5 Mistakes To Avoid When Hiring Relatives

5 Mistakes To Avoid When Hiring Relatives

It is hard to be objective about hiring relatives, especially a son or daughter. But you have to objectively ascertain people’s strengths and weaknesses before you bring them into the family business. Just because your son is getting an MBA in accounting and finance doesn’t mean you should appoint him as the CFO when he graduates.

Family businesses are a long-established tradition. About 80% of the world’s businesses are family owned, according to research from the Kennesaw State University Coles College of Business. Family-run businesses account for nearly 35% of the largest companies in the U.S. (60% of all public companies), including Ford, Wal-Mart, Tyson Foods, L’Oreal, Loews, and Ikea. More than 30% of all family-owned businesses survive into the second generation. But only about 13% are passed onto the third generation.

Many family business consultants say the primary reason for this low survival rate and why some families don’t work well together is the failure to put in place a strategic plan and set of guidelines. Family members can be part owners of the business, but they don’t have to work inside the company. As the founder, your objective should be to prep and hire family members because they have a set of skills that the business needs.

Running a successful family business doesn’t mean running an entitlement program where if you have the right last name you are guaranteed a job and a certain title. A second cousin might be more qualified than the eldest son to lead the company. Many family businesses have folded ultimately because members were brought in by birthright.

Here are five mistakes to avoid to help you successfully bring family members into the business:

1. Operating Without A Family Employee Policy
This is outside of the company’s employee handbook. It is important to have crystal clear goals and expectations for family members in the business supported by clear management roles. The family employee policy should spell out what to expect when hiring family members, regardless if they are coming into an entry position or at the executive level. There also needs to be an integration plan for when you bring a family member into the business. There ought to be some form of training and orientation.

2. Failing To Define Roles And Responsibilities
The job description for most family businesses is to do whatever it takes. In the early stages of the family business, there is a tendency to have everyone pitching in. You might be meeting with bankers one day and scrubbing toilets the next day. However, there must be written job descriptions, defined roles, rules for compensation, performance reviews, long-term and short-term goals or objectives, so that decisions are not based on family relationships. Also, family members should know if they are not reaching their goals or if they are on the right track for whatever position they are in line for.

3. Lacking Formal Programs For Next Generation
You should establish training programs for younger, teenage family members to learn the inner workings of the business. For instance, in addition to giving them opportunities to work in the business after school, create paid summer internships or establish some type of mentoring program. Mentors should also include people from outside of the family. The conventional wisdom is that family members should spend two to five years working at another company in the same industry. Having a family member work outside of the company will help to build up his or her confidence as well as allow that individual to make mistakes on someone else’s dime.

4. Relying On Post-Graduate Education
Some family business consultants say to be skeptical of traditional post-graduate education, such as MBA schools. The needs of your business are narrow and unique whereas an MBA education is very broad. Meaning, your son or daughter will learn how to work for Fortune 500 companies whereas you are running a manufacturing plant. So, they are spending 90% of their time learning things that won’t have any real life application to the family business. Of course, if the job description at your company calls for an MBA or JD then family members can’t forgo getting the proper background or credentials.

5. Displaying Favoritism or Nepotism
If the work environment is professional and all employees are treated fairly, you won’t get accused of nepotism. Set some boundaries between family members and the family business. Also, use your board of directors or a board of advisors to provide objectivity. Another alternative is to hire outside business consultants. Focus on the business and not on the family. Meaning, The needs of the business and not the needs of individual family members should always come first. Research shows that business first focused family businesses tend to create more generational wealth than family first oriented businesses.