Freakonomics Poll: Are you a Scion?

We had a poll earlier this week that asked: should you give your kids the company? That's the question of our latest podcast and hour-long Freakonomics Radio special “The Church of Scionology.” (You can download/subscribe at iTunes, get the RSS feed, or read the transcript here.) At this post's publishing date, over 80% of those who voted chose that they would give their business to their children -- if their heirs were competent and wanted the job.

The data on how many family businesses there are in the U.S. is sketchy; an often-quoted number is that 90% of all businesses are family businesses. But that comes from a paper written in the 1980s. A more reliable figure comes from Ronald C. Anderson and David M. Reeb; their 2003 paper measured founding family ownership present in 35% of firms in the S&P 500. Some estimates say that family businesses account for as much as 50% of the U.S. GDP.

Freakonomics Poll: Should You Give Your Kids the Company?

That's the question we asked in our latest podcast and hour-long Freakonomics Radio special "The Church of Scionology." You can download/subscribe at iTunes, get the RSS feed, listen live via the media player above, or read the transcript here.

We posed this question to some true American scions: Dick Yuengling of Yuengling beer -- a fifth-generation CEO -- would answer yes. Two of his daughters work at the family brewery right now, and one will likely succeed him in running it. On the other hand, musician Peter Buffett -- son of Warren -- would answer differently.

If Handing Off a Family Business to the Next Generation, What's the Key Thing to Avoid?

What's the difference in performance between a family business where the CEO hands off leadership to a member of the family versus an outside CEO? That's one of the questions our latest podcast, “The Church of Scionology,” tries to answer. (You can download/subscribe at iTunes, get the RSS feed, or read the transcript here.)

Stanford economist Francisco Pérez-González has looked at the data to try to figure this out. (His paper "Inherited Control and Firm Performance" can be found here). He compiled data from 335 management transitions across a number of industries with concentrated ownership or founding family involvement. He compared 112 blood-related successions to 213 unrelated ones. Here, first, is a breakdown of successions by industry, and by family-handoff within industries:

The Economic Reasoning of "Ultimogeniture" of Amish Farms

My younger son’s family visited the nearby Amish country and did a tour of several farms. The guide mentioned that the youngest son usually takes over the farm from his father. The older brothers typically learn trades. She thought this happens because the father isn’t ready to give up the farm when the older brothers reach adulthood.

My economic explanation is that this minimizes the frequency of paying estate taxes (no longer a very binding constraint, but it was until quite recently). Perhaps this “ultimogeniture” is an illustration of an unusual excess burden generated by estate taxes. Or perhaps there’s another explanation? (Related: check out Freakonomics Radio on "The Church of 'Scionology.'")