Family members may assume they will take over the family business, and that sense of entitlement and the resulting dynamics can cause businesses to suffer. Establishing a plan for family members early — and effectively communicating it often — can be a good way to manage expectations about job roles, leadership advancement, compensation, future ownership and control of the business, and business stewardship. Also, not all family members may want to join the family business; understanding this early can help to ensure you are aware of career aspirations across the family.
Times of transition may lead to uncertainty as new family members assume control. For many family businesses, the next generation of leadership may come not from the family, but from non-family key employees who provide the knowledge, skill, and experience necessary to support the transition of the family business to the next generation. Take steps to help employees in important roles feel valued and be able to see a bright future for themselves rather than a glass ceiling.
By setting expectations for family members entering the business, this policy can help owners avoid uncomfortable dynamics that may arise from a lack of clarity. The policy should address requirements for those joining the business, such as gaining relevant outside experience first. The policy should also establish compensation expectations, such as family members being compensated based on their positions, like their peers. Performance guidelines, processes for leadership and control opportunities, and any potential privileges afforded to family members engaged in the business should be outlined as well.
Suspicion of nepotism can be a key concern for family businesses, and the family employment policy can require that family members follow rules established for all employees. Consider having non-family members manage family employees (and review their performance) and preventing use of family connections to circumvent direct supervision. This practice can help mitigate the potential for bias and allow non-family managers to do their jobs and continue to feel valued. Of course, the business owner should monitor family member performance in case they need to adjust the succession plan.
Sometimes family members aren’t prepared to perform in their new position. Bringing inexperienced family members in too early can set them up for failure; it may also rankle essential non-family employees and unsettle key third-party stakeholders, such as lenders, customers, and suppliers. Family members should have the role for which they are qualified and interested in having. Even if they are owners, they should still be employed appropriately. Successful integration into the team may give family members the opportunity to learn and move naturally through “the ranks” — helping them establish themselves and their contributions. It can also give the business owner and management team a chance to observe and nurture their skills and capabilities. Moreover, it can provide time for relationships to develop between the rising generation and the third parties that are important to the success of the business.
Family business owners may be tempted to transfer ownership as an incentive for family members to join the business. While well intentioned, these transfers may lead to unintended consequences, especially if the family member does not have the required skills or engagement. There are other ways to encourage family members, such as appropriate compensation and leadership opportunities, and decisions regarding ownership and control can wait until the family member is ready and decides to remain for the long term.
