Nepotism in Family Business
Nepotism is the practice of showing favoritism toward one’s family members or friends in economic or employment terms, for example, granting jobs to friends and relatives, without regard to merit. Such practices can and do have damaging effects on businesses. They can erode the support of other employees, reduce the quality and creativity of management and diminish the importance of competence and high-level performance.
In many smaller family-owned businesses, nepotism is viewed in positive terms, often because it is a cheap source of labor, and is considered a synonym for “succession.” This rationale is a mistake. Competence must be the criteria for employment, followed by years of consistent, high level performance that can lead to succession.
Nepotism is neither good nor bad, in and of itself. It only takes on a positive or negative charge in the context of how one has raised one’s children. I believe that the task of being a parent is simply this, “To raise responsible adults who have high self esteem and can function independently in this world.”
This process involves instilling those values that will lead to competent employees – honesty, integrity, dependability, respect for others, being industrious and doing one’s best in every endeavor.
Failure to teach these principles opens the door to children feeling entitled – believing that they are the privileged and should be given everything. This deficiency becomes a ripe incubator for problems to emerge when the child works in the family business. Children who come to the business with an attitude of entitlement will think they are exempt from the rules that apply to “ordinary people.” They often don’t understand that they must earn their place in the company through hard work and consistently-demonstrated competence. A seemingly small thing like coming to work on time is an example.
Family Employment Policies – Performance & Exit from the Business
Family business policies should include periodic and scheduled performance evaluations. A performance evaluation presents an opportunity to discuss quality of contribution, work habits, professional growth, demeanor and attitude within the business and with customers. Family members set the standard for the company and their behavior must be a leading example for all employees.
Family Employment Policies – Compensation
Family business compensation is something that should be addressed within a family business's employment policies. Family members must understand that they will be paid fairly, at fair market rate, for the position they hold. This avoids a family member from obtaining an inflated view of their contribution to the family business.
Family Employment Policies – Entry into the Business
A family employment policy should address what is necessary for a family member to enter into the business. Following specific pre-determined guidelines will help a business hire competent employee who will make a positive contribution to the business. It's important to remember that a job in the family business is not a birthright.
Family Employment Policies – Rules of Engagement
Every family business should establish a set of family business rules. These rules of engagement should encompass a policy that states how family members will be allowed to participate in the family business. The purpose of family business rules is to guide the business, and it's important to develop a written employment policy long before it is needed.