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Hiring unqualified family members can poison the well

Bruce Diron is co-owner of Hardy Buoys Smoked Fish Inc., based in Port Hardy, B.C., with his wife, Carol.

Running a family company is an all-consuming lifestyle, says Carol Dirom, 40, co-owner of Hardy Buoys Smoked Fish Inc., based in Port Hardy, B.C. She started the business with her husband, Bruce, and his brother 18 years ago, initially as a service for sport fishermen, an offshoot of her husband's fishing hobby. The family-owned plant on Vancouver Island now employs 65 people, who process and distribute their locally caught smoked salmon products internationally.

The full-time staff includes the Diroms' first-born son, Dylan, who was just nine months old when Hardy Buoys launched and who has been helping out since he was 10.

"We're grooming him and hope that he will take on a supervisory leadership role," Ms. Dirom says of Dylan, now 19. "Our three kids have all grown up in the business. It becomes a way of life."

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Working with family is often a necessity at small operations, but it also comes with challenges. Business owners must build strong relationships with staff who need to see their own possibilities for promotion within the firm. Non-family staff might also resent family members who are given unearned perks and positions.

"Dylan works super hard, puts in long hours and doesn't complain," Ms. Dirom says. "We've never given our kids any favours. He's earned his spot and is well respected by the other crew members as a fellow worker."

Entrepreneurs often struggle over whether they should hire family members, says Peter Jaskiewicz, who, as an assistant professor in strategic management and organization at the University of Alberta's Alberta School of Business, teaches a course on advising family enterprise.

"When you interview family firms that have been around for many generations, they have very clear rules and proscribed roles for family members," Dr. Jaskiewicz says. "They say family members are very welcome but they have to be at least as good as non-family members or better, because their name is at stake."

It's quite common for companies to hire family members whether or not they're qualified, Dr. Jaskiewicz observes. When that happens, he says research shows those companies underperform. Too much money and responsibility at too young an age can do more harm than good.

"If you hire your 21-year-old son as a manager of 30 people because you love him and want to help him, consider that in the long run, it might be the worst decision. He might not be ready, might be rejected by the employees, and it might hurt his development because rather than furthering his education, getting some work experience elsewhere and getting ready to lead other people, he's being thrown into the cold water too early," Dr. Jaskiewicz says.

One solution, popular in Europe and Asia, is for the family firm to outsource the hiring of any family members to avoid bias. Dr. Jaskiewicz sees many successful examples of family members who finish their university degrees and then prove their worth by working for a competitor for four or five years before being hired into the family firm.

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Above all, companies need to demonstrate fairness to keep their top talent.

"Key employees will be the first ones to leave if they start to resent family policies," Dr. Jaskiewicz says. "Family businesses who do quite well clearly communicate their values and stick to them. That might mean saying no to a family member if it's for the best."

Good relationships with non-family staff are critical to any family-run business. Ms. Dirom says her family's biggest challenge was learning not to micromanage their administrative staff.

"Any one we've hired in a position of authority is given the full reins to do their job," Ms. Dirom says. "We give them the vision, focus and instructions of what we want done, and then trust that they have our best interests at heart. If we disagree with a decision, we're going to voice our opinion, but we have to let them do their job or they're going to move on. They need to feel their decisions are respected."

Relationship issues can also erupt within the family. Although family members know each other from birth, Dr. Jaskiewicz says he often sees communication patterns that are underdeveloped or non-existent. Conflicts, such as divorce or in-laws not being accepted by other family members, can tear a company apart.

"When emotional things come to the forefront, people might behave in very irrational ways, so it's important to be able to communicate and discuss issues upfront," Dr. Jaskiewicz says. "If things fall apart, then the business usually gets liquidated, sold or divided."

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Another complication is that family businesses may be reluctant to share what they're doing with outsiders because they're not only talking about the business, they're talking about family, too. It's helpful to have trusted advisers available, such as an accountant or a professional that they've known for a long time, experts say.

It's also good to have contingency plans in place.

"What happens to the firm if there's a car accident and you have no will in place?" asks Dr. Jaskiewicz. "If family members have to guess what to do at such a difficult moment, and they disagree, you can be sure that the family firm will face a lot of conflict that will paralyze decision making. It's very important for family firms to be pro-active about what might happen rather than to hope that it won't happen."

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