Hiring Your Relatives

Before you offer family members positions in your business, weigh the pros and cons, then draft a formal employment policy

I am opening a restaurant. It will be an LLC with me as the sole owner. I plan to have my daughter working for me as general manager and my brother working as kitchen manager. Are there family business issues that I should anticipate? I've never had family members working for me before.

—L.M., Boise, Idaho

Entering a business for the first time with relatives demands a much more formal arrangement than most people realize they need. "Relatives represent trust and love, and the unspoken expectation is that everything will work out because of the family ties," says Steve McClure of the Family Business Consulting Group in Atlanta.

There are several potentially serious issues you should consider before you hire your relatives. For instance, how well do you and these relatives get along? Have you spent time with them not only during good times—holidays and family reunions—but also when they are under stress or pressure?


  "Running a restaurant is a very time-consuming undertaking that can exacerbate a situation that arises when families work together," says Quentin Fleming, a professor at the University of Southern California's Marshall School of Business and author of Keep the Family Baggage Out of the Family Business.

"Families working together can find that their emotions experience an amplifying effect," Fleming says. "The emotions they feel when the business is running smoothly seem even better, and the opposite is true when problems arise. If they don't do well when under stress, they should reconsider working together."

Think long and hard about whether you would hire your daughter and brother and put them into these positions if they were strangers (see BusinessWeek.com, 8/29/06, "When Kids Play the Guilt Card"). Do they have the experience and the temperament for these jobs? If not, why hire them? Successful businesses are run by talented people with skills appropriate to their jobs. You want no less for your new restaurant.


  McClure suggests that you draw up a formal, written set of expectations and rules that will help guide your working relationship with your family members. "Think of it as a family employment policy, with all the features of a regular employment policy," he says. It should answer some specific questions that, if dealt with now, can greatly reduce the chance for problems down the line.

Here's what your employment policy should cover: How will performance be assessed such that the assessment is viewed as fair and objective? What are performance expectations? What are work-hour and responsibility expectations? What are the rules for compensation and how might salaries be adjusted? How will family members interact with non-family employees?

What will be the rules for decision making and giving direction to others on the job? What process will we follow if we determine that the working relationship is not working out and a resignation is required? How will we keep our family relationships intact and separate them from our working relationships?


  The policy governing who makes decisions and who gives and takes direction can be particularly crucial because you might have a "generation gap" to deal with, Fleming says. "If your daughter is considerably younger than your brother, will she be able to stand up to her uncle? As general manager, will she outrank him in his job as kitchen manager? Will your brother be comfortable with that arrangement?" he asks.

"A very wise woman once explained to me the way in which she initiated each of her sons into her very successful business," Fleming recalls. "On the first day, she stopped them at the door before they entered and said, 'Once we go through these doors, I am not your mom. I am your boss and you are my employees.'" Not a bad mindset for those embarking on a family business venture (see BusinessWeek.com, 2/13/06, "Taking the Pulse of Family Business").

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