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Should you keep it in the family?

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Summary

With less than 15% of family firms surviving to the third generation, how can family members help your business endure?

3 min read

One of the key challenges family businesses face is the topic of family employment.

What looks like a fairly simple decision of letting family members join the firm can expose differences in views regarding the nature of the business and family relationships.

When making decisions about employing family members it’s worth considering some basic questions.
 

What is our definition of family?

Families often take the view of employing ‘bloodline’ family members only – offering roles only to direct descendants of the previous generation. However as families grow and circumstances change there may be an advantage – or desire – to include spouses, and it may be important to decide whether step-children are included.

This is a question of how you define the essence of a family business. How wide do you want to spread the circle?
 

When to begin?

Some family members start working in the family business when they’re still at school. A summer holiday job is a great way to learn about a business and see how it operates before taking on a more established role when ready. Some will join when they turn 18 or after they’ve completed university studies, while others may choose – or be encouraged – to gain experience outside the business before joining.

“The most important thing you can do when employing family members is to be clear. Be clear what you expect them to do, be clear what they will be paid, be clear about their role in the business.”

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Acquiring skills and experience outside the family business can bring a fresh, rejuvenating perspective to an established firm. It can also give the family member credibility and a sense of achievement that demonstrates their appointment isn’t just about being part of the family.

Some families even encourage family members to establish their own businesses which, if they’re successful, can be brought into the family firm.

On the other hand, fresh perspectives can lead to big changes. It’s important for families to decide how much change they’re comfortable with in their business and to make sure family members are on board with the culture before they join.
 

What will they do?

There is also the question of what role a family member should take when joining the business. Will a role be created for them when they’re ready to join or should they wait until a suitable position becomes free?

You will need to judge carefully what is best for your company and family when you bring a new family member on board. Establishing good relationships with non-family members in key roles will help you manage expectations on both sides.
 

What is the career path?

Once a family member has joined the business, it is important to consider how they will progress through the organisation and at what pace. Many families design fast-track programmes for the next generation to give them enough experience quickly to take up a senior position. Others will want family members to work their way up as any other employee would.

One of the potential implications of moving through the organisation at speed is how non-family employees will view this. Will the next generation garner the respect that they need in order to make important strategic decisions without ostracising long serving employees?

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How much should you pay them?

Remuneration is often a tricky topic and one that should be approached with sensitivity. However it is crucial to define clearly what family members are paid and what they are paid for. This is particularly relevant when there is more than one family member working in the business

There may be the temptation to discriminate against family members either positively or negatively. The thinking behind the old adage “one day this will all be yours” could suppress salaries for relatives in the short term. But on the other hand, you may want to pay family members more than their non-family counterparts as a way to incentivise them to join the business.

Creating foundations for a business that lasts

The most important thing you can do when employing family members is to be clear – be clear what you expect them to do, be clear what they will be paid, be clear about their role in the business.

It is extremely important to discuss, as a family, how the family business will deal with employing family members. These agreements are often written down in a family constitution or family charter and will sit alongside other ‘principles’ such as ownership, leadership, governance, wealth and philanthropy.

If you’d like to find out more about Coutts and how we may be able to help your family business, please speak to your private banker, call Coutts 24 on 020 7753 1000 or visit the relevant page on our website.

Key Takeaways

Employing family members in the family firm can help your business endure over generations. There are a lot of questions to consider and no right or wrong answers. It’s important to be clear on what is expected from family members and what they can expect from the business. Starting with a shared understanding will help provide a solid foundation for a business that lasts.

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