HR Policies to Consider for Family-Owned Businesses

All business owners and managers face challenges. However, family-owned businesses must navigate additional concerns that are totally unique to working with and managing relatives and sometimes, multiple generations of family members. Like all companies, family-owned businesses are most concerned about profit, but when you add complex interpersonal family relationships, owners and partners must balance those relationships with the interests of their business.  Similar to an Employee Handbook, every family-owned business should have a Family Guidebook.

What’s a Family Guidebook, you ask? Like an Employee Handbook, a family business guidebook incorporates policies and guidelines applied to members of the family who are associated and often work for the family business. Having a Family Guidebook can be used to minimize and resolve conflicts by shaping expectations. The policies within the guidebook provide structure and objectives to decisions that can be emotionally laden and create resentment and confusion within the family.

 “Consideration of the policy for how family members will be permitted to participate in the business should be done sooner rather than later. Hopefully, it will be done long before it is needed.” Jeff Ahola, CEO of the Ahola Corporation says. Jeff is a long-time advocate and expert in Family Business with professional affiliations with the Family Firm Institute, Family Enterprise USA, and Attorneys for Family-Held Enterprises, among other organizations.

Are you a family business owner and still on the fence? Understand that the family business system is driven by the values of the family. Just as it is important to have a strategic plan for the business, a strategic plan should also be developed for the family. Family policy guidelines must be tailored to the nature and size of your family and your business, as well as your family and business philosophy. It is important that family members are clear about the employment, compensation, and performance management guidelines, and that the family business applies them consistently.

In a family-owned business, a Family Guidebook is developed to prepare for the potential hire of family members into a business. A Family Guidebook is typically created in collaboration with the current family leaders working in the business. It is also recommended to consult outside advisors when developing any legal documents, such as pre-nuptial agreements or wills. Having clearly written policies and procedures that specifically address how one prepares to enter a family business, work in a family business and exit the family (terminated, voluntary, or through planned transition) provides the best mechanism for family capital management.

What policies or sections should you include in the Family Guidebook?

• Introduction and Overall Philosophies
• Conditions of Employment
• Defining Participation in the Family Business
• Decision Making Process(es) for Family Member Employees
• Termination Process/Returning to the Family Business
• Trigger Event Policies (Example: changes to family status such as marriage, death, divorce, etc.)
• Compensation Agreement
• Performance Management

As the oldest family-owned payroll business in the United States, The Ahola Corporation and Jeff Ahola have passionately studied the intricacies of a family business, seeking to understand what makes some succeed and others fail. Jeff is a second-generation family business owner. He recommends updating your Family Guidebook and Employee Handbook at least once, annually.