Essential Rules for Running a Functional Family Business

Composite image of businessman standing with arms out

Dysfunction can throw a family into crisis. In business, the involvement of family can cause dysfunction, the kind of dysfunction that contributes to poor performance, bad morale and ultimate failure of the business. That’s not to say that family members should never work together; family-owned businesses can and do thrive, creating livelihoods for workers, while making a positive impact on society. But when creating or running an enterprise, business owners must be aware of the potential problems that come with family involvement, and then take precautions to keep family dysfunction from derailing growth and success. With that in mind, here are some do’s and don’ts, a handful of essential rules for running a highly functional family business:

Don’t Hire Someone You Won’t Be Able to Fire if Necessary

It’s easy to say that business is business and family is family, but when considering whether to bring a family member into the organization, understand that the two worlds share the same space. Understand, too, that the old adage, “blood is thicker than water,” will probably come into play at some point. This is why the first and most important consideration in deciding whether to hire a family member (more important even than if they are truly qualified for the job) is whether you will be able to let them go if necessary.

When firing an employee, most business owners give at least some thought to the impact of the firing on the employee’s dependents. When that employee’s dependents are part of the owner’s family, too, that decision becomes harder still. What’s more, when a typical employee is let go, the relationship is often severed completely; there is no expectation of continuing interaction. Not so with family members. When you fire someone in your family, you will find yourself necessarily interacting at family events – and probably being the topic of conversation at family gatherings even when you are not there. If that prospect seems unmanageable and the risk to the family unit is too great, it’s better to avoid the hire in the first place.


Do Be Upfront About the Family Relationship

If you do end up involving family in the business, be upfront about the family relationship so that all parties – family and non-family alike – know the organizational impact. You might not think it will happen, but in time the relationship will complicate your workplace culture. To avoid the family relationship from undermining your once coehisive corporate culture, encourage an atmosphere in which all employees know they can express any concerns about the family dynamic in the organization. Even if unfounded, perceptions become reality. Left unvoiced and unaddressed, these concerns can quickly cripple an otherwise healthy organization.

Do Hold All Employees to the Same Standards

One way to avoid the appearance of family favoritism is to go above and beyond in holding all employees to the same standards – of performance, goal attainment, and professional contributions to the health and success of the business. If everyone, regardless of family/non-family status, understands and adheres to uniform standards and expectations, it will be harder for non-family members to claim nepotism (either openly or behind the scenes).

Likewise, be careful to avoid mixing business and family decisions. For example, if you have an upper-level opening to fill and a family member is a logical candidate for promotion, be sure that the criteria for that decision are well-defined and that a clear case can be made for advancing the family member over any other candidates. Don’t promote the family member just because he or she is family; but don’t deny them the opportunity because of the family connection either.

Do Maintain Professional Distance if Possible

It is generally a good idea, regardless of the positions of family members in the organizational hierarchy, to keep at least one level of separation in the reporting chain. In other words, if possible, don’t have a family member report directly to another family member. Of course, be aware that the management-level person standing between the family members in the org structure may feel uneasy about being in that position, too. Naturally, in smaller businesses, hierarchical separation might not be possible. In any event, extra effort and care are necessary to keep everything aboveboard and on a level playing field.

Do Learn to Compartmentalize Work and Family

Especially in the case of same-household family members working together – spouse-working-with-spouse or parent-working-with-older-child – it is essential to set healthy boundaries between work and home. Learn to compartmentalize and leave the office at the office. If you must take work home, try to make sure the work does not involve other family members. If your employees get the impression you are making decisions with family outside the workplace but about the workplace, they will believe that family members involved in the decision-making have an unfair advantage. You will need to work extra hard to make sure everyone – family and non-family alike – understands that serious discussions and decisions about the business will not take place behind closed family doors.

Bottom Line:

Many businesses begin as family businesses. Others bring family members into the organization as an outcropping of business growth or even as part of a succession plan. In any circumstance, family involvement in the day-to-day operation of a business adds complications and levels of complexity to the corporate culture. Because of this, family businesses require extra care and awareness of how the family dynamic affects the organization and its stakeholders. Oftentimes, making the hard decisions about family members in the organization proves too hard for the business owner. In those cases, an outside resource, such as an Outsourced VP of Sales from Sales Xceleration, can provide the perspective necessary for sustainable growth.