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Is a family employment policy right for your business?

What would you do if a family member asked you to employ a niece or nephew whom you knew would be disruptive to your business?

What would you do if a family member asked you to employ a niece or nephew whom you knew would be disruptive to your business?

Issues abound when it comes to employing family members.

Initially it might be easy. The first generation often starts bringing their children into the business from an early age. As the children grow, those who are interested gradually take on more responsibility.

But with each successive generation, the number of potential family employees typically increases — as does the risk of family discord that could threaten the health of the company.

The answer for many is to create a family employment policy. Not only will it set criteria for how family members enter and exit the business, it can also encourage younger generations to take advantage of the opportunities the business presents as well as reassure valued non-family employees that they are still critical to the company’s success.

Define the basics

A good family employment policy is specific enough to be relevant over multiple generations according to James Lea, a family business consultant and author of Keeping It in the Family: Successful Succession of the Family Business (yourfamilybusiness.net).

“If the policy is going to have any real force as a reference document with sustainability into the next generations — with adaptations and modifications as circumstances dictate, of course — I really think that it needs to be substantial,” Lea said. “Remember, it is a business policy.”

A typical plan starts with a statement of the purpose of the policy, including fundamentals such as the company’s values and mission statement. This step alone can help companies focus on the specifics of what they need to address to support the company’s long-term success and avoid the ambiguity of unspoken expectations among family members.

David Bork, a pioneer in the area of family business, suggests this section should state outright that being employed in the family business is not a birthright but something that is earned.

“It’s all about having the ability and the work ethic to do the job,” said Bork, author of Family Business, Risky Business: How to Make it Work. (Bork has created a sample family employment policy used as a starting point by many businesses. See davidbork.com)

Another fundamental often addressed in the first section of a family policy manual is the definition of “family.” This may seem obvious, but the more specific the better.

For example, Lea cites a policy he helped develop that defines family as “all qualified members of the [X, Y and Z] families including direct descendents, spouses, adopted children and stepchildren.”

Be specific about conditions

The family employment policy needs to specify conditions of employment such as experience required, inside and outside the company; educational requirements; age requirements; hiring and performance processes; exit and re-entry conditions and any other condition specific to the business.

Work experience outside of the family business is an area where family views might widely differ. Some founders believe on-the-job training is sufficient, or even that it is most important for family members to work their way up through the company to build their credibility. Others may be just as adamant that the younger generation go out and prove themselves in the world first.

“I like to see the same criteria here as I see for every other employee. Other than entry-level positions, you want someone with experience,” Bork said, adding three to five years of experience in another company is often required.

He also believes asking the next generation to prove themselves outside the confines of the family business builds their confidence and shows they’ve earned the right to work for the family. “Then you know you’re worth something,” he said.

An employment policy might also specify the type of position open to family members.

For example, in the policy cited by Lea, three areas of employment were open to family members: summer internships for those 16 to 23 years of age; career preparation internships for family members following college graduation; and full-time employment.

Age stipulations can be a touchy subject, but some families consider them vital to the health of the business.

“There are families who go so far as to say that they won’t consider a family member for any employment past the age of 45 because they believe that employment in their company requires mentoring, apprenticeship and so on,” Lea said.

Compensation and performance metrics can also be touchy subjects when it comes to family employees. Family members being groomed for leadership roles will be on different career paths than even senior non-family staff, but Bork and Lea recommend holding them accountable to the same performance metrics and compensation structure. Whatever the conditions in these areas, they should be stated clearly in the policy.

Supervision is another area typically addressed in a family employment policy. Depending on the size of the business, requiring that family members report to supervisors who are not members of the family can ward off suspicions of favoritism or other potential minefields. This is particularly helpful when a disciplinary process needs to be invoked. A parent may believe his consistently late offspring or extended family member should be fired but prefer not to be the one wielding the ax.

Set it up for success

Although aspects of a family employment policy can be daunting, there are plenty of resources available to help families do it on their own. Whether or not families seek outside assistance, Lea recommends asking a lawyer to review the final document.

“We had an instance where the policy defined 'nuclear family’ as a husband, wife and children, and the lawyer came back and said in that particular state a nuclear family could not be restricted to that definition,” Lea said. “So you never know what will raise a legal red flag.”

Of course, all of the hard work in developing the policy will only be as effective as the family’s willingness to implement it. Bork and Lea both advise getting buy-in from the start.

If there is a single individual who is the ultimate decision-maker, he or she needs to be outspoken in backing the content as well as the intent of having a policy in place.

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