Family Business Covenants Against Nepotism

By Prof. Enrique Soriano

The origins of nepotism are as old as time. According to Wikipedia, the term originated with the assignment of nephews to important positions by Catholic popes and bishops and came from the Italian word ‘nepotismo,’ which is based on Latin root ‘nepos’ meaning nephew. Since the Middle Ages and until the late 17th century, some Catholic popes and bishops – who had taken vows of chastity and, therefore, usually had no legitimate offspring of their own – gave their nephews such positions of preference as were often accorded by fathers to sons. Several popes elevated nephews and other relatives to the cardinalate. Often, such appointments were a means of continuing a papal “dynasty”

In many family-owned businesses, nepotism is viewed in positive terms, often because it is a cheap source of labor and reflects a dominant culture that embraces “succession.”  Sadly it is a mistaken notion. For family enterprises to thrive, competence must be the main criteria for employment, followed by years of exemplary leadership and consistent high level performance.

Saving the Family Business from the Dangers of Nepotism

To mitigate these negative impacts and make family run businesses be mindful of the dangers of hiring family members, we assert that family businesses should strive to establish clear policies and procedures that prioritize meritocracy, transparency, and accountability. By actively promoting fairness, providing equal opportunities, and valuing competence and performance, a family business can foster a healthy work environment, attract and retain talented non-family employees, and improve its overall competitiveness and sustainability.

I am sharing several family business covenants that promote professionalism over nepotism. I encourage owners and leaders to use this pledge as a guide to remind family members to lead and make decisions for the greater good.

1. As a family run organization, we must be mindful that when we employ people who are related to us either by blood or marriage, it should always be based on the following non-negotiable metrics: Outside experience, credentials, exceptional work in the past and merit. We must reiterate that the family member’s last name is not a birthright and employment is never guaranteed.
2. As a family run business, our very existence depends on the quality and integrity of our employees. As working family members, we must set the bar when it comes to hard work and professionalism. As leaders, we must be exceptional role models and lead by example in all facets of our personal and professional lives.
3.  As a family enterprise, we must demonstrate our proactive attitude in discouraging nepotism. We believe that the only way to eliminate the old practices is to prepare and enforce Key Performance Indicators (KPI’s) that will apply to all family and non-family employees.
4. Upon the acceptance of a family member, he or she must be required to sign a service agreement indicating the scope of work, title, position, compensation highlighting KPI’s.  Failure to sign the agreement within 30 days will be grounds to recall the employment.
5. Compensation must never be equal. It must be commensurate with the family member’s qualifications and contribution to the company’s productivity. Employee benefits and privileges must apply to all active family members commensurate to their position in the organization.
6. We must always be mindful in treating family members joining the business like we would treat non-family employees.  We consistently live to the same standards of work and performance of non-family employees. Absences and leaves must be duly recorded. No work no pay instituted and for non-selling functions,  time in and time out fully documented.
7. It is against our policy to prohibit or decline a qualified job candidate on grounds of their relation to the owners and shareholders. However, we do recognize that encouraging employment of our relatives can have a negative impact on workplace productivity and fuel accusations of nepotism and favoritism. Therefore as working family members, we should always be role models and must expect to be treated less well than non-family employees.
8. As family members, we are committed to instill the following values that will transform them to decent, responsible, productive and competent professional employees – honesty, integrity, dependability, respect for others, being industrious and doing one’s best in every endeavor.

Alliance Global Inc. CEO Kevin Tan and JG Summit President and CEO Lance Gokongwei will be joining me in an event entitled “Family Business Continuity: Ensuring a Fail-Proof Succession Plan” on August 19, 2023 at the Crowne Plaza Hotel, Ortigas Center  I will be a moderator and co-resource speaker.

This event will look into stewardship and succession as the cornerstones in ensuring longevity in a family-run enterprise. I urge all interested families to register and secure their slots as seats are very limited. For additional information, you can call Marivi Estrada of ICON Executive Asia at 0977-835-5533.