What do Walmart, Berkshire Hathaway, Dell, Comcast, Publix, and Ford have in common? All are among the nation's largest companies and members of the Fortune 100. Each of them is "family-owned," which is loosely defined as having two or more family members involved and a majority of ownership or control within the family. Family-owned businesses date back centuries to family farms and, in urban settings, shops, and businesses where the family lived above the premises. In both examples, all family members actively participated in producing the family's livelihood.
Although many people think of family-owned businesses as making up only a small part of the economy, the following 2021 statistics from Family Business reveal that family-owned businesses:
- Employ 23 percent of the US workforce, accounting for 32.6 million jobs;
- Generating 23 percent of private-sector GDP or $3.2 trillion; and
- Total 9.1 million businesses, representing 25 percent of all business tax returns.
Pressure to Keep it in The Family—Challenges in Hiring Family Members:
The family-business owner, like all business owners, should be concerned about having the best talent in appropriate roles. This can pose a challenge when hiring family members for key positions. Are they the best qualified? It is important to establish hiring and position requirements and uniformly adhere to them when considering family. These guidelines help avoid the pressure to hire a family member only because they are a family member. Many family companies encourage the next generation of family interested in the business to work for another company for several years to gain general business knowledge and experience to be eligible to join the family business.
When family members choose to work for another company in the same industry, they gain added perspective and familiarity with accepted industry-specific best practices. Family members who work outside the family business can gain increased credibility with other family members and the board. Family businesses should communicate hiring criteria for all positions, which not only sets the standard for talent management but can avoid future misunderstandings and conflicts.
The family business owner should ensure that every employee, whether a family member or not, receives the training needed to allow them to function successfully. Placing a family member in a role for which they lack the appropriate skills without a plan to provide the needed training can cause tension, low morale, and family drama. Family member executives must be assessed on their own merits. Each position should have yearly goals so that the family member can be evaluated objectively and without favoritism.
Strategically Hiring Outside The Family:
Hiring nonfamily members, especially doing so for the first time, can be challenging. Many companies decide to hire nonfamily members when the owners want to accelerate the company’s growth. Other companies hire nonfamily members when the company needs specific skills such as legal, international or financial expertise. The challenge then becomes ensuring that the nonfamily member is a good fit with the organization's culture and the family itself, especially if the company is small. Marc Sharpe, Chairman of the Family Office Association, reports that individuals who are comfortable with a "servant leadership style" in which one leads by putting the needs of their team first can be an excellent personality fit for a family business.
He adds that while hiring a nonfamily manager is often done to acquire a specific skill set, it is also important to hire individuals who have the flexibility to take on a generalist role when needed. If companies are recruiting nonfamily members for a position to replace a family member, it is important to communicate the reason for the hire and have detailed position requirements. If the company’s management are not in full agreement to hire a nonfamily executive, it will be a difficult and possibly unsuccessful hire.
To avoid and resolve family conflict, it is important in the recruitment and retention of outside candidates to ensure the family business has well-defined business procedures and corporate governance. Also, making decisions informally outside the office will put the nonfamily member at a disadvantage.
Best Practices for Executives Joining a Family Business:
Individuals who work for family businesses agree that it can either be a rewarding or disappointing experience depending on a number of factors, and we recommend that any executive considering joining a family business evaluate the following:
- Has the family agreed on the hire?
- How well has the position been defined?
- How many individuals have previously held the same position? Turnover, particularly in the C-suite, can be a red flag indicating that the family is not ready for a nonfamily executive;
- How are business decisions made? Cultural fit may be influenced by whether the business owner makes key decisions independently or in a distributed fashion;
- How does the team operate in terms of executing the business? A well-functioning team is empowered to operationalize projects and business imperatives timely and successfully;
- Understand the business owner's goals; recognize these goals may be focused on objectives other than increasing revenue and growth, such as philanthropy or creating a legacy;
- Evaluate the strengths and challenges of the current team and look for signs of dysfunction among family members;
- Get to know family members individually because they may have different goals and objectives; what are the family dynamics in play?