Family employment policy: A balanced position
As families grow and generations pass, family-owned businesses can experience challenges employing family members: perhaps a sub-group of the family feels that ‘their’ side has been overlooked for roles in the business; perhaps a family member has been over-promoted and no-one is sure how to address this without causing hurt in the family more broadly ; or perhaps there is a view that not all family employees are consistently stewarding the family’s values through their behaviour.
Over time, we have seen that frustrations and fears around family employment has resulted in some families going so far as to to bar all family members from working in the business, restricing their involvement to governance roles at most.
While this might feel like the right thing to do at the time, we have seen this cause the the very fabric of family ownership to weaken; the family business begins to feel more like a financial asset and, gradually, the family drifts apart from the business and from each other.
The trade offs between restrictive & unrestrictive family employment
In our experience, there is a continuum of solutions to family employment, between the “restrictive” and “permissive” extremes and the associated risks.
Often, between the extremes, there are alternatives that allow families to extract the benefits whilst reducing the risks.
Revisiting Family Employment Policies
When frustrations arise after a period of “permissive” family employment practices, we typically advise our clients to review and reset an overall family employment framework. This is a more balanced – and in our view sustainable – approach than extracting family from their business roles and prohibiting future generations from being employed.
An approach we often follow starts with a close examination of four aspects of family employment:
Intent: What are we trying to achieve as a family by employing family members? Why is this our intent?
Policies: What policy elements do we need to align behind and implement to capture the upside of family employment and reduce the associated risks.
Governance: Who should be the ‘owner’ of the family employment policy and how should we ensure compliance across business / business units?
Review: How frequently should our family employment be reviewed and updated (usually linked to the unique demographic trajectory of our family)?
We have used a set of questions that we see as a useful starting point, particularly if you wish to engage a wider audience, including next generation and, perhaps, non-family executives.
These surveys can help focus on what is important to the family, and identify areas where there is low alignment and the need for discussion and compromise.
New Policies – New Expectations
Frequently, we find that families recognise the advantages of having family members in the business but are afraid of the risks.
It’s often clear that families fear some family executives might under-perform or don’t behave in line with the family values while being sensitive to how hard it is to remove them from their role or from the business. Additionally, there is the fear that non-family executives will be demotivated if they see family members receiving special treatment. Many families without a clear set of well-executed policies risk falling fowl of both.
A new policy can be like a new broom. The policy sets clear expectations not just for those that want to enter the business but also for their close relatives outside the firm. The latter are often over-protective parents who make difficult conversations even harder – and sometimes impossible.
It is really helpful for all involved to clarify the core aspirations and conditions that will safeguard the firm and the family. These will be key to drafting a more robust Family Employment Policy. The following is an example from recent client work.
Setting expectations prior to entering the family firm is key, and a sign-off of these aspirations and constraints is a key part of that.
Governance of Family Employment Policies
A policy without compliance is a dusty document in a drawer. Thus, each family needs to determine how best to implement the policy.
The guardian of the policy is often the Family or Owners Council. But this body often delegates day to day execution of the policy to those closer to the business.
We list here some examples:
If there is a family CEO, we have seen this individual be the person that ensures good implementation and needs to deal with issues that arise.
If there is a Nominating or HR Committee reporting to a board, it can be asked to implement and oversee the policy.
A special group such as a Family Employment Committee made up of senior family members, executives and/or HR managers can be created.
More rarely do we see this delegated to an HR function. There is often an inherent reluctance for HR and line management to want to intervene with poorly behaving family members. We advise caution when notionally giving HR this responsibility but without the clear authority to execute it well.
In our experience, good decision making requires clarity around the roles of those involved in the process. This can be more complex when family and management share decision making authority.
We often recommend drawing up explicit process maps (as illustrated below) - Clarifying who has a Veto, who Recommends, Decides, and who needs to be Consulted or Informed where a Family Employment Committee works with the boards to find and vet family candidates, set expectations, seek roles and coordinate the entry process. But the entry is on merit and the businesses have decision authority.
Reviewing a Family Employment Policy
A good policy should last a generation. As the next generation enters their teens or early twenties, the policy should be updated. The next generation may be larger and have different expectations and education levels; the businesses will have grown, may be more complex and might have external capital. A new set of objectives, aspirations, policies and processes need to be developed.
Conclusion
Family employees are a key part of perpetuating a family business through the generations, but there are many pitfalls. A periodic revision of the policies, processes and structures addressing family employment is necessary – at least once per generation. We recommend revisiting the reasons why you want family in the firm, what the aspirations are and the constraints that you need to operate under. Finally, ensure clear governance and compliance. These actions are worth the effort.
