The Business of Family Business (Family Employees)

Last week we explored the challenges with navigating the death of a patriarch or matriarch as part one of the four disruptions to a family business: death; new entrants; inequity and behavioral health as explained in "The Family Business Handbook" published by the Harvard Business Review. This week we will dig deeper into the challenges associated with "new entrants" in the form of "family employees".

As a precursor It is important to recognize the potential blessing of having spouses, children, cousins or other family in a business. Rarely will you find non-family members as aligned with the goals and values of the business. However, human elements can create challenges with family working as employees.

For those of you who are in a family business you know a major disruption can occur when a siblings get married or have children with expectations for employment in the family company. Maternal/paternal instincts make securing a place for one's child part of their evolutionary responsibilities. Further, a spouse and the associated "pillow talk" can create tensions amongst family business relationships as the deadly sin of envy rears its ugly head.

To mitigate this risk family businesses can categorize family members and then clearly define the rights and responsibilities of each category. Some suggestions for categories would be employees, owners, employee-owners or benefactors. Let us start with family employees.

Family Employees

When family members are to become employees it is important to establish the process and answer some basic questions. Will the family member be expected to achieve a certain level of education or outside experience first? Will a job be created for them, or will they need to apply for a position as it becomes available?

Once the family member is employed additional boundaries need to be created.

1) Clearly establish the roles and responsibilities for the job. Create a job description, create performance goals and perform an annual review of all family employees.

2) Establish expectations for professionalism. Often in family businesses things get said or behavior is tolerated that would never be accepted in non-family communication or the corporate world. Establish a culture of respect and professionalism for all interactions with family and non-family employees and create the latitude for each family member to throw a penalty flag when things run afoul.

3) Compensation. Compensation is a frequent friction point for family businesses. Establish early that compensation should be set based on the roles and responsibilities of the position. Don't allow the lines to be blurred between an employee and a family member as compensation should be set comparable to the pay for a non-family employee in the same role.

Often family members will receive additional compensation in the form of dividends, distributions or perks. These forms of consideration should be part of the compensation equation for the other categories such as an owner, owner-employee or benefactor of the family business.

Thank you for reading and next week we will provide some considerations for the role of owner!