When playing favourites works out

Family businesses will always wrestle with nepotism, whether its real or perceived. Playing family favourites can be a good thing when it's understood and properly harnessed.

Nepotism is a perennial issue in family businesses -- it comes with the territory.  According to a recent PricewaterhouseCoopers survey, 88 per cent of next generation family business people say they have to work harder than anyone else because of perceived nepotism.

Nepotism has a bad reputation, but is it necessarily wrong? Of course, it’s a bad thing if underperformers are promoted simply because of their name. But what’s wrong when a quality employee, who happens to be a family member, has a close link to the owner?

In cases like that it’s easier to pass on knowledge if you know each other. Also, employees who help members of their families land jobs might feel some sense of responsibility for making sure the new hire learns the ropes and becomes a valuable addition.

Here’s a fact: family and closely held businesses tend to be nepotistic by nature. Managed well, however, it might create a competitive advantage.

For example, Peter Lowy and his brother Steven stepped in to run Westfield Holdings when their father Frank Lowy moved to a non-executive chairman’s role in 2011. They are now taking the company, which posted a 4.4 per cent growth in retail sales in the March quarter and took the annual turnover to $20.3 billion, through a defining restructure with a focus on overseas markets.

The Westfield boys had been running the business as managing directors for years, so in a sense management of the group did not change when they became co-chief executive officers. What was more interesting was that their brother David, who had worked in the business for years, stepped sideways to focus on LFG Holdings, the company that looks after the Lowy family's private wealth.

David remains on the family board with his two brothers -- it was a case of finding the right niche for him.

Gerry Harvey and his wife Katie Page are the only husband and wife team at the helm of an Australian top 100 company. After 30 years of marriage, and working together seven days a week, Harvey has talked about how their strength lies in the way their differences complement each other. He says she has more of an eye for detail. Similarly, he has famously resisted technology, she is comfortable using it.

These are examples where the family connection has allowed for better management. The way they interact is undoubtedly influenced by their history, but it works out in their favour.

Still, some family businesses bring in rules. Norman Smorgon, for example, had a policy where any offspring wanting to work in the businesses needed to first get a promotion outside the business to show that they could cut it. After James Packer finished at the exclusive Cranbrook School in Sydney, his father Kerry sent him to the family’s Newcastle Waters cattle station in the Barkly Tableland of the Northern Territory, where he worked as a jackeroo.

Kerry wanted to toughen the boy up for business. He had to put him through the ropes first so that he could prove himself. Leaving aside the odd punch up in the street, James Packer has gone on to reshape his father’s business.

Experts accept that nepotism is an inevitable part of family business and but will often recommend family members get benchmarked when they are seeking promotion to ensure the quality is there.

Graeme Beveridge, from Control Your Family Business, agrees.

“I think there are circumstances where you could probably afford to carry a family member a little bit in certain positions where you would be looking after them because they are family,” Beverage says.

“Some family businesses are all about the family… and so they will employ their family irrespective and wear the problems that brings.”

He agrees that family members should work outside the family business first. But, he says, you can’t make hard and fast rules because every family is different.

Similarly, if other staff members are upset that a family member is promoted, it might be their problem, not the owner’s.

“If the family member has been promoted despite being useless, then it’s a different story. If you are going to start doing that, you are probably better off letting outside specialists handle recruitment...

“There are basic principles and basic philosophies that work well but to say that it has to be that way in every instance is probably taking it a bit too far.”

Is nepotism a bad thing? It depends on the family. 

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