Saturday, September 21, 2019
Helping Family Businesses succeed.
placeholder
Have a Question? We can help. click to Ask an Expert.

Fairness in the Family Business: Dealing with Favoritism and Exclusion among Family Members

In the three-circle model of a family business, the system is made up of owners, family members and employees. (See our article, The Full Circle of Family Business Dynamics.) Because the family business system dynamic is so complex, blending both the emotional and rational roles family members have with each other, it is particularly prone to the perception of unfairness among family members. And this is particularly the case if your family business does not have adequate formal employment, ownership and succession policies in place.

The fact remains that every family business is at risk of appearing to favor a particular successor or other member of the leading or younger generation, regardless of their qualifications or lack thereof. And the fact also remains that that in every family, there are those family members who are excluded from the family business – whether by their own choice or by the owners’ choice… or even by formal business policies. Despite these complexities, family businesses can bring family member exclusion and family member favoritism into balance with the right strategies.

Family Member Favoritism

In decades past, the issue of favoritism in family business may have only revolved around the two eldest sons of a family business owner. But in today’s times, we no longer look to age or gender to determine who tomorrow’s best leaders are. Naturally, this is a positive development, but one that also makes the issue of favoritism even more complex and one that deals with even more potential heirs than in previous generations. Add to that the fact that we are also living and therefore working longer, and this opens up the possibility of not only two generations working together, but three – with even more potential candidates to take on the role of favored heir.

Unmanaged favoritism can have devastating effects on the family business system. Not only are the competing family members caught up in a damaging rivalry, but lack of fairness – or even the perception of it – can create guilt for senior generations and business-wide distractions that reduce productivity and alienate non-family employees.

To deal with the problem of favoritism, Grant D. Goodvin J.D., in his article, “Favoritism and the Family Enterprise System,” suggests the following strategies:

  • Focus on the family. Despite business commitments, family business leaders should make personal family time a priority outside of work.
  • Have a non-family mentor. A non-family authority figure can offer younger generations unbiased guidance, feedback and suggestions for growth.
  • Focus on how decisions are made, not the outcome of those decisions. What’s most important are the effort and decision-making skills behind the decisions.
  • Ask the question, “What would you do if there were no family business?” This can get younger family members thinking about building their own skill sets and marketability in the greater context of the industry or business world in general.

The idea is that the more family business leaders pay attention to their family-member employees’ individual efforts, actual work product and real skill sets, the less likely the family business system is to fall into patterns of displaying favoritism.

Family Member Exclusion

Even though some family members do not work in the family business, these non-employee family members still have their place in the three-circle family business system. And as such, they have an important place in the overall family dynamic. The tendency in some family business systems may be to just let these uninvolved family members drift their own way. However, because these non-employee family members are still important parts of the family, they should not be overlooked. The family unit should promote the individual chosen paths of all family members, regardless of whether they are involved in the family business.

For these family members, Goodvin, in his article “The Non-Active Family Member in the Family Business,” would again ask, “What would you do if there were no family business?” And again, this is to get family members thinking about their own individual value and prospects beyond the family business.

Goodvin outlines several reasons why family members may not be involved in the family business:

  • Employment strategies limit the hiring of junior family members.
  • Employment policies require minimum education or business experience.
  • Family members may be specifically excluded due to conflict in the family dynamic.
  • Family members may simply choose to pursue another career.

The important thing here is to ensure that the reasons for excluding a family member are objective and based on formal policy, if that family member’s exclusion is based on the decision of the business.  When employment practices and policies are clearly outlined and consistent for every employee, the family business is less susceptible to disruption and even legal action by the excluded family member.

The best thing that senior family members can do is to guide family members who are not involved in the family business in their chosen paths, even if that path takes them far from the family business. However, if they so choose, these family members can contribute to the business in other ways, as well. These family members can administer a family business foundation that coordinates the charitable work of the family business – or go into a line of work that provides services to the family business on a vendor, consultant or outsource basis.

The bottom line is that the family business system is particularly vulnerable to the perception of favoritism, exclusion and other forms of unfair tre ATM ent. The best course of action family business leaders can take, therefore, is to develop clear policies that outline the requirements of employment and growth within the family business. Furthermore, the family business leaders that pay attention to each family member’s unique characteristics, skillsets and contributions – and then base their promotion and employment decisions on those contributions – will be better able to squash any perceptions of unfairness in the family business.

Contributing sources: Grant D. Goodvin J.D., The Non-active Family Member in the Family Business, 2009; Grant V. Goodvin J.D., Favoritism and the Family Enterprise System, 2009; http://www.family-business-experts.com/pruning.html

[12005-5-1]
| Terms Of Use | Privacy Statement
Copyright 2019. Broadway Bank. Content is not a substitute for legal and tax advice