Family businesses: 4 steps to prevent unfairness

How to reduce injustice and give equal opportunities to employees

Institute for Social Innovation

This article is based on research by Daniel Arenas

Family and non-family employees have the potential to offer unique and distinct contributions to a firm; achieving fairness between these two groups is a messy and complicated endeavour.

Family employees may receive higher salaries compared to their non-family counterparts, even when both parties occupy the same hierarchical level.

Moreover, family employees are often allowed more flexible work schedules and have preferential access to seats on the board of directors. But does this privileged treatment automatically translate into unfairness?

Family employees may receive higher salaries compared to their counterparts

The authors of a study claim that because family and non-family employees have different skills and attributes, differentiated treatment of family and non-family employees does not always indicate a lack of fairness in a family firm. So how can fairness be achieved in this complex environment?

In their findings, published in Business Horizons, Esade Associate Professor Daniel Arenas and his research colleague Georges Samara, Assistant Professor at the American University of Beirut take this unfairness challenge to the next level and suggest four steps for preventing injustice in family businesses.

"We wanted to investigate what family-run businesses could do to achieve fairer treatment between family and non-family employees," state the authors. "We show that family business owners can benefit significantly from promoting fair practices in the workplace both in terms of preserving business reputation and achieving long-term business survival and success."

Unfair workplace practices can be detrimental to the family business's reputation

Reputation and performance

According to the authors, unfair workplace practices can place a family business at risk of being perceived as socially irresponsible: "Although some unfair workplace practices are not illegal, they are considered irresponsible social practices and can be detrimental to the family business's reputation, especially given today's open access to social media."

Unfair workplace practices can also be detrimental to performance. Family-run businesses may sometimes give preferential treatment to unqualified family employees and this can lead to negative outcomes, the authors warn.

"Family firms that constantly offer preferential treatment to unqualified family members will have a limited ability to attract qualified non-family employees to work in the business, which can lead to detrimental effects on long-term family business performance."

4 steps to practicing fairness in family-run businesses

Practicing fairness in a family-run business can enhance reputation, increase the chances of future success and even minimise conflicts between family members in the workplace. But how can family-run businesses implement fair practices to avoid nepotism?

"The first prerequisite for family business owners is to be committed to fairness. The family has to believe in fairness and desire its application in order for any of the steps to work and be properly implemented and executed," says Arenas.

Step 1: Clearly explaining expectations for entitlement

Equal opportunities for family business employees can be achieved by clearly specifying expectations before employment contracts are signed. Family business decision-makers and Human Resources managers need to highlight clearly what qualifications, services and practices will qualify employees for privileged treatment.

For example, family businesses in high-tech environments require skills such as training, education and outside experience that are essential to the survival of the company. These expectations – or any others based on business needs – should be specified clearly to all employees before their first day at work.

Step 2: Giving equal opportunities to have a voice

Family and non-family employees must be given equal opportunities to voice their concerns about decisions made. Giving voice ensures that the views and concerns of both family and non-family employees are discussed, thereby allowing for greater clarity of information.

Giving voice can be achieved by letting family business employees know, before their first day at work, that they can freely and safely discuss their opinions and concerns about perceived unfair decisions.

Step 3: Considering the correctability of unfair decisions

Nevertheless, giving voice alone has little impact if it is not accompanied by a third key principle: correctability. If parties are given equal opportunities to voice their concerns but no action is taken to alter an unfair situation, then giving voice loses its impact.

At this stage, the unfair situation must be examined to determine whether the decision is unfair and needs to be corrected. The correctability of a decision can be decided by a committee that will examine whether the case voiced by the family or non-family employee is unfair and necessary measures needs to be taken.

This committee can consist, for example, of an employee representative, the human resources manager and a family business owner.

Step 4: Consistently applying decisions across people and over time

The fourth step to achieving fairness is the consistent application of decisions across people, over time, and with agreed values and norms.

Consistently applying norms and values that reflect fairness across people and over time will help to suppress biased opinions and support more ethical decisions in the family business workplace.

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