Family-Owned Businesses

Family Business Rules

Family businesses need a special set of operating rules because they are different from other businesses. Here are some rules that may make sense for your family business.

In the business world, family companies are known for their ability to achieve long-term success through consistency and stability.

But success doesn't come naturally in a family business. It takes hard work, initiative, and in some cases - rules.

If good fences make good neighbors, a well-defined set of rules makes a smooth-running family operation. Family operations that fail to define the conditions and expectations required of individual family members quickly find themselves burdened with the dead weight of underachievement and entitlement mentalities. In some cases, problems with family members spill over to the rest of the employees, driving down morale and (ultimately) the company's bottom line.

Successful family businesses have carefully defined policies for all of their employees. While family members have to abide by the same HR rules as everyone else, they have the added responsibility of adhering to the company's "family rules" - the policies and procedures regulating family members who are directly involved in the company's operation.


It's not uncommon for the early generations of a family business to employ a significant number of related individuals. But as the business grows, it becomes necessary to clearly define who will - and who won't - be invited to participate at the employee-level. Once the business has reached the fourth and fifth generations, many family businesses restrict the employment of spouses and extended family members in order to maintain checks and balances within the organization.

Additionally, any family member who is employed by the company should gain their position on their own merits. In other words, every employee must be qualified to perform his or her job, regardless of whether or not they are related to the company's owners. Some companies go a step further and require family employees to work outside of the company for a minimum time period before they can be considered for employment in the business.


Without exception, family employees must live up to a higher standard than other employees. Their commitment to the company's mission and goals needs to be an example to others within the organization and inspire the confidence among its investors. Similarly, rather than resting on their genetic laurels, family members ought to be the hardest workers in the business.

Your company's policies should also describe the restrictions on employed family members' involvement in companies other than the family business. In no way can family participation in outside companies compromise your business' standing or be perceived as an act of disloyalty.


Naturally, family members should be subject to the same performance review standards as other employees. The board of directors may find it useful to designate its own subgroup to conduct these reviews since sensitive, family-related issues may emerge during discussion. This subgroup may also be helpful in ensuring that individuals will not be held responsible for conducting reviews on members of their own family.

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