Fam­i­ly busi­ness­es and employ­ment law — How prob­lems arise and how to pre­vent them

In Brief — Employ­ment prob­lems relat­ed to the size of a fam­i­ly business

Fam­i­ly busi­ness­es typ­i­cal­ly encounter employ­ment prob­lems once they reach a cer­tain size. These prob­lems can arise because of short­falls in HR train­ing, work­force man­age­ment, com­mu­ni­ca­tion chan­nels, employ­ment pro­ce­dures, cri­te­ria for pro­mo­tion or pro­ce­dures for inves­ti­gat­ing inap­pro­pri­ate behav­iour, under­per­for­mance and complaints.

How fam­i­ly busi­ness­es evolve

Fam­i­ly busi­ness­es are char­ac­terised by a num­ber of fea­tures which are the result of the way they evolve. Many suc­cess­ful fam­i­ly busi­ness­es start­ed in the garage of the fam­i­ly home. They achieve suc­cess through the ini­tia­tive and hard work of two or more mem­bers of the same fam­i­ly, typ­i­cal­ly sib­lings or par­ents and their children. 

By def­i­n­i­tion, such busi­ness­es are based on val­ues of inclu­sion, client ser­vice and loy­al­ty. As the busi­ness grows and begins to employ staff, these ear­ly employ­ees absorb and adopt the val­ues they see being upheld by the founders of the business. 

While the enter­prise remains small, employ­ees have con­sid­er­able inter­ac­tion with the own­ers of the busi­ness and are thus con­stant­ly remind­ed of its core val­ues. These val­ues are a dri­ving force for the com­pa­ny as it employs more peo­ple. It is com­mon for fam­i­ly busi­ness­es to have a work­force which includes a num­ber of very long-serv­ing and faith­ful employees.

Rapid busi­ness growth and expan­sion of production

Dur­ing the ini­tial phase of evo­lu­tion of fam­i­ly busi­ness­es, employ­ment law prob­lems are rel­a­tive­ly rare. Such prob­lems typ­i­cal­ly arise once the busi­ness reach­es a cer­tain size. The larg­er the com­pa­ny becomes, the less direct con­tact employ­ees have with the fam­i­ly mem­bers who run the com­pa­ny and the less like­ly they are to absorb the val­ues on which the busi­ness was built. 

This means that the busi­ness own­ers need to estab­lish for­mal com­mu­ni­ca­tion chan­nels with employ­ees to artic­u­late core val­ues explic­it­ly. Such mea­sures ensure that all staff are reg­u­lar­ly remind­ed of what makes the enter­prise so spe­cial and what is expect­ed of any­one who works with­in it. 

Once a busi­ness has around 40 employ­ees, it is crit­i­cal to its long-term sus­tain­abil­i­ty for own­ers to focus not only on pro­duc­tion, but also on man­age­ment of the work­force. Unfor­tu­nate­ly, many fam­i­ly busi­ness­es in their growth phase are so busy expand­ing pro­duc­tion that the own­ers do not have the time to attend to com­mu­ni­cat­ing with staff or man­ag­ing their work­force prop­er­ly. Instead they oper­ate on the assump­tion that their own good­will will set the tone in every cor­ner of the com­pa­ny, no mat­ter how big it grows. 

Many busi­ness own­ers are naïve enough, and opti­mistic enough, to believe that all employ­ees will have a pos­i­tive atti­tude to their work and will treat the peo­ple around them with respect. This is not always the case.

No for­mal HR train­ing, no employ­ment policies

Most own­ers of fam­i­ly busi­ness­es do not have for­mal train­ing in HR and view employ­ing a spe­cial­ist to ful­fil this func­tion as an unnec­es­sary expen­di­ture. This can result in employ­ment pro­ce­dures lack­ing rigour. It can also mean that indi­vid­u­als can be pro­mot­ed to man­age­ment posi­tions for which they lack the nec­es­sary skills and to which they are tem­pera­men­tal­ly unsuited. 

Cou­pled with the lack of for­mal hir­ing poli­cies in devel­op­ing fam­i­ly busi­ness­es is the absence of pro­ce­dures for deal­ing with under­per­for­mance or inap­pro­pri­ate behav­iour. Busi­ness own­ers who are extreme­ly busy can excuse the bad behav­iour or poor per­for­mance of par­tic­u­lar indi­vid­u­als for a very long time, rely­ing on the hope that a few infor­mal chats will solve the prob­lem and every­thing will some­how sort itself out. 

The absence of for­mal pro­ce­dures and man­age­ment train­ing can give prob­lem­at­ic mem­bers of staff the oppor­tu­ni­ty to harass and intim­i­date oth­er employ­ees at will. It is very com­mon for fam­i­ly busi­ness­es to wait too long before address­ing work­force prob­lems. As a result, the solu­tion can be far more cost­ly than it needs to be. 

Fam­i­ly busi­ness case study — an expen­sive fix to an employ­ment problem

A recent fam­i­ly busi­ness sce­nario involved a suc­cess­ful trans­port com­pa­ny which had been in exis­tence for over 30 years and employed over 150 staff. The busi­ness made the mis­take of appoint­ing a depot man­ag­er who was unable to cope with the stress of her role. Her volatile and bel­liger­ent atti­tude towards her staff was the sub­ject of numer­ous complaints. 

When­ev­er the founders of the busi­ness spoke to the depot man­ag­er about the com­plaints being made by staff, she would be extreme­ly pleas­ant and assuage their con­cerns. Con­se­quent­ly, no action was tak­en about the staff com­plaints. While the busi­ness own­ers realised that they had made a mis­take in pro­mot­ing this per­son to a man­age­ment role, they were unsure of how to rec­ti­fy the situation. 

The busi­ness own­ers did not have the HR skills to per­form a prop­er analy­sis of what was going on. Unfor­tu­nate­ly they took such a long time to engage the ser­vices of an HR con­sul­tant that they were ulti­mate­ly faced with a threat­ened walk­out by all of their staff. 

In the end the com­pa­ny was forced to pay a con­sid­er­able amount in legal fees in order to ter­mi­nate the depot man­ager’s employ­ment and resolve work­place prob­lems. It was also forced to pay the depot man­ag­er an exit fee which was con­sid­er­ably high­er than would have been nec­es­sary if deci­sive action had been tak­en earlier. 

When they took stock of the events which had unfold­ed, the own­ers of the busi­ness admit­ted that they had sim­ply want­ed to be ​“nice to all the staff”. This is an unre­al­is­tic expec­ta­tion which is com­mon in fam­i­ly busi­ness­es and which cre­ates a vul­ner­a­bil­i­ty typ­i­cal of the sec­tor. You can respect all the staff, but you can’t expect to be able to be nice to all the staff.

Lessons for fam­i­ly businesses

• Be aware that the larg­er your busi­ness grows, the greater the like­li­hood that you will have employ­ment law problems.
• Estab­lish com­mu­ni­ca­tion chan­nels with your staff and use them. For­mal or infor­mal meet­ings, email updates and the intranet can all be good ways of reach­ing your employees.
• Estab­lish pro­ce­dures for employ­ing, pro­mot­ing and ter­mi­nat­ing staff and for respond­ing to staff complaints.
• Bring in an HR con­sul­tant when nec­es­sary if you don’t have HR skills yourself.
• When you sus­pect that some­thing is amiss, act swift­ly — don’t wait for prob­lems to esca­late. Be aware that the larg­er your busi­ness grows, the greater the like­li­hood that you will have employ­ment law problems.

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