The nature of the family business human capital is complex. Family and non-family employees have the potential to offer unique and distinct contributions to the firm. Yet some human resources practices might be perceived as a preferential treatment to family employees over non-family ones.
This could be detrimental to the reputation of family business, being perceived as socially irresponsible, and potentially limiting their ability to attract qualified nonfamily employees, which could ultimately affect the company’s long-term performance.
In a paper I published together with my colleague Georges Samara, from the University of Sarjah, we analysed the different roles of family and non-family employees in a company and established four steps to guarantee giving equal opportunities to employees in such a complex environment.
Both family and non-family employees have unique traits and skills that add value to the company. Non-family employees can offer a point of view based on standardised analytical tools and might be less likely to generate costs from consuming private benefits. Moreover, they come from a larger pool of talent, and therefore they might have a wider experience outside the company and better training.
On the other hand, family employees have a set of skills that cannot be easily replicated in non-family employees: research shows that family employees are able to develop their knowledge of the business at a very early age, being educated about the business at home, joining “at-the-dinner-table” business conversations, or participating in the firm through summer jobs. Thus, from an early stage, family employees gain a deep tacit knowledge that is not easily transferred through education or training. Moreover, they can develop an innate understanding of customers and competitors, even establishing long-lasting, trust-based relations with them.
Research also shows how family employees’ emotional attachment with the company generally leads to a lower rate of absenteeism, a stronger alignment of interests with the firm, and, in general, a stronger motivation and commitment.
Given all these elements discussed, it is debatable whether non-family employees are always eligible for superior or equal rewards compared to their family counterparts, and at least calls into question whether they could be judged by the same criteria.
So how can family-run businesses implement fair practices to avoid nepotism?
In our paper we established as a first prerequisite for family business owners to be committed to fairness. One needs to believe in the importance of fairness for any of the steps to work and be properly implemented and executed. Once this commitment has been clearly established, we suggest four essential steps to practicing fairness:
Step 1: Clearly explaining expectations for entitlement
Equal opportunities for family business employees can be achieved by clearly specifying expectations before employment contracts are signed. Family business decision-makers and human resources managers need to highlight clearly what qualifications, services and practices will be considered for promotion and compensation. For example, family businesses in high-tech environments require skills such as training, education and outside experience that are essential to the survival of the company. These prospects and expectations—or any others based on business needs—should be specified clearly to all employees before their first day at work.
Step 2: Giving equal opportunities to have a voice
Family and non-family employees must be given equal opportunities to voice their concerns about decisions made. Giving voice ensures that the views and concerns of both family and non-family employees are discussed, thereby allowing for greater clarity of information. This can be achieved by letting all types of family business employees know, before their first day at work, that they can freely and safely discuss their opinions and concerns about perceived unfair decisions.
Step 3: Considering the correctability of unfair decisions
Nevertheless, giving voice alone has little impact if it is not accompanied by a third key principle: correctability. If parties are given equal opportunities to voice their concerns, but no action is taken to alter an unfair situation, then giving voice loses its impact.
At this stage, the unfair situation must be examined to determine whether the decision is unfair and needs to be corrected. The correctability of a decision can be decided by a committee that will examine whether the case voiced by the family or non-family employee is unfair and necessary measures need to be taken. This committee can consist, for example, of an employee representative, the human resources manager and a family business owner.
Step 4: Consistently applying decisions across people and over time
The fourth step to achieving fairness is the consistent application of decisions across people, over time, and with agreed values and norms. This will help to suppress biased opinions and support more ethical decisions in the family business workplace.
Although some unfair workplace practices are not illegal, they are considered irresponsible social practices and can be detrimental to the family business's reputation, especially given today's open access to social media. Family business owners can benefit significantly from promoting fair practices in the workplace both in terms of preserving business reputation and achieving long-term business survival and success.