0333 444 8522

Employing family members in the business

By Stephen Cowburn

Talking to MDs of family businesses, I am struck by how many started off working in the business during school holidays and then fell into the business after school or university and worked their way up to the top job as the company grew and they became the obvious successor to typically – but not exclusively – the founding father.

Move on a generation and second generation owners have different and similar challenges. Holiday jobs are still on offer but the next generation, on graduating from university (typically), want to forge their own careers and get trained in their chosen career. Mum and/or Dads business seems less exciting and probably not an immediate career choice as the child wants to spread his/her wings.

First of all that’s good news.

I would recommend that any children of the owners in a family business go out and experience the world, get trained, learn about a sector or two, and perhaps get a professional qualification be it plumbing or accounting. They will learn about business, come across challenges and see how other managers and organisations deal with everything.

As every parent knows, things change. Companies sell and restructure. Individuals change jobs and careers to better fit their aspirations and interests.

And all along there is a possibility that they might bring their experience back into the family business in one way or another. The point is family members may be a solution to the succession plan. Perhaps not now but possibly at  some time in the future.

So the first action l would recommend is that family businesses establish a family council to create an annual forum where family members can learn about how the business is doing and understand exactly what Mum and Dad are spending every working hour doing and achieving. This is particularly the case if part of your estate planning has been to gift shares in the company to the next generation. By understanding where the wealth comes from and having the opportunity to discuss, more formally, plans for the business, this greater awareness may entice the next generation into the business.

But what if your child has no real work experience or real affinity to the business but wants a job?

Difficult as it is to be dispassionate, what would you say if a similar cv landed on your desk asking for work. Casual work or temping is fine as everyone sees it for what it is. Pay is whatever the market rate is for the role and if the arrangement becomes longer term, the family member should be treated in the same way as other employees regarding performance management, access to training, appraisals and salary increases, award of bonuses etc. It would be better if day to day responsibility for the family member was given to one of the managers, with a clear brief that no favours are to be shown to the family member and are to be treated the same way as any other employee.  The same should be said to the family member and that discussions about the line manager are off limits.

So far so good?

What if a family member wants to come into the business and there are no suitable vacancies or the family member is not qualified for any role?

In part this is where the family council could pre-empt such discussions by creating a family constitution in conjunction with members of the family. Amongst other things the task force might address this question and others on a related theme.

Temping might be a short term solution.

The key question however is what the right decision is for the business and for the individual.  It is a question of putting on the business hat. If there is a vacancy, is the family member qualified enough for the role and have relevant enough experience to be interviewed for the role. If not, the answer has to be no and expectations managed accordingly.

If the answer is possibly, firstly what is the gap between capability and what the job requires, and secondly what time frame is likely to bridge the gap with appropriate training. A six to twelve month time frame is appropriate; anything longer raises questions in other employees’ minds about favouritism and opens up a can of worms in terms of engagement and productivity.

Assuming that there is some fit and with training the family member could be a suitable employee, what are the golden rules that should be followed?

  • Establish the rules early via a family constitution to deal with the predictable problem. The rules will be how that family want to decide on the appointment process, or define how much experience a family member needs before being considered for a role in the business, how performance will be assessed, how underperformance will be dealt with, how a family member in the business will be rewarded and how the situation is to be addressed if a family member then goes off and sets up a competing business.
  • Operationally, ensure that the family member has an employment contract, job description and employee handbook to clarify expectations and send a message that the family is trying to treat all employees equally
  • Ideally have the family member report to a non-family manager having first established the ground rules with that manager. Quite apart from performance on the job, behaviour and attitude need to be assessed and this can be a challenging part of the role for a non-family manager. If having a non-family manager is not possible, because, for example, the business or operating unit is too small, then consider a non-family manager acting as coach and mentor.

There are undoubtedly challenges in employing family members in terms of maintaining a meritocracy and all employees feeling as though they are being treated equally and fairly.  Keeping these principles as a line of sight enables difficult situations to be handled equably.

For a confidential discussion on how to get the best from employing family members in your business, please feel free to contact Stephen for a confidential discussion either by email (Stephen.cowburn@lgba.co.uk) or direct on 07974 425 361.

Need advice & guidance?

We have advisors all over the UK. Get in touch today for expert guidance and support.