How to Succeed in HR at a Small, Family-Owned Company

By Kylie Ora Lobell February 19, 2021
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How to Succeed in HR at a Small, Family-Owned Company

​Stories abound of small, family-owned businesses where nepotism and misguided workplace decisions have led to legal action by employees, stiff penalties and costly settlements, leaving HR professionals wondering if it's time to change jobs. For instance:

  • At one family-owned printing business, a manager fired a nonrelative employee who had diabetes and other ailments in an attempt to lower health care costs. The employee sued for wrongful termination, and the company settled for $24,000.
  • In another case, the owner of a family-run contracting company harassed female employees and frightened them into silence, leading to an eventual settlement of $80,000.
  • At a small software company, the owner fired the sole HR professional when she insisted that his aggressive behavior in meetings would lead to a hostile workplace action by nonfamily employees.

As HR professionals who work in family-run businesses know, owners and other senior relatives are the final decision-makers on all workplace matters. And despite their best efforts to comply with federal, state and local labor laws, HR pros may have difficulty implementing best practices when family members insist otherwise.

A typical example is nepotism in hiring and promotion, which happens when jobs are advertised yet are awarded to family members instead of to more qualified candidates. Other examples include compensation and benefits decisions that favor family members, and succession planning that leaves out loyal, dedicated employees who are passed over for the owner's son, daughter, niece or nephew. And when family disagreements arise, productivity companywide can suffer.

All of these factors can make an HR professional's job difficult, leading to lawsuits and the eventual downfall of the company. And while it's not up to HR alone to save the business, a smart practitioner can successfully navigate these complicated circumstances and do the job as effectively as possible.

Here are some ways to improve a family-owned business's HR processes while upholding your responsibilities—without making enemies.

Examine the Company's Culture

No HR professional can implement changes to a company's practices without first truly understanding the company's culture.

"Time should be spent learning the intricacies of the culture and values of the family business owners," said Tony Giacobbe, HR leader at Amica Senior Lifestyles in Toronto. "These key factors should be considered in the development of HR policies and recruitment plans, and HR professionals must take steps to clarify the strategic value they're able to add."

This effort should begin by interviewing senior family members about what they see as the company's greatest assets. Next, learn about the business's place within the wider industry and community, Giacobbe said. "It should then be possible to offer solutions that will be of benefit to specific functions and the business as a whole."

Develop Relationships with the Leaders

HR professionals should get comfortable with their bosses and the company leaders so they can establish trust.

"Establish a seat at the table early on," said Jim Hefti, vice president of human resources at Moxie Fitness Apparel in Peoria Heights, Ill. "This sounds easy, but with a family-owned business, they may be used to having a small, trusted group make all the key decisions. Leaders often are hesitant to invite HR into those meetings out of fear that we'll make their lives more difficult or tell them no."

HR professionals can earn trust by presenting back to leaders what they perceive as the business's strengths and weaknesses, as well as the specific challenges the leaders are facing. Then, "once you start bringing solutions to their challenges, they'll begin to see you as a trusted advisor," Hefti said.

If this doesn't happen right away, HR professionals shouldn't fret. "It may take considerable time and effort for HR to be accepted as a strategic partner, with the best interests of the family business [as] their sole focus," Giacobbe said.

Explain Why Legal Compliance Is Critical

Even though family-owned business leaders have their own way of doing things, that doesn't mean it's the right way. In fact, they may be breaking labor laws without knowing it, which can end up costing the company. In fact, many small businesses don't have the financial resources required to cover the costs of mounting a legal defense in the event of a wrongful employee termination, for example.

Therefore, it's an HR professional's role not only to educate business owners but also to "show them all of the options and the potential repercussions associated with each one," Hefti said. "By making recommendations and showing the owner that we have their best interest in mind, it demonstrates that we want to be their partner, not work against them."

Make Sure Hiring Is Objective  

Hiring often is the toughest issue for HR professionals working in family businesses. Micah Longo, a labor and employment lawyer at The Longo Firm in Davie, Fla., said the bottom line is that hiring always needs to be objective. "In other words, the decision-makers should always choose the best candidate, not the candidate who is family," he said. "Now, if the best candidate is a family member, that's another story."

To ensure hiring is fair, Longo advises HR professionals to create a clearly written employment policy and convey it to team members. Then make sure the company follows that policy to the letter.

"Don't allow free passes to employees who happen to be family members," he said. "If you treat family better than nonfamily, you are heading down a road of discontent among the nonfamily-member employees."

If HR professionals uphold strict hiring policies, they will help create a culture of fairness and opportunity, along with a team mentality among all employees, Longo said. The company also will build a high-quality workforce where experience and skills are more important than nepotism.

Achieving employee diversity should also be a high priority. "Attention must continue to be placed on hiring so that the company avoids missing opportunities to diversify the workforce," said Linda Bond Edwards, an employment attorney at Rumberger Kirk in Tallahassee, Fla. "By only hiring friends and family of current employees, the employment pool remains homogenous and may not be in the best interest of the business."

Gradually Introduce Structure

It can take time, but if HR professionals start small and work up to larger issues, they will eventually implement the changes they seek and will have family members on board for the ride, Edwards said.

"Slowly introduce a more structured environment and make the business case for making progressive HR changes," she said. "Good HR policies and practices are always important, regardless of company size. Start right and the good practices will follow."

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