Managing Nepotism in the Family Business: Can it be done?

By Prof. Enrique Soriano

I was in Singapore a couple of weeks ago and felt excited because of one particular engagement that I was tasked to facilitate. It is an enterprising family that started in the late 80’s. Like most founder-led companies, the mom and pop business started with no structures. The business was run based on pure gut and survival instinct.  Despite its growth,  the informal and centralized nature of the organization created many problems. Poor controls led to many misappropriations. With the second generation’s entry, the founder thought he could step back and let his children run the show. It became worse. The children’s roles were not explained. The father never bothered to lay down the rules. Compensation was equal. The lack of entry policies and mixed roles further aggravated the situation. Naturally the offspring became entitled and complacent. Soon after, other relatives were invited. With nepotism rearing its ugly head, revenues plummeted and the business veered sharply downward.

Our advisory firm, Wong + Bernstein was asked to step in and intervene after the family, tired and exhausted with all the internal squabbles, made a conscious decision to proceed with the crafting of a critical document related to nepotism. We refer to this document as the “FEEE Policy” or better known as the Family Employment, Entry and Exit Policy.

Reluctance then Acceptance to Change

It was at the height of COVID-19 (2021) that I opened the idea to the family to initiate the ‘FEEE Policy’ but they were not ready. After prodding them to embark on a planned organizational transformation, they finally agreed  to commence with the process of eliminating nepotism. I made sure that they fully understood the extent of the initiative. Any ‘FEEE Policy’ initiative can only be effective if there is consistent communication and enforcement no matter how inconvenient and  uncomfortable it gets. The family is now starting to appreciate and embrace the “No Nepotism” initiative.

Family Rules to Eliminate Nepotism

To give you a better context of the dangers of nepotism, I am sharing a sample of some of our initiatives we have done in the region. We only initiate this program when family members are ready to transform and be positively disrupted for the greater good. This is a separate engagement dedicated to the elimination of nepotism in family owned businesses. Business owners will find these policies or Code of Conduct useful as they chart their own generational transition.

Nepotism is the practice of showing favoritism toward one’s family members (or friends) in economic or employment terms, without regard to merit. Upon signing of a document to eliminate nepotism and entitlement, we should be on our way to eliminating nepotism in the family business.

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.

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.