How do you bridge the gap between family and employees?

“I'll never ever work for a family business again!” proclaimed an accountant who recently resigned from a CFO position at a family-owned construction contracting company. Sadly, the frustrations of this accountant are echoed by many employees of family businesses who accepted their roles, including a minority ownership position, without a full understanding of the dynamics of the founding family.

This accountant’s frustration (and eventual exit from the business) resulted from a blurring of the lines between family, ownership, and management. This included family members in multiple roles throughout the business, which led to non-family employees’ uncertainty around authority and advancement prospects. Specifically, they believed that family members would be the ones promoted into the most desirable positions.

As a private business owner, employing family members is not an inherently bad thing, as long as you’re deliberate and thoughtful about how you approach governance and organizational culture.

Governance

In family-owned businesses, good governance is always based on transparency — making sure you’re placing the best candidates in the positions most suited to them, regardless of their last name. Having bias towards family members is natural and may even happen subconsciously, but open communication with non-family employees can ensure that bias remains in check.

To maintain transparency and accountability, it may help to consider your small- to mid-sized private enterprise as a public company, where everything happens according to agreed-upon rules and procedures.

The right roles for family members

Invest some time to clearly define your long-term goals for ownership of the business, and for the business. If your eventual succession plan is to pass ownership of the company within the family, it’s prudent to have a conversation just with family, and get everyone on the same page before you breach the subject with non-family employees. Some questions you need to answer include:

• Do your next-generation family members even want to own the business one day, or are they only there because of family dynamics or expectations?
• What are your personal plans regarding leadership and ownership of the business — do you see an exit date, have plans to slow down, see continued involvement?
• What happens if your family members want to own, but not necessarily operate, the business?

It’s important to note your business can be professionally managed by non-family executives, while your family retains the majority of the ownership equity. Your family members may not be interested in running the business after you leave, and that’s okay; whatever answers come from these discussions, you need to be prepared to handle them without judgment.

The right roles for other employees

To bridge the gap between family and non-family, be honest about the long-term goals of the organization and the direction it’s going. Frequent communication fosters trust and confidence that their contributions are also valued.

If your initial discussions with family reveal they prefer not to manage the business, let non-family employees know the opportunity to take over executive and management positions is open to them. Help them see the path to get there. Be willing to share information that would have been confidential in prior years, so they are fully informed.

Culture

Fairness

There is a natural tension between family and non-family employees that needs to be consciously managed.

Non-family employees, rightly or wrongly, may attribute the promotions or successes of family employees to nepotism. And these employees’ perception will be their reality until you do something to change their minds. Include future plans for the business, roles and qualifications required to accomplish the business goals, and operational statistics when talking about how staffing decisions were made.

Don’t assume non-family team members know what opportunities are available to them. Check in regularly and candidly ask if they can see themselves in higher positions.

Communication and feedback

An unfortunate reality at some family-owned businesses is that non-family employees are kept in the dark — they’re told to just keep doing their work, and they will be looped in when they need to know something.

If you do receive feedback from your non-family employees about perceived unfairness or lack of communication, assess where it’s coming from and what you can do to change negative perceptions. Thank them for their feedback, make a promise to get back to them, and follow through quickly so they know their feedback is heard.

Unity and buy-in

Ideally, you want all your employees, both inside and outside your family, to act like partners in the business. By using the proper incentives, you can encourage behaviours that uplift the entire business and the key metrics you want to focus on.

Employee share ownership programs (ESOPs) and employee profit sharing plans (EPSPs) can be a useful tool in fostering a sense of unity and ownership over one’s role. Giving family and non-family the opportunity to acquire equal stake in the shared profits or ownership can also improve morale, trust, and retention. This can be a means of bridging the gap between family and non-family.

Building bridges

While the story of the disgruntled non-family employee is often repeated, many family-owned businesses are progressive, well organized, and have a long-term vision rooted in their values. To recruit and retain talented people in this increasingly tight labour market, you need to separate yourself from the negative stigmas of family-run businesses and make sure all employees feel heard and valued.

Contact us

Steve Moore CPA, CA
Partner, Private Enterprise
519.340.5219
[email protected]

Lynne fisher
National Team Leader, ExitSmart
780.401.7085
[email protected]