How to help 'outsiders' fit into your family business

Family business owners can take steps to make these "outsiders" feel right at home.

“Welcome to the family business. Take a back seat.”

Does that sound friendly? Maybe not, but too often family business employees with a politically incorrect last name hear something similar. These non-family workers often get the short end of the stick. Some get shouldered out of important meetings. Others get passed over when promotion time rolls around. And the company parking lot? Family “outsiders” often get assigned the worst spots.

However it plays out, discrimination against non-family employees can be costly to the bottom line.  Otherwise good workers start to exhibit low morale, engage poorly with customers, or even jump ship for the competition when they feel under-appreciated and ignored.

It all highlights a critical fact: People beyond the bloodline are critical to any family business. “Unless one has a huge family with members possessing the competences for every phase of the business, outsiders are needed,” says Ian Jacobsen, a management consultant based in Morgan Hill, Ca. (jacobsenconsulting.com).

On the positive side, family operations grow and thrive when they take steps to make non-family workers feel like productive members of the community. “Successful family businesses, if they are going to grow, will depend on their ability to attract and retain non-family employees,” says Craig Aronoff, Chairman of The Family Business Consulting Group, Chicago (thefbcg.com/aronoff).

How about your own family business? Do non-family workers feel like part of the team—or like unwelcome intruders? If the latter, you can take steps now to create a more welcoming work environment.

Business first

To start creating a better environment for non-family employees, take a fresh look at your core principles. “Determine what sort of organizational culture you want for your business,” says Jacobsen. “Are people to be respected and valued more for who they are in the family or for what they bring to the business?”

The first attitude is typical of what is called a “family first” organization. Such a business, says Jacobsen, is really “a social welfare organization for family members.” The second attitude characterizes the “business first” organization, which is “a real business that includes family members and outsiders.”

How you define your organization’s position between these two categories will determine a host of management dynamics—not the least of which is your treatment of non-family employees.

Perhaps it’s not surprising that Jacobsen, like most other family business consultants, advises creating a “business first” environment. “For the business to succeed over the long haul people need to be valued more for their contribution to the organization than for their family ties,” says Jacobsen. “That requires establishing an inclusive culture based on personal respect and what each worker brings to the business and accomplishes.”

Hire as needed

All this is not to say that a “business first” organization can never promote a family member to a top job. “Family members will be brought in from time to time and promoted,” says Jacobsen. “That is part of what makes up a family business. People who are not a part of the family need to understand this and appreciate it in order to succeed and not to be discouraged when this happens.”

Even so, family business counselors advise carefully preparing any family member who wants to join the business. A common suggestion is that family members earn their stripes elsewhere. Then if they arrive at the business when needed they have the background and experience to fulfill their duties.

“We advise family members earn their stripes by working three to five years outside the family business,” says John Joseph Paul, a Portland, Oregon-based family business consultant (familybusinesscounsel.com). “This allows them to bring something of value to the organization. Non-family employees are more likely to recognize that they have paid their dues.” It can be smart also to obtain a degree that adds value to the company. People will respect the family manager if their qualifications for a job are unassailable.

And don’t hire a family member just to give the person a paycheck: There must be a valid position to fill. “The business should make sure that the role the person is filling is really needed and that there is a general recognition of that need,” says Jacobsen. “Those non-family people who sought the job and did not get it should be assured that they are respected and valued and should be encouraged to continue at the business.”

Once the hiring decision is made, conduct a careful transition to the workplace. “This goes back to transparency,” says Wayne Rivers, president of The Family Business Institute, Raleigh, NC (familybusinessinstitute.com). “Suppose daughter Sally got an MBA and worked for a corporate giant somewhere. Now she says ‘I might want to be back in the family business.’ If you bring her into the business, don’t let her arrival be a secret. Don’t just lock the door on Saturday and then let everyone see Sally working in her corner office on Monday. That just creates gossip and morale problems. Run her hire by folks first and see what their ideas are.”

Finally, says Rivers, hold young family members to the    same standards as non-family workers. “If everyone is working 50 hours week and Junior is working 35, that will make it hard for him to be respected by the workforce.”

A sure thing

What’s to be avoided, say these consultants, is gratuitous assignment of a second generation sibling to a top post absent any meaningful preparation or vetting. “Just blindly assuming that a family member will be the best candidates for a managerial position is a bad idea,” says Aronoff.

There is certainly a temptation to set family members into high positions without sufficient preparation, since they are known quantities. “Family members have a great built in advantage,” says Aronoff. “They grew up with the business. They heard it talked about over the dinner table and so they have 20 years of training before they come into the business. The deck is stacked for them. But to go further and say ‘I don’t care if so-and-so can perform or not’ is asking for more than trouble—it’s asking for the loss of your business.”

Why so? “It’s good for neither the family member nor the non-family employees when there is such special treatment,” says Aronoff. “It fails to encourage the best performance from family members, who know they will get good jobs no matter what their performance. And it demoralizes the non-family personnel who might otherwise compete for the positions.”

The problem gets more severe as the years pass and the second and third generation of the family begin to have a finger in the business, says Aronoff. “You start to have more people--cousins, uncles, and all sorts of folks--with stock in the business. You have a responsibility to all those people to run the business to its maximum potential. To do less because you want Junior to be the leader is to do a real disservice to all of your family--and ultimately to Junior as well.”

Tell it straight

While a simple dichotomy between “family first” and “business first” is a convenient way to describe company styles, the fact is that most family organizations will lie along a continuum of family priorities. One company, for example, may assign department heads strictly by performance rather than by pedigree. The same firm, though, might put one of the founding family’s second generation siblings into all of the top management positions.

In such cases, non-family employees can become confused about their long term opportunities. That can lead to frustration and poor morale. That’s why it is so important clearly communicate company promotion policies.  

“You have to be straight and honest with folks and let them know what their possibilities are,” says Aronoff. “If it’s been decided up front that family members will lead the business, then that should be known by everyone. You should not send the wrong message by implying there is no limit to where non-family people can go when there is, in fact, a limit.”

Certainly, if there is a perception that there is a glass ceiling beyond which non-family employees can’t go, says Aronoff, then there will be a limit to the enthusiasms of non-family employees. In such a case, he says, the best of such workers might be offered good remunerative positions even if they are not given top management jobs.

Pay up

Maintaining a healthy and happy non-family workforce means more than hiring and promoting well, says Rivers. It also means offering non-family workers a market rate pay scale that communicates a respect for individual talent.

“Many family business owners are exceedingly thrifty,” says Rivers. “They cannot bear the thought of paying people what the current market demands.” But that attitude can be penny wise and pound foolish. “If you pay people three-fourths of the market rate, that is no way to engender loyalty, trust and commitment.”

While tightwads exist throughout the business spectrum, they are more of an issue at family businesses, says Rivers, because public companies tend to gather and consider all the available market information before establishing pay scales.

"Family first" businesses, in contrast, says Rivers, “tend to rationalize low pay rates it because they want more money for the family members. Such organizations end up with under-performing or non-performing people on the payroll and that is a drain on the ability to pay well.”

Avoid micromanaging

“In family businesses, it’s often unclear where one family member’s interest starts and another ends,” says Rivers. He gives an example: One brother, Sam, hires Andy for his department under the understanding that Sam will be his supervisor and evaluator. One day another brother, Bill, who owns an equal portion of the company, decides he does not like Andy and starts criticizing his performance. Now all of a sudden Andy, who expected a single avenue of supervision, finds himself whipsawed between two competing family members.

As this story suggests, it’s important to make sure that all family members in leadership positions recognize the boundaries of their management domains. When multiple supervisors are required for a position, make the chains of command explicit. Don’t let the non-family employee get confused.

Show appreciation

Too often, family businesses give short shrift to civility and kindness. But it’s important to show appreciation to non-family workers.

“Family business owners tend to be very nice people, but they often do not cultivate appreciative cultures,” says Rivers. “One reason is that they typically work too hard, running from one meeting or one customer to the next. They get so harried that niceties go out the window.”

Why so busy? “Family businesses often look at hiring people as a cost rather than an investment,” says Rivers. “So they under-staff. They cut payroll when things are down but are reluctant to add staff when things get busier because they do not want to have unproductive people.”

And there is also a psychological aspect. “Owners of family businesses typically want to control things,” says Rivers. “In most family businesses the owner is the general manager. He or she tries to control everything and has a finger in every pie. Shipments, production, selling. They may wear 20 hats every day.” With all that activity there is just no time to be pleasant and hand out kudos.

Treat them well

If there’s any one glue that holds the parts of this story together, it’s the importance of making “outsiders” feel a home. “I have seen two attitudes on the part of non-family employees at family businesses,” says Aronoff. “One is ‘I work for the So-and-so family.’ The other is ‘I work WITH the so-and-so family.’ The latter is a much more powerful environment because people are working together for the same end rather than being servants of the owner.”

Think of ways you can help non-family employees feel valued. Allow them equal access to any benefits that are enjoyed by family members. Include them in summer picnics, business luncheons, and social events.

It all starts with the attitude of the owners, says Rivers: “The most successful family businesses treat their non-family employees as associates rather than as outsiders, motivating them by responding enthusiastically to their ideas, involving them with leadership issues, and recognizing their achievements.”

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