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All in the Family

HR Magazine, September 2007 Human resources can promote fairness and consistency within companies that allow nepotism.

You’re the HR manager in a small company. Across the desk from you is a young man you’re interviewing for a supervisory position. He’s unkempt and barely communicative, and he’s not as qualified as the three other candidates. Yet you know you’ll hire him. You’ve tried to voice your reservations to the CEO, but without success: The young man is his son. 

Favoring owners’ or managers’ family members in hiring decisions, often with no regard to the person’s suitability for the job, constitutes a form of nepotism, and HR professionals in organizations where it’s part of the culture face special challenges in dealing with it. 

It can be difficult enough for HR to establish and clearly communicate business philosophies, policies and practices and to apply them consistently across organizations when nepotism is not an issue. It can be even harder, and even more necessary, to accomplish those purposes when employees, perhaps even top executives, are related. 

Whether it’s outright favoritism or a preference for hiring owners’ or managers’ family members if they’re as qualified as the best unrelated candidates, such situations elevate the demands on HR. 

“The role of HR is in some ways heightened and accentuated in an organization where there is nepotism,” says Constance Dierickx, a senior consultant in the Atlanta office of RHR International, a corporate psychology consulting firm. In a workplace where nepotism has grown common, policies and practices need to be “more clear and more transparent,” says Dierickx, “so that people who are not part of the [owner’s or manager’s] family group can see why people that are in certain positions are there. When promotions or hires are made, it needs to be extra clear, and it needs to be credible.”

Special Responsibilities for HR

David Sikora, director of research for Gevity, a human resource outsourcing company with headquarters in Bradenton, Fla., says nepotism can have an impact on virtually all functions of HR, including hiring, performance evaluation, compensation and succession planning. 

In fact, succession planning becomes a key area for HR in a family-run company, a specialty where HR professionals can have a particularly significant impact on the future success and sustainability of the organization. “One of the primary reasons family businesses fail is lack of a written succession plan,” according to a survey conducted by Laird Norton Tyee, a Seattle wealth-management firm. “A sudden loss of leadership, even at small and mid-size family businesses, can have profound repercussions.” 

The study found that nearly 60 percent of majority shareowners in the family businesses surveyed were 55 or older, and nearly 30 percent were 65 or older, yet less than 30 percent of the respondents said they have succession plans in place, and less than 40 percent said they have a successor in line for a transition. 

In addition, 25 percent of the respondents said they don’t think members of the next generation are competent to move into leadership roles.

The Same Rules for All

In family-run companies, HR can also take the lead in ensuring that disciplinary processes are applied consistently. Dierickx says this approach can cut both ways, with family members sometimes being treated more harshly than unrelated employees, simply to make a point. 

Dierickx recalls a situation where an executive-level family member was accused of a policy violation and “almost without due process was fired and sort of run out of the company.” She says that in talking with those involved, she found that a couple of key players felt that the employee was treated more severely than an unrelated employee would have been. “It was almost as though the family [leaders] felt they had to prove beyond any shadow of a doubt that he would not be treated as though he were special,” she says. 

At TriServe Ltd., a professional employer organization in Harrison, Ohio, one of Managing Director Angie Strunk’s former clients was a family business owned by a group of brothers and sisters. It employed multiple family members, including aunts, uncles, cousins and in-laws. 

Strunk stressed the need for an employee handbook with “detailed information on policies and procedures.” The owners were “cognizant of holding everybody to the same standards. So, if a family member came in late, they got written up for being late. The company was very diligent to make sure they followed the guidelines and didn’t give special favors.” 

Strunk says managers in similar situations should deal with policy infractions—and follow up—in a way that is clear to employees throughout the organization. Doing so sends a message that all employees are held to the same standards. 

Although HR leaders cannot develop and implement policies on their own, they can exert considerable influence. “The HR person has to make sure that they put in place policies and procedures that the leadership of the company, whether they’re family or not, is clear about, committed to and aligned around,” says Dierickx. 

Avoid a disconnect between HR and the leaders of the organization. To manage nepotism, make “sure there are no surprises,” Sikora says. “Employees can deal with nepotism when everything is handled in a transparent and consistent way.” 

Making Sound Hiring Decisions

In an environment where nepotism or family preference may reign, HR decisions are most scrutinized in the areas of hiring and promotion. Problems will arise if employees suspect favoritism, or if the criteria for selection and promotion decisions appear to be different according to whether the person is or is not a member of the owner’s or manager’s family. Again, a consistent approach, clear communication and heightened sensitivity to the potential for negative perceptions remain critical. 

In fact, both HR and the organization can benefit from family referrals. Mindy Frink, director of continuing education and communications for The Beck Group, a national development, planning, architecture, interior design and construction firm headquartered in Dallas, serves as an example. Nepotism has been good to Frink; it helped her land her job. 

After Frink completed her MBA overseas and came back to the United States looking for work, her brother-in-law, who had been working for Beck for many years, told her about an opening for a marketing manager. He took her resume to the company and recommended her. “He’s very well thought of in this organization, so that certainly helped in getting an interview,” says Frink. Although she didn’t get that particular job, a role was created for her, she says, and “it’s a fantastic fit.” 

Frink’s experience is just one of several examples of family relationships within the organization. Two of its top employees are a married couple. “They’re both prominent in our leadership, and it sends a very clear message to people that family connections are definitely not frowned upon,” Frink says. In fact, “this company is a third-generation family-owned company, so the feeling of family is very important to the culture.” 

Nepotism Can Be a Good Thing

With companies continually challenged to find qualified, competent employees who will fit with the organizational culture, family referrals can be an excellent way to fill positions. “As the labor market shrinks, that’s just going to become more prevalent,” says Roberta Chinsky Matuson, principal of Human Resource Solutions, an HR consulting firm in Northampton, Mass. 

Depending on how they are handled, family referrals can be good for a company, Frink agrees. “When a potential employee is referred by someone who currently works for the organization and who’s well thought of, that just gives the organization more of a sense of confidence about that person.” Family referrals work best, experts say, when all applicants are judged against the same criteria, and when hiring and promotion decisions are made appropriately and consistently. 

“You should never create a position for a family member,” says Paul Hoffman, president of a family-owned planning, architectural and construction management firm based in Appleton, Wis. For any position, he says, “Make it very clear to everybody the standards you’re going to set, and you need to subject everyone—family or not—to the highest possible standards.” 

In many instances, according to Strunk and others, family members hold themselves to a higher level of accountability because they know that the eyes of others in the organization are upon them. 

Hoffman agrees. Family members, he says, “need to work harder and smarter than anyone else and need to understand that it’s a privilege—not a right—to be able to work with the company.” 

Frink has felt the pressure herself. “Knowing my brother-in-law’s reputation here put a little bit more pressure on me when I first got here. He’s the last person in the world I would want to let down, so I was very cognizant of not wanting to over-promise and under-deliver.” 

Too Close for Comfort

In some instances, of course, close familial relationships can lead to personal squabbles and bickering that may spill into the workplace. Although, as Strunk notes, “you’re always going to have issues of jealousy in any business environment,” such jealousies may be more apparent in family-run businesses. In reality, Strunk says, the same issues can occur in any organization where the perception of favoritism takes hold. 

From an employee relations standpoint, depending on how prevalent nepotism is within the organization, unrelated employees may sometimes feel disadvantaged because they’re not part of the owner’s or manager’s family. Family-owned organizations can stress the involvement of every employee through a philosophy that extends beyond the owner’s family to embrace family members of other employees, says Strunk. The company she worked with, for example, “encouraged employees to bring family members by for lunch; they have a weekly grill-out and invite all employees and their families to come.” ​

Lin Grensing-Pophal, SPHR, is a Wisconsin-based business journalist with HR consulting experience in employee communication, training and management issues. She is the author of Human Resource Essentials: Your Guide to Starting and Running the HR Function (SHRM, 2002).

Web Extras

SHRM white paper: Developing a Recruiting Strategy: A Critical Human Resource Initiative

SHRM article: Ensuring Lasting Foundations (HR Magazine)

SHRM article: Export Codes of Conduct, not Employee Handbooks (Legal Report)

How To Make the Mix Succeed

Paul Hoffman's experience at a family-run business has given him some insights into making the situation work and handling HR problems that can arise. He's president of a family-owned planning, architectural and construction management firm based in Appleton, Wis. His advice:

  • Don't play favorites. If nepotism is allowed for the owner's family, it should be encouraged for the rest of the company--the​ same standards should apply, says Hoffman. He recommends following the same HR processes for everyone within the organization. He says selective nepotism establishes unclear criteria and expectations for employees, making it difficult for them to objectively determine what qualities and performance attributes are valued and how they can most effectively contribute to the organization or be considered for advancement opportunities or other special assignments. Ultimately, he says, morale and productivity may suffer. Without exception, a family member who is hired needs to be the best person for the job and should be paid at the same rate as unrelated employees in the same position. Any disparity in pay or leniency on vacation and policies just cant work, he says.
  • Require family members to get outside experience. It's common for companies to require the relative of a high-ranking employee to work somewhere else before being hired into the family-run business. The prevalence of this practice is evident in the results of the 2007 family business survey by Laird Norton Tyee, a Seattle wealth-management firm. The survey was sent to 10,000 businesses in the United States with at least two company officers who shared the same surname; there were 788 responses. The results: 33.1 percent said they require more than five years of full-time work experience outside the family business, 23.9 percent require three to five years and 13 percent require one to two years. Thirty percent said they had no such requirements.
  • Provide management support. All supervisors and managers in the organization need to know they will be supported in their decisions to promote, transfer, fire or discipline family members as they would for any other subordinates, says Hoffman. He admits this requires a strong commitment and it takes discipline to hold true to your principles.

Lin Grensing-Pophal


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