“If you want to ruin your family business, give it to your eldest son.” That’s an anonymous quote that really challenges how family businesses handle their nepotism strategy, or as we like to call it your family strategy. It raises this simple question that all family businesses need to answer: Does your last name guarantee you a job in the family business?
The answer to that question for each family business is as important to family members as non-family members. Regardless of what your opinion is on nepotism, what my 13+ years of working with family businesses has illustrated to me is that the most successful companies have proactively developed and communicated their family strategy to all stakeholders of the organization. An effective family strategy not only communicates if family members will be employed, but how it will be determined what position each family member fills.
I am currently working with a family business that is transitioning from the third generation to the fourth generation. The family strategy of the third generation was that any family member who wanted a job would have one. This applied to blood relatives as well as in-laws. As a result, there are more than ten family members in the business. However, there was very little thought on what position each family member should fill. As a result several family members are in positions that are not a fit with their natural gifts and talents. This skill set misalignment has led to several unhappy and underperforming family members. It has created several strained relationships across the family and company.
I am currently in the process of developing the strategic plan with the fourth generation and they will have the opportunity to define their own family strategy. We also have non-family members on the planning team so it will be a very healthy discussion on how the company wants to move forward with its family strategy.
One of the many blessings that results from having a family business is the opportunity to employ family members. However, from experience I can tell you that how a family manages its nepotism strategy has a direct correlation to how successful the family business is, both from a financial and family harmony perspective.
To be effective, all family businesses should be proactive in discussing a family strategy and then come to an agreement on that strategy. I can totally relate to this because I am preparing for my son to eventually enter our business. I have learned from this experience that clarity has become the focus in our relationship. We must both be on the same page as we prepare for the future. Neither of us wants to jeopardize the healthy relationship we currently have.
Here are some important questions to discuss and ask when you are defining your family strategy:
- What is more important? Employing family members or optimizing the performance of the business to build family wealth? The optimum scenario is both but this is a much needed healthy discussion that will set the foundation for the family strategy.
- Does being a family member guarantee you a position in the company? What favor is provided to family members that want employment in the family business?
- ow do you How do you define a family member? Does it apply only to blood relatives or does it include in-laws as well? How far does it go? For example, does it include cousins?
- HooooHave you clearly defined the key accountabilities for each position? Are you using behavioral science/assessments to make sure each person (family and non-family) has the skills that match the requirements of the position?
- Does each family member have 100% role clarity in their position?
- Have you defined the process to address underperforming family members and non-family members?
Make sure that all family members understand the family policy so there are no hard feelings. Be consistent with the policy, as inconsistencies will create more issues. Consider how the non-family team members are impacted as well. Have your human resources department and other advisors get involved in the process, and seek counsel in this area if you don’t have that expertise.
I have seen family businesses destroyed because of family conflict and mismanagement. However, I have also seen family businesses create wealth and joy for generations. There’s not one right answer for every family business, you just need to be proactive in developing a family strategy that creates harmony and optimizes the financial performance of your organization. No success in business is worth failure at home. Remember, Those Who Plan – Profit!