Managing, operating and growing a family business becomes complicated when there is friction among and between family members and relatives that hold positions in the business.
This setup is quite unique and peculiar among family-run businesses but rarely encountered by professional managers employed in non-family business organizations. For family-run enterprises to grow, moving toward professional and empowered management is the only real solution.
Many successful businesses started with nothing, and through sheer hard work by the owners (typically a husband and wife tandem) with no real experience in the corporate world, their very success brings to them and members of their families many problems. As the company transitions and diversifies, the business issues begin to commingle with emotions — invariably becoming complicated, creating tension in the family business and possibly making it the most difficult to operate.
Psychologist and Harvard Business author Harry Levinson said in his 1971 article, “Conflicts That Plague Family Businesses,” that “it is obvious common sense that when managerial decisions are influenced by feelings about and responsibilities toward relatives in the business, when nepotism exerts a negative influence, and when a company is run more to honor a family tradition than for its own needs and purposes, there is likely to be trouble. However, the problems of family businesses go considerably deeper than these issues.”
Nepotism in the workplace has always been a hot topic, especially in politics and business. Many examples abound. Even in many Asian political ecosystems, nepotism is pervasive.
In the Philippines, we see the three systems of government — the judiciary, executive and legislative departments — callously hiring relatives in the guise of confidential appointments. In the US, we were jolted but not really surprised when then-President Donald Trump appointed his daughter and son-in-law into advisory roles during his presidency. In the business world, billionaire founder Lucio Tan’s 30-year-old grandson, Lucio Tan III, was recently appointed president of PAL Holdings Inc., the parent company of Philippine Airlines, barely a few weeks after he took over as president of the LT Group conglomerate.
Nepotism in the news raises important questions: Is hiring family members in the family business unethical? As a business owner and parent, is it wrong to appoint a son, daughter or nephew in the family business? Is there a better way to prevent nepotism in the business? As a founder, did you consider talent or base your decision solely on birthright when you appointed family members? Was the last name of your son or daughter the sole reason? Was it purely trust? Would you have done it any other way? If you think it was not nepotism, was it favoritism then?
In business, we use the dreaded word nepotism interchangeably with favoritism. Nepotism is the practice of showing preference toward family (or friends), and it often rears its ugly head in the workplace when the business owner appoints or promotes someone for a new position.
In my governance work in Asia, there have been many cases where leaders bypass strong applicants in favor of a family member who is not only unqualified but also lazy and cannot do the job.
This behavior breeds entitled, undisciplined, and underperforming family members in the business who usually take too much while giving too little, ultimately poisoning company culture.
Finally, promoting family members by virtue of his or her last name has dire consequences. As a family member, can you be objective when promoting employees and only promote the best person for the job, whether they are a relative or not? Most likely, you will face a dilemma as it can undoubtedly become difficult if family members are involved.
That said, the employment of family members remains one of the biggest and thorniest issues in a family business. This is why it is crucial for leaders to understand the importance of making business decisions for business reasons rather than personal ones.