We own a manufacturing operation with about 160 employees. Dad is not active now, and I’m the person responsible.
My sister runs a small branch distribution office. Her husband works out of that office as a salesperson. There are two other people in that office. We are reorganizing and plan to eliminate the two other office functions by moving them to the home office. My sister wants to hire her 23-year-old daughter, who has a two-year degree, to fill the soon-to-be-created position of office assistant. From everything I understand, this is not the right thing to do. However, my sister can’t understand why.
I have two sons about to exit college. My other sister has one son, now out of college, and three daughters still in school. The ex-husband of this sister used to work in our company before their divorce. We are not yet sure who else might want to join the business, but one of my sons, who will graduate with an engineering degree next year, has expressed interest.
Is there a list of do’s and don’ts regarding employment of family members in a family business? I have not gotten around to documenting a family employment policy yet. I hope it is not too late. Any help along those lines would also be greatly appreciated.
Experts’ replies:
While there is no “etched in stone, gifted from above” list of do’s and don’ts, many experts and wise owners suggest a set of professional policies that—while not ignoring the family relationships—set them aside, and raise the hiring bar enough so only the very fit will clear it.
But blindly submitting your family to this rigor does not guarantee the family and business the health and wealth that are the implied reward.
Rather, there must be deep understanding and appreciation of the meaning and purpose of whatever rules and policies your family business sees fit to abide by. To deny a relative a job because she does not have a business education or prerequisite outside experience could seem biased and discriminatory if she could get a similar job in someone else’s family business.
But if family members understand, through a deliberate and complete education process, that your company is a meritocracy and not an employment agency for family members and that deserving relatives might have a leg up in landing a job, all else being equal in the hiring process (affirmative action for family, in essence), then you will attract the most talented of your family’s talent pool and maintain the morale of non-family employees. By preemptively stating that your business has standards not bent for family, you may maintain the dignity of unskilled family members but warn them to not apply for jobs that are beyond them.
Great care must be taken to explain the wisdom of paying market wages and separating salary from an owner’s return on investment or a worker’s merit bonus. Otherwise, family members will suffer the consequences of too little pay (“Someday this will all be yours”), equal pay (“I won’t accept that one child is more capable than another”) or too much pay (“Here’s a huge allowance—I hope you love me”). If they receive a full explanation, your family members will respect their rights and responsibilities and understand that the company is a Golden Goose that must not be slaughtered to feed gluttons.
A family belief that “family members must be twice as good to get half the credit” does not derive from a lack of appreciation of their efforts as much as from going a bit overboard to define the work ethic required by all. If you see the benefit of making decisions that are strategic, fair and objective, you might also see the benefit of instituting outside boards, search committees, performance evaluations and compensation policies—even if you’re sure that you could do it all on the fly.
The time spent to acculturate family members into the values and beliefs that will help sustain the business is a valuable investment that will increase profits and respect—and will protect against heartache and red ink.
—Ira Bryck
Bryck is director of the University of Massachusetts-Amherst Family Business Center (bryck@contined.umass.edu).
It is a compliment to the family and the family business when members of the next generation ask for employment. But there are a few important rules to observe before you roll out the red carpet for the youngsters. First, the company must have a specific, cost-justified need to fill positions that may be offered to family members. It is rare for a family business to grow fast enough to accommodate a number of qualified or unqualified children and cousins seeking jobs.
Second, it is not too late to implement a family employment plan that applies to every family member with only rare exceptions. You should adopt the No. 1 rule recommended by the experts: A family member should engage in meaningful work elsewhere for a period of two years or longer, with some success, before he or she may enter the family business.
Third, don’t accept the pressure of personally making all these decisions. Appoint a small committee of key family and non-family employees to help develop and implement family employment policy decisions. This committee will be important when the need arises to consider any special exceptions. It can also more objectively and openly review family member qualifications for any employment position. Committees consume time, but these are important issues in the business and the family. A qualified outside consultant can help the committee minimize time and effort.
—Joe Goodman
Goodman, a principal in Stokes Bartholomew Evans & Petree, Nashville, Tenn. (jgoodman@stokesbartholomew.com), advises family business owners.
It may not be too late, but with several siblings and spouses already employed and at least seven next-generation prospects entering adulthood soon, it is critical that your family owners address these important questions now. Your answers will likely determine the success or failure of the company and the health of the family.
Do solicit counsel from other families who have hammered out these very tricky expectations about family employment. Check with your regional Family Business Forum or a family business consultant for sample employment policies, which you can adapt for your own family.
Do convene family meetings (including your siblings and parents) to discuss and then develop a written draft family employment policy. Before final adoption, invite next-generation family members, above age 14 or so, to review and discuss the draft. The goal here is to educate and inform. The owning generation then has the responsibility to set the policy.
Do require significant outside employment prior to any full-time employment in the family firm … and maybe two promotions in the “real world.” The family business should not be the employer of first resort or last resort. Employment represents an important choice point, for both the business and the family member.
Do expect higher-than-average performance from family members. No entitlements here. Hiring should be limited to family members who meet and exceed objective hiring qualifications. Continued employment is not guaranteed; it’s based on consistent above-average performance.
Do give family members accelerated development opportunities. Relatives should demonstrate a clear commitment to personal and professional development, which is usually your only true competitive advantage in business these days. The Asplundh Company of Willow Grove, Pa., calls this approach “Disciplined Nepotism.”
Finally: Don’t waver in your commitment to develop a family employment policy that is supported and signed by all owners. If you can’t reach basic agreement on this critical policy, you likely have a family and a business headed for trouble. In this case, you probably need to realign the composition of your ownership group—the sooner the better.
—Henry D. Landes
Landes is president of the Delaware Valley Family Business Center in Sellersville, Pa. (hlandes@dvfambus.com).
This is exactly the time to get together as a family to create an employment policy, since you do not intend for your business to become the employment agency for all family members.
You talk about relatives wanting to work, but you don’t mention their capability for the jobs they would be taking, or the responsibility that family members will have toward the company.
This can’t be good for your business. What is the message to hard-working employees when they see family members entering at will? What is expected of family members? How will they be held accountable? These are questions that you must answer for your family, before you hire any more people. If you don’t, you run the risk of harming the business and having to manage conflict with hurt and angry relatives who don’t get what they want. Creation of a clear set of policies helps to anticipate the potential for conflict.
A family employment policy sets down what is expected of family members who seek employment, how they will be treated and what they must do. It takes the perspective that the business must be protected from the family and establishes a set of rules or guidelines so family members will not be confused or disappointed. It also makes it clear that family members should not expect to automatically be given jobs just because they are family members. They must add value to the business, and while at work they must be treated as employees and not as family. The policy helps move the family in that direction.
Who draws up the policy? While the whole family may have some input, this is a business task and should therefore be done by the business owners. Some non-family advisers might help in the process. Some family representatives might also be included. A family task force might meet several times over the course of a year to come up with a policy that the whole family feels good about.
While every policy is different, there are some common features. Most begin with a statement of purpose—the intention behind the policy. This usually has to do with ensuring the strongest and most effective business and the greatest return for all family owners. Thus, family employees should see themselves as servants of the family.
Then there are specific policies. A common first one is that a family member must apply for a job that actually exists and must be qualified to do it. Second, the policy usually specifies how compensation is determined for family members (e.g. at market rates, or at levels comparable to salaries of non-family members doing similar work), how their performance is evaluated and who performs the evaluation. A relative should not usually be supervised or report to anyone in his or her immediate family. A family member cannot be guaranteed lifetime employment.
—Dennis T. Jaffe, Ph.D.
Jaffe is a family business adviser based in San Francisco and a member of the Aspen Family Business Group (djaffe@saybrook.edu).
Developing written policies for employment of family members, especially as you head into a complex third generation, is one of the best things you can do to prevent future headaches. Convening a family forum to educate family stakeholders about the needs of the business, and to get buy-in for these policies, is Job #1. It may be a good idea to hire a professional facilitator to help the whole family work together toward practical solutions based on shared values.
Especially if your siblings share ownership, they will want some voice in policies that directly affect their own children. However, the focus in hiring practices must be on the needs of the business for competent employees. You can show your love for family members in lots of other ways besides hiring them.
Part of your task now may be the professionalization of hiring practices for the whole company if, in the past, employees felt free to casually nominate their friends or relatives. Hiring your sister’s daughter as an office assistant is not necessarily a bad idea, if she has the right competencies, and if someone else besides her mother supervises her. There are also some very effective assessment tools available now that can offer insights into a person’s competencies and determine the fit for a particular job. The good news is that apparently several members of your successor generation are motivated to work in your business.
—Ellen Frankenberg, Ph.D.
Frankenberg is a Cincinnati-based a family business consultant who facilitates family meetings and coaches executives and successors (ellen@frankenberggroup.com).
Designing a family employment policy is a process that requires a significant investment of time for research and planning. While this company clearly needs a formal policy, the decision about whether to hire this third-generation member cannot be put off until a policy is in place.
As I see it, the immediate challenge has less to do with how the next generation enters the business and more to do with the quality of communication between the siblings currently in the business. Since the sibling running the business has for some time had serious concerns about the absence of an employment policy, I suggest that this sibling acknowledge this to the sister and apologize for having dropped the ball on developing a timely process. But given the differences of opinion between them, I doubt this conversation could take place without tempers flaring.
These differences may stem from the sister’s not understanding the consequences of making isolated business decisions—or perhaps from a historic power and control issue between them. In any case, using the current situation as an opportunity for more open and honest communication would be a big step forward for both the family and the business.
Hiring the 23-year-old on a permanent basis might appear to be a good solution in the short term, but it could short-change this member of the family and set a precedent for how the business makes use of talent in the family. Consider the very real possibility that the 23-year-old might find herself stuck in this minor role, missing out on opportunities for developing and maximizing her talent within the company or finding valuable professional experience outside the family business. I urge assigning her this role as a temporary measure, subject to re-evaluation after a solid family employment structure has been created.
Since there are several other members of the third generation who may also wish to enter the family business, reframe the situation as part of a much larger discussion and as an opportunity to differentiate between career or leadership development roles for the next generation and non-goal-oriented employment. Requirements and commitments within each of these areas differ significantly, but how performance is evaluated and rewarded should be a shared component.
—Thomas D. Davidow, Ed.D.
Davidow is a principal and co-founder of Genus Resources LLC in Needham, Mass. (www.genusresources.com).