Dealing With Nepotism And Resolving Conflicts In Family Businesses

Thursday 31 May, 2001

by Yuen Ching Ho

Conflict is a normal part of any family relationship. But when you combine standard sibling rivalries or parent-child conflicts with business disputes over money, employment, management and ownership, both family and business relationships can deteriorate rapidly.

A common source of conflict is the practice of nepotism. Nepotism means giving preference or patronage to relatives. However, this presents a dicey situation as promoting family members over other qualified employees often leads to resentment or, worse, prompts valuable non-family employees to leave the company.

Hence, how can family business managers attain a balance between successfully training and promoting the next generation, without alienating other employees?

It takes a real commitment to maintain employee morale and also ensure that chosen family members get the experience and training required to justify their succession when the time comes. Recommended measures include:

1. Require heirs to work outside the family business
   
   Requiring the heir apparent to work outside the family business ensures relevant experience in an environment without built-in advantages. In addition, the budding successor would then not only be able to contribute knowledge of other business practices, but is able to gain credibility by demonstrating if he/she has the necessary capabilities and qualities to take over the reins.
   
2. Start family members in jobs they're qualified for, not senior management positions.
   
3. Pay family members the same salaries non-relatives would receive in the same positions.
   
4. Evaluate family members with the same criteria used for other employees.
   
5. Don't force family members on your managers.
   
   Give your managers the same freedom to promote, transfer and fire "nepotism hires" they have with other employees.
   
6. If nepotism is allowed for your family, it should also be allowed for all employees.
   
   Consider an employee referral program that rewards employees for recommending those ultimately hired, including qualified friends and relatives.

Following these steps should promote fairness and help family members earn respect within your company. Nonetheless, conflict within family businesses is also likely to arise from a myriad of other issues stemming from an overlap between the family and business systems.

It is important to remember that even if your family business is a model of harmony, mapping out strategies to deal with conflicts before they arise is a good idea. The more open your family is about handling conflict, the more likely it is that your business will succeed because of disagreements rather than in spite of them.

Strategic Guidelines

• Hold regular family meetings to discuss business issues and to settle disagreements.
  
  Include all family members who own stock or who play a substantial role in the business. Don't assume that informal meetings can do the job or that discussions will "trickle down" to other family members.
  
• Create a formal, written policy that governs family participation in the business.
  
  Specify a decision-making process, succession rules, salary and equity guidelines, dispute resolution and other vital points. This is not meant to be a legal document, but rather a reflection of the family's shared ethics and business culture.
  
• Develop a formal, structured performance evaluation process that everyone understands and accepts.
  
  Focus on improving family members' work performance rather than simply pointing out their flaws and weaknesses.

Nonetheless, remember that too little conflict can be just as destructive as too much conflict. Constructive criticism and debate is essential for growth. Don't "manage" conflict by avoiding it or pretending that it doesn't exist. You're much better off tackling problems head-on and turning conflict to your advantage.

This article is partly excerpted and adapted from McKenzie, M., Resolving Family Business Conflicts, and Sterling, G., Make Nepotism Work for You

 

Source:ceoonline.com