Ethical Nepotism is not an Oxymoron

Ten Best Practices For Hiring Relatives

What do Wal-Mart, Comcast, and Ford Motor Company have in common? They all started as family-owned businesses. And they are not alone.

Family businesses are the workhorses of the U.S. economy. According to the most recent U.S. census, 90 percent of all business enterprises are family owned. They make up 64 percent of the U.S. gross domestic product, generate 62 percent of the country’s employment, and account for 78 percent of all new job creation. According to a study by OnStartups, 48 percent of entrepreneurs say they grew up in a family business.

There’s even more good news. Women play a pivotal role in family businesses. A 2016 Business Survey conducted by PWC revealed nearly 60 percent of all family businesses have women in top management team positions. And the number of women-owned family businesses is growing, increasing 37 percent between 2010 and 2015.

Moreover, women-owned family businesses are thriving. The Center for Women’s Leadership at Babson College found that woman-owned family firms experienced greater family loyalty to the business, agreement with its goals, and overall pride in the business, with a 40 percent lower rate of family member attrition.

 

A “family owned” brand engenders “warm and fuzzy” factors of tradition, craftmanship, and most importantly, trust.  If the consumer had a say, 60% would prefer to buy from family businesses, according to Family Business Magazine. The 2017 Edleman Trust Barometer showed that family businesses are trusted more than non-family businesses by a 16-point margin globally.

Think Levi’s, Gucci, Beretta, Nike, Hasbro, and Mars. Part of the success of these companies can be tied back to their business branding of being “family-owned.” In the recent EY report, “Staying Power: How Do Family Businesses Create Lasting Success,” 76 percent of the surveyed companies reported that they refer to themselves as a “family business” in their marketing materials to establish a strong identity, differentiate from competitors, and build trust with customers and employees.

Emotional Bonds

But one aspect of family businesses can pose a challenge. Nepotism, in the form of blatant favoritism or preferential treatment of family members, can turn a well-regarded family business into a proverbial “wolf in sheep’s clothing,” especially when a business owner gives a job or promotion to an unqualified family member. These types of hiring and promotion practices typically hinder the viability and success of the business.

It is perfectly legitimate for a business owner to conscientiously prepare family members to work in and even, eventually, take over the reins of a business. Business owners often find working with a family member to be highly rewarding and beneficial. From the start, the business owner knows and has a feel for a family member’s personality, skills, and experience. Better yet, typically, training time is faster since a family member is often more comfortable teaching someone they know. As a result, emotional bonds between family members can have a positive effect on performance and enhance a company’s bottom line.

Yet, even in cases where the business owner avoids showing a preference when hiring or promoting a relative, it may still be perceived by other employees as favoritism or even worse, cronyism. A recent Inc.com poll revealed that nearly half of those polled (48 percent) believed that being the boss's son or daughter is the secret to getting ahead, while only a quarter agreed that success comes from doing good work. Perceived nepotism can be just as problematic as actual nepotism, and once the thought of employee preference is there, it can be challenging to get rid of.

Within the context of a family business, nepotism can often become a fertile ground for conflict. Strong disagreements are inevitable in all families and within all work environments. Ongoing disagreement and bickering between relatives in a family business can be a real nightmare for everyone, including unattached employees. A “family wrong” can quickly escalate and become much worse than a "business wrong.” The worst conflicts may even lead to lawsuits that permanently damage relationships between siblings, parents, children, and relatives. Steve Salley, a partner and attorney with Banyan Family Business Advisors, summed it up this way: “Family litigation is the ugliest form of warfare: civil war. Hostages and casualties vastly outnumber apparent winners, and the scars are permanent. Any victories end up being tragically unsatisfying.”

Best Practices

At this point, you may be asking if nepotism is unethical, and thus should be avoided at all costs.

Actually, ethical nepotism can be, and often is, beneficial.  Ethical nepotism operates the same as ethical (and legal) treatment of employees of all kinds. According to Wayne Rivers, president of the Family Business Institute, Inc., there are ten best practices when hiring relatives:

  • Put human-resource policies in writing for all employees and family members to read and understand. Drafting (or purchasing) an employee handbook, including a nepotism policy, is crucial.
  • Enforce all policies fairly and evenly among related and non-related staff.
  • Do not grant special entitlements to any employee just because the person is related. This is especially true when it comes to getting hired in the first place.
  • Encourage all employees to have their family members apply for jobs at the company. This will create a level playing field and result in a family-oriented company.
  • Never pay a family member more for the same work than a non-family employee would receive.
  • Always promote a family member on merit.
  • The same holds true for giving raises.
  • Never allow one family member to supervise another one.
  • Never force a non-family company manager to hire a relative. The manager should have a free hand to recruit, interview, hire, and promote whoever is best qualified.
  • Be as willing to fire a family member for incompetence as you would a non-family member. It won’t be easy, but it will pay enormous dividends in terms of your image as an objective and fair company leader.

No matter the size of the family business, a sage hiring ethical practice is to provide all hires (including family members) with a written and up-to-date job description that is clear, concise and accurately defines the role. Craig Aronoff, John Ward, and Stephan McClure recommend in “Family Business Succession: The Final Test of Greatness” that business owners have family members meet three qualifications in order to join the family business on a permanent basis: “an appropriate educational background; three to five years outside work experience; and an open, existing position in the firm that matches their background.” Of these qualifications, the authors stress that “outside work experience is the most important for both the family business and the family member.” They advocate that following these steps “gives future managers a wider experience base that makes them better equipped to deal with challenges, lets them learn and make mistakes before coming under the watchful eye of the family, makes them realize what other options exist and thus appreciate the family firm, and provides them with an idea of their market value.”

In sum, family members can have a positive influence on the success of a family business This success is bolstered when the family business utilizes advance planning and careful application of ethical nepotism, including sound hiring and promotion practices to avoid potential conflicts of interest.