Hiring Policies for Family Owned Businesses

Hiring Policies for Family Owned Businesses

The Jim Moran Institute for Global Entrepreneurship

Should hiring be strictly a business issue? There are two different approaches to this question. A family business could require family members that are interested in joining the firm to apply and compete for positions in the same manner as any other applicant. Promotions would be based on qualification not family membership. After all it is important to get the best employee for the position and to avoid any morale problems that may arise if an unqualified or underqualified family member is given a position in the company. On the other hand, in some family businesses there is a place for every member in the business that wants a position. Oftentimes in these businesses a position is created if one does not exist for an incoming family member. After all, it is a family business and it is the strength of the family ties and the commitment of family members to the business that is the greatest asset of the business.

In reality neither approach alone works best for a family business. A hiring process that incorporates the concerns of both the family and the business is the preferred approach. How would that work? Ideally thorough entry rules should be written up before members of the second generation begin to come of age to start working in the business. If these rules are clearly defined and have been articulated to all family members many misunderstandings could be avoided and lessen the possibility of offending anyone. I have found in my experience in working with family businesses that a majority of families have not established clear rules of entry for their children. Without rules, decisions about each family member have to be made on a case by case basis. The problem with this method is that it is difficult to be objective.

What do these rules cover? These would include the educational requirements and experience necessary for the position. Clearly the business must have room for every member that is asked to join the firm. There should be an established position and a set of qualifications for it. It is important that the family member be appropriate for the position with clear lines of authority outlined. This would alleviate any potential problems of any member getting a position when they are not properly qualified for the position and also heighten the awareness of family members that they will be held to the same standards as any other applicant.

Some families require a certain number of years of outside experience before a family member can join the business and others require a family member to be of a certain age before they can enter the family business. Obtaining work experience elsewhere before joining the family business has many advantages including the experience itself to gain knowledge and ideas of how things are done elsewhere, and learning another set of skills that will be applicable to the business. This experience also gives the family member the challenges and experience necessary to run the business in the future, this is especially important for the heir apparent. It also brings credibility to the family member among non-family members of the business, a respect that they legitimately earned the position because they have the experience and knowledge to handle the position as evidenced by their work history. More importantly, it helps the younger family member’s self-esteem. They know that they are legitimately competent as they have been successful in other work situations outside the family business and can bring experience and knowledge to the position. Outside work experience also helps the family member develop an independent sense of identity and a way to be distinguished from the parent in a setting where others do not know the family, and where they can be known for their own achievements.

Finally, the level of work required by the position should determine the salary for the family business member and it should be comparable to what you would pay a non-family member in the same position. There is a tendency among family businesses to want to pay all family members equally regardless of the position. This policy hinders the morale of non-family members that are employees.

Having a clearly articulated set of rules of entry can eliminate the potential of problems in the family business and are well worth the time and effort to establish and communicate them to all family members.

This article appears courtesy of the The Jim Moran Institute for Global Entrepreneurship.