families, and communities.
• " Information for economic development professionals and policy makers on the impacts of their policies on households and businesses.

Outcomes or Projected Impacts

• " Policy makers will be better informed about the impact of policies and various disruptions that affect family businesses. This information will allow policies to be drafted that will positively impact the lives of community residents, constituents, and local economies.
• " Families engaged (or planning to engage) in business will be able to make sound business plans that will better ensure the success of their businesses.
• " FEMA and other disaster planning organizations will have better information on the impact of major events on households, business continuity, community well-being, and how such impacts might be reduced.

Milestones

(2007): Continued review of literature Conceptual framework development Sampling decisions Seek funding

(2008): Instrumentation and pre-testing Sample selection Begin data collection

(2009): Continue and complete data collection Data preparation Preliminary descriptive analyses

(2010): Analyses of data Testing of hypotheses and models Presentations to stakeholders and scholars

(2011): Analyses of data Results disseminated via publication in professional journals; and by presentations to families, extension specialists, researchers, policy makers, and appropriate consulting professionals.

Projected Participation

View Appendix E: Participation

Outreach Plan

Research findings will be shared through scholarly publications in research journals and lectures in college classes. Papers will also be presented at conferences, nationally and internationally. To disseminate research findings beyond academic audiences, participation in Extensions communities of practice will be explored. The results of this study are likely to offer considerable information on family businesses that will be useful for policymakers, small businesses, and educators. For example, better understanding of how small businesses plan, endure, and recover from unexpected events has implications for agencies such as Homeland Security and FEMA. What we learn will be communicated to these agencies as well as local communities and state/regional disaster agencies through such means as informational web sites, news releases and professional organizations such as the U.S. Council of Mayors. We would also anticipate the possibility of workshops and other educational strategies to educate small business owners on preparing for the unexpected. For public officials and entrepreneurs, educational techniques might include interactive web sites that can be accessed by hand-held computer devices as well as laptop computers.

Organization/Governance

1. Who are members of the technical committee?
State Agricultural Experiment Station SAES scientists, an administrative advisor, a Cooperative State Research, Education, and Extension Service CSREES representative, other public and private sector scientists, and as applicable, extension specialists and/or extension agents contributing to this project shall be members of the technical committee. Voting is restricted to one vote per representative entity; an entity being a SAES, CES, federal agency, private sector representative, etc.
All investigators of an agricultural experiment station contributing to this project shall be official members of the technical committee. Additional members must be approved by the Cooperative State Research, Education, and Extension Service (CSREES). Each station/state shall have one vote.

2. Who can join?
Institutions that have an official representative and meet the financial and personnel resource requirements may join the project.

3. What is the structure of the technical committee?
a. Executive Committee
The technical committee retains all powers except those specifically delegated to a subcommittee. The officers of the technical committee shall constitute the executive committee. There shall be a chair, a secretary, and a member at-large, one of which is elected each year. The executive committee shall respond in writing to any inquiry from a member of the technical committee.
b. Duties and Term of Office.
A full list of duties of the chair are found in the CSREES Manual. The chair sends a copy of the annual report to the technical committee members, and informs the administrative advisors secretary of the changes. The chair, elected in the odd-numbered years, serves for two years beginning at the end of the annual meeting in which elected. The secretary, elected in the even-numbered years, serves for two years beginning at the end of the annual meeting in which elected. The member-at-large serves for one year beginning at the end of the annual meeting in which elected. The at-large member works with the executive committee on matters brought to the attention of the chair, which require a vote. In the event that co-chairs are elected, there will be no election of a member-at-large. Officers may be re-elected to additional terms.
c. Other Appointees and Subcommittees.
There shall be a member appointed by the chair who will update the mailing list. There shall be a member appointed by the chair who will serve as editor of a public web site created for the project. There shall be a member appointed by the chair who will serve as manager of the interview schedules. A policy subcommittee will consist of a chair and at least two additional members who shall be appointed by the chair. The subcommittee will serve for the duration of the project. A chair, selected by the subcommittee, will remind the members of the technical committee, of the policies on a regular basis.

4. What are the responsibilities of the members?
The responsibilities of the members of the technical committee shall include, but not be limited to the following:
a. A members responsibility is to contribute to the projects plan of work. A plan of work for the next 12 months will be agreed upon at the annual meeting of the technical committee. Each state or station shall submit to the technical committee chair, preferably 30 days prior to, or within 30 days of the annual meeting, a written report of the institutions accomplishments and the status of any work in progress on the projects plan of work since the last meeting. No member of the technical committee may restrict another from using project data.
b. Anyone who generates a variable needs to provide annotation and code to members of the technical committee by using an appropriate mechanism such as the list serve.
c. A member needs to check the project annotation and correspond directly with the person who posted the annotation before using any scale(s) or generated variables from the household and business interview schedules. The lead author of any paper, presentation or article, etc. must circulate the abstract and citation to the technical committee by an appropriate mechanism such as the list serve.

Literature Cited

These references are cited in the proposal. for a complete list of publications based on the work of NE-167 go to http://legacyhuman.wpg.cornell.edu/ne167/.

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Attachments

Land Grant Participating States/Institutions

GA, HI, IA, IN, KY, MD, MN, MT, ND, OH, UT, WI

Non Land Grant Participating States/Institutions

Baruch College of the City University of New York