When it comes to Family Businesses, this is one of the thorniest problems to deal with, but there are ways to nip it in the bud. In family businesses, leaders sometimes make hiring and staffing decisions based on relationship and obligation as much as on competence and experience, if not more. After all, one purpose of these firms is to provide employment for family members. But that doesn’t mean all family members perform effectively. A few may feel so entitled or untouchable that they slack off or stop collaborating, and sometimes they get a pass for their mistakes or behaviours. At times, they may even be disruptive to the smooth running of the business.
Things get even more complicated when the issue is of an under performing family CEO. Family businesses can get themselves into this predicament if they don’t do a thorough job of evaluating family CEOs and fail to give them clear performance metrics. Then when the CEO needs to be removed, family directors feel uncomfortable confronting their relative. This is where an independent director comes handy, who can introduce a “long-term” succession process that starts with designing the ideal future CEO profile and clearly defining the performance expectations. This way the board of directors can identify gaps and areas for development, and quantify the opportunity cost of keeping the current CEO. This approach depersonalizes the discussion of the current CEO and helps directors better understand the downsides of not making a change. The family may ultimately decide to keep the CEO, which is their prerogative, but the board will have fulfilled its duty to generate options for them.
So the questions are: How should a family business deal with family members who are under performing? How should a non-family business manager bring in line an under performing family members within his or her team?
Start with an open discussion about accountability. It’s fine to show a level of respect for family membership, but it’s still essential to be candid about business needs. In an initial conversation with the family member, probe and listen deeply to understand how they see themselves, and what they believe they can contribute. Respond with a kind, unambiguous description of the expectations you and the rest of the leadership have for them, and restate those expectations in a follow-up email thanking them for the conversation. After you’ve gone on record, it’s a little easier to refer to those expectations in subsequent conversations about performance. If something about their history or connections, or your relationship with them, makes it risky or uncomfortable to deliver direct feedback to them, consider having a neutral third party convey the feedback to ensure that the message is on point and that they have understood.
Shift their role or responsibilities. You have to be realistic about status and image. It could be feasible to allow them to keep their present title, but shift them to an area that has no employees, or that doesn’t interact directly with customers if that’s not their strength.
Reassign the family member to a non-family leader: Internal rivalries are common between family members and can arise from painful feelings about ownership and hierarchy just as easily as from performance and accountability issues. You may be able to reassign a family member who had been reporting to another family member to a strong executive who doesn’t have to be concerned about keeping the peace at home. It’s crucial for the non-family leader to be confident that they have the backing of the senior leadership, including family.
Construct off-ramps when necessary. At some point you may need to consider alternatives that preserve dignity while clearing the way for more productive solutions. A family member may recognise that they’re no longer in the running for a top job but aren’t ready to retire, or feel stuck because they know they can’t get a comparable job in the open market. Consider designing a sabbatical process for long-standing employees, or experiment with part-time, flex-time or remote assignments.
Performance Plan: Like other under performing executives, struggling family members should be put on an improvement plan and given an opportunity to do better, and if they can’t, be offered other opportunities in the business where they can succeed or a path to an exit. If it’s clear to everyone they can’t do their jobs, it harms the culture of the company to keep them around. But it’s extremely important to handle their exits delicately and allow them to save face with the family. If they’re put on a performance plan, that information should be kept confidential, not shared with the broader family.
Family members who have been turned aside can burn with resentment, and may still maintain some ownership. So if you must exit a family member suddenly or harshly, make sure a human resources expert or legal adviser checks all the details of your plans and language. But by using a combination of the above approaches, you may be able to avoid a forced exit and instead help the family member be a productive participant in the company.
At, EMCS, we specialise in helping family businesses at all levels, even in such thorny situations. We many times act as an impartial, external advisor that can cover the role of an independent director, as many family businesses do not have an independent board director, without being an actual director in the company.