Question: Ensuring merit-based entry into family business


Our family is in diversified businesses across the state, with few of our businesses being household names.

As a policy, we do not force our extended family members (now entering 3rd generation) to join the businesses, but always ensure they have a place somewhere if they choose to.

Unfortunately, this has led to two problems. One, younger family members (who are exposed to business at an early age) take us for granted, and use the business as launchpad for their careers. Two, all of them want to start near the top... and there just isn't enough to please everyone.

We want to solve this problem once for all, by putting a entry process in place. Your advice is most appreciated.

4 Expert answers


Wow, you have a lot going on here.  What you're proposing is, creating a new culture (or changing the existing one).

In the limited space here, let me suggest some steps.  Implementing those steps is NOT trivial, so don't take my brevity the wrong way.

Step 1, get written agreement from the elder family members on the PRINCIPLES to be followed -- i.e. merit based selection; roles assigned based on proven ability and the true needs of the business(es); everyone starts at the bottom.

Step 2, empower a group of elders and trusted non-family members to spin up a PROCESS that embodies those Principles.  Bake it into your bylaws.  (For example, you might allow a family member to prevail in a hiring situation where they are otherwise a tie, but NOT allow them to prevail if they come in 2nd.)  Make your Process extremely transparent.  Expect family members to over-achieve or leave.

Step 3, put yourselves through it.  Seriously. Like, resign your current role and re-apply for it and see if you get it back or not. (Or some comparable show of seriousness and faith in the process.)

Without the first step, you don't have a compelling WHY driving the change.  Without the third step, leaders aren't 'walking the talk' and nobody believes in it.

Step 4, turn the Principles into pithy statements that you hold yourself to, like "everyone starts at the bottom" and "all work is honorable work." Make sure the Elders go sweep floors and wash toilets once a quarter. Soak the Principles into the Culture.

Let me know if you want more details.


A great question and there is a solution.  As you are discovering, a family business is added challenge unless you take the time to address and establish policies to which ALL agree to adhere as it pertains to other family members entering the business.  I see this situation often and here are the steps that success will require:

First, the challenge is getting all current members of the company to agree to play by the same rules pertaining to entry and advancement.  

Second, defining the path that all will follow in moving through the organization.  What is the foundation that one needs in order to understand the company ... its' vision, its' products, its challenges', its' operation.  With this designed, you will have created the plan that a new entry must follow in order to prove themselves and become a future leader of the company.

Third, defining the learning that must happen before one can advance to the next level.

Fourth, holding to what you have defined and established.  To those new members who aren't interested in following the defined path, they will not choose to join the organization.  If some see the basis for this advancement course and are willing to participate as such, you will continue to advance to family ownership in a positive and productive way.

What you are experiencing in the entry of the 3rd generation is not uncommon.  Bringing a structured plan into the company that is designed and agreed to by all the current members, eliminates future problems ... and problems that can undo what the first two generations have achieved.

Of course, I am available to discuss further if desired.


In addition to the process comments by Tom  Cox and Mike Dorman, I would add the practice of a family owned business that has transitioned into the 3rd generation.

Starting at the turning point to the 2nd generation they put in place two policies that stand out.

First no family member could enter the business without first working for five years outside of the family business after graduating from college. When family members choose to participate in the business after this five year seasoning period, they have to start at entry level jobs, then work their way up based on performance. This of course requires strong fact-centered personnel practices.

Second, only family members who are actively engaged in the business can vote their shares. Effectively this prevents micromanagement by all of the family members, only those actively enagaged.

Good luck.

Mark


This is an interesting question and you've had some good advice!

I've worked specifically with family-run businesses, lots of them, and I really recognize your situation.  So things to consider:

1.  Neither nepotism nor favoritism do the individuals or the company much good.  Offering your family members elevated positions causes resentment, not least if they aren't up to the job.  On the contrary, they need to be better than anyone else applying for a particular job.  Let that be a well-understood family rule.

2.  Mark's recommendation about the 5-year process working and learning outside the firm is an excellent approach which really tends to sharpen up the individuals and also enables the company to benefit from their experience when they do join.  It's a win-win.

3.  If a family member is not pulling their weight in any way, they need to be moved.

4.  Don't ever promote anyone or give them access to voting shares unless they truly deserve them.  Being a family member in and of itself does not constitute deserving.

5.  Convene regular family meetings to review the company's progress and their contribution, both positive and negative to it.

Good luck!  You may need to make some tough decisions but they will be ones that serve the company, the family and its individual members, even if they appear unpalatable to some.