Nepotism is the practice of showing favoritism toward one’s family members or friends in economic or employment terms, for example, granting jobs to friends and relatives, without regard to merit. Such practices have damaging effects on businesses, eroding the support of other employees, reducing the quality and creativity of management and diminishing the importance of competence and high-level performance.

The kind of nepotism that I have seen work in many companies is one in which business owners take advantage of relationships with respected employees and colleagues to help find and hire employees with a similar work ethic and values.

Here is a quick review of how to avoid the pitfalls of nepotism and use relationships in your favor:

1. Teach your children values that are eternal: honesty, integrity, dependability, respect for others, being industrious and doing one’s best in every endeavor.
2.  Never deny your children the opportunity to learn and understand the connection between effort and reward.
3. Make competence and proven, sustained, high-level performance your criteria for employment of any individual, including family members.
4. Understand your own values and capture every opportunity to have discussions with others about those values and how they inform your decision-making, the way you run your business and the way you live your life.
5. Get applicant referrals from employees and colleagues whose work ethic and values you respect.  This is the good kind of nepotism.

However, there’s a kind of nepotism that I have seen work in many companies.  Say you have a very competent employee who has worked for you for many years.  He/she is loyal and dependable.  It is clear that this employee’s values are fully compatible with your own.  Hiring additional employees with a similar work ethic and values would behoove your business.

The “good nepotism” works like this:  Talk to this valued employee and ask if they know anyone like themselves who might be looking for work.  Perhaps they have a friend, brother, son or daughter with those similar traits.  This should precipitate a discussion about the values that you hold, those of the company, and ultimately, the values of the employee.  In your discussion, look for opportunities to reinforce examples of how the employee has used those same values in the execution of his or her responsibilities.  You seek to connect with the employee and gain a “meeting of the minds” about values.  Then you can talk about any candidates this employee can recommend.

When you book appointments with these individuals, tell them the story of how the company was founded, the values that you and your family hold and how those values have served you and the company well.  Relate your experience to the values and performance of the employee who made the referral.  As the discussion proceeds, look for an opportunity to ask the question, “What experience have you had with using values to inform your decisions in the workplace?”

This process will open a window into the thinking of the individual, their priorities and the kind of person they really are.  It’s also interesting to explore a situation in which the candidate has had to compromise his or her values.  This discussion will make the window even larger.  There is hardly a person alive who has not found it necessary to compromise their values at some time.  If I find someone who says that it has never happened to them, I usually suggest, “That’s curious to me.  How have you lived in such a perfect world?”  Then I tell them an appropriate story of how I have had to make compromises at various points in my life.  Invariably, my sharing such experience opens the discussion even further.  With that level of discussion, you can make an appropriate decision about potential employment opportunities.

If you end up employing one of the individuals you have interviewed in this manner, this employee will never forget the values conversation you’ve had.  It will be the basis of his relationship with you and the company for years to come.  It fosters an environment where employees feel that the employer really cares about them, and these employees will likely tell others about this experience and what a fine place your company is to work.

In short, the good kind of nepotism takes advantage of relationships with respected employees and colleagues to help find and hire employees with similar traits.

My next post will give a quick review of the dos and don’ts of nepotism.

In many smaller family-owned businesses, nepotism is viewed in positive terms, often because it is a cheap source of labor, and is considered a synonym for “succession.” This rationale is a mistake. Competence must be the criteria for employment, followed by years of consistent, high level performance that can lead to succession.

Nepotism is neither good nor bad, in and of itself. It only takes on a positive or negative charge in the context of how one has raised one’s children. I believe that the task of being a parent is simply this, “To raise responsible adults who have high self esteem and can function independently in this world.”

This process involves instilling those values that will lead to competent employees – honesty, integrity, dependability, respect for others, being industrious and doing one’s best in every endeavor.

Failure to teach these principles opens the door to children feeling entitled – believing that they are the privileged and should be given everything. This deficiency becomes a ripe incubator for problems to emerge when the child works in the family business. Children who come to the business with an attitude of entitlement will think they are exempt from the rules that apply to “ordinary people.” They often don’t understand that they must earn their place in the company through hard work and consistently-demonstrated competence. A seemingly small thing like coming to work on time is an example.

Experience has shown that nepotism works IF and ONLY IF the values of the family members are congruent and the successor is fully qualified.

In my next post, I’ll address ways that companies can institute “good” nepotism practices and create solutions to the challenge of finding the best employees.

Scope of the Advisory Board – Advisory Boards have complete access to all information about the business.  This includes financial statements, bank covenants, shareholder agreements, special arrangements or contracts within the owner group, existing strategic plans and other such information that will enable them to give sound advice on all matters.  The Board makes non-binding recommendations on strategic issues, including but not limited to any financial transaction that represents more than 15%* of the company’s beginning of fiscal year equity.  (*This percentage needs further discussion in each business.  The intent is to include all matters that are strategic, regardless of the financial requirements, and to exclude those issues that are not strategic and below a certain financial level.)  Once established, the Advisory Board can only be abolished by a unanimous decision of the active owners.

Composition and Terms of Service – An effective Advisory Board is comprised of four individuals, plus the active owners of the company.  The length of the term of service for each of the four should be staggered such that there is a beginning and an end to the time of the appointment.  Two, three and four-year terms are advised, with two of the four members taking three-year terms, and after the first cycle, all terms become 4-year terms.  This allows for overlap of experience, re-configuring the board as owners gain experience with having such a group advise them.  It is also a graceful way of changing the Board should any of the members be not quite the right advisor.  Members may serve more than one term, should that be deemed appropriate.

Of the four outside advisors, one of them is to have clear financial expertise; one is to be known as a “visionary” in the industry and one is to be known as a person who “thinks outside of the box.”  The fourth advisor should be about the age of the youngest generation in the family, and be known as a “go getter” in the industry, one who is viewed as a future business leader.  This latter advisor can be identified by the younger generation working in the business.

Often when forming an Advisory Board, owners will think of appointing their accountant or lawyer.  Experience suggests that the talents of these professionals are best utilized when they are engaged professionally to provide the services of their profession.  After all, the business owner should be getting their best advice as a result of the fees that are paid.  Further, including them on the Advisory Board violates the fundamental purpose of such boards. (See my previous post for more detail.)

In the first year of operation, the Advisory Board meets three times.  The general model requires advisors to arrive at the meeting location in time for dinner the day prior to the meeting.  Meetings will always include a “rolling 6 month” projection of business opportunities.  Once the Board is in operation, members will receive an information packet five days in advance of the meeting that they will review before the meeting.

Compensation for the Advisory Board members varies by industry and from country to country.  Compensation ought to be at a level that makes it attractive for the person to serve on the Board.  In some cases, companies have offered alternative compensation, such as use of company perks or the company plane, up to a certain value.  This is a negotiable matter.

It is important to set dates for meetings far enough in advance so they can easily fit into the advisors’ schedules.  As the board becomes fully operational, it is often helpful to set the meetings a full year in advance.

Sample First Agenda

At dinner – Introductory Session – “What We do as a Company”

Next Day:

• “Show and Tell” – visit all plants and other facilities
• Discussion of company special processes, patents, and/or exclusive opportunities that influence the business
• Complete financial review
• Understanding existing owner agreements
• Current market position.
• Strategic plans for near-, mid- and long-term
• Operation of the Advisory Board – terms, information board prefers to receive in advance, formalizing the meetings schedule

If the concept of an Advisory Board appeals to you, I encourage you try it for a period of two years to see if you like the results.

 Creation of an Advisory Board made up of outsiders who are experienced business leaders is a way to “push the envelope” and cause business owners to examine directions and possibilities they might not otherwise consider.  An Advisory Board can make the business stronger, increase shareholder value and better position the company to capture the opportunities that are available in the market place.  Advisory Boards are ideal for those companies that are not yet ready to have a “full charge” board of directors.  A board of directors has power to direct that actions be taken, while an Advisory board is just that, advisory.  Their decisions are not binding.

An Advisory Board is not there to “tell the owners what to do,” but rather to ask penetrating questions that cause a more thorough, in-depth examination of the opportunities.  They often ask the questions that insiders are reluctant to ask.  The business owners benefit from outsiders looking at their business and making a comprehensive review of all activities.

Properly constructed, the Advisory Board gives owners access to high-level executive and management talent beyond that employed by the company.  In some cases, it means having access to millions of dollars of executive talent at only a fraction of the cost to hire this level of talent.  In creating this kind of forum, the owners come up against those who have had different, complementary and sometimes broader experience within or outside a particular industry, thus leading to a more thorough consideration of issues, decisions and financial management.

Advisory Boards create a forum in which active owners, in concert with advisors, impact the strategic issues facing the company.  Owner decisions become less insular, often tempered by the broader perspective of Advisory Board members.  Advisory Boards have no formal, legal function.  Members do not have any fiduciary exposure and thus have no legal exposure when serving on such boards.

In my next post, I’ll talk in more detail about Advisory Boards.

Bork speaks to students at Univ de Desarrollos

As an aside, in my last two posts, I wrote about the importance of mentors in family business.  The mentoring relationship with my friend from Barcelona has been very rewarding and has resulted in a network for me of those speaking Spanish who are involved in family business

I was honored to take Claudio up on his offer, and on November 10 I spoke to his class in Santiago.  It was refreshing to speak to the young students and also a great way to practice my Spanish, which I’ve been studying for the past several years.  There were about 100 persons present, 75 students from his classes, other professors and businessmen.

Students received a copy of my most recent book, The Little Red Book of Family Business**,  in advance and worked in groups to prepare questions.  I presented a few of the fundamental principles of Family Business, then took questions.  (From time to time I had help in translation of the questions!)  It was a very lively exchange, in both English and Spanish!

One young man started his question by saying that he and his father fought a lot because they are so much alike.  “What do I do,” he asked.  I advised him to speak with his father about the dynamics and perhaps get a job elsewhere for a couple of years to earn his father’s respect as a good employee.

As I was speaking about the Little Red Book, one student asked why it was red and also why I had red glasses?  I explained that Chairman Mao’s Little Red Book was intended to be the “last word” on Chinese communism and I intended my book to be the “last word” on FB, that the intent was a “chiste,” meaning joke.

What a pleasure my trip to Chile was!

*FFI is organization of diverse professionals serving family business – lawyers, accountants, money, managers, therapists of various stripes, business consultants, etc.  I chaired the annual meeting in 1991 and have been a key presenter at 23 of the Conference’s 25 years.

**Visit the Books page of this website for details on The Little Red Book of Family Business and other books about Family Business.

In my last post, I spoke of Norman Paul, MD, the man who was my mentor and friend, and how important that relationship was to me.  Everyone, including those in family enterprise, needs wise elders who serve the same functions that elders provided in both ancient and modern “tribes.”

Recently, I had the pleasure to work with two brothers with very substantial wealth that originated from the sale of the family enterprise.  Between them they have 8 children and those 8 each have spouses.  There is no history of “elderhood” in this family.  The children are confused about the money and confused about their roles as inheritors of substantial wealth – wealth that will sustain them so they never have to work if they so choose.  We created a profile of the elder this family needs and a process for the two brothers and their wives to function in that role.

Here is that family’s Elder Profile:

Elders let family members know they are “there” for them.

• Elders stay above the fray, move to a place of wisdom and then act appropriately.
• Elders do not succumb to “chatter” in the family; they maintain their focus on the role of the elder.
• Elders initiate in a responsible manner.
• In every interaction, elders treat individuals with respect and don’t make the individual feel “one down” in the transaction.
• Elders are good judges of what and how much information to use/give in any situation.
• Elders have wisdom, and can forecast or predict needs and opportunities.
• Elders recognize the emotional needs of family members.

Elders have the capacity to focus on what is important and not be distracted by the “chaff” or “chatter” as indicated above.  This focus becomes a manifestation of wisdom and enables others to take “the long view” on matters.  While referred to as an advisor or consultant, I am literally serving in the role of elder with many of my clients.

Every family has a legacy that they would like to preserve.  That preservation process doesn’t happen by itself.  It requires elders to tell the stories of how the legacy began, the people who nurtured that legacy to make it grow and the positive potential that exists as a result of keeping it alive.

When a family business has been owned for generations, the family has story after story about their ancestors’ efforts to maximize the value of the asset, and thus, enhance the lives of the family.

Barry Barkan, founder of the Elders’ Guild, www.agingincommunity.com., has this definition of an elder:

An elder is a person who is still growing, still a learner, still with potential, and whose life continues to have within it promise for and connection to the future  An elder is still in pursuit of happiness, joy and pleasure, and her or his birthright to these remains intact.  Moreover, an elder is a person who deserves respect and honor and whose work it is to synthesize wisdom from long life experience and formulate this into a legacy for future generations.

If you are a “person of a certain age,” then perhaps you are in a position to be an elder in your “tribe.”  Ask yourself these questions:

• Are you still growing?
• Are you still learning or has that stopped for you?
• Are you oriented toward the future and the positive possibilities that it offers?
• Are you actively pursuing happiness, joy and pleasure?
• Are you making new friends as those from the past disappear?
• Are you sharing your wisdom with others?
• What is your legacy for future generations?

If you can affirmatively answer all of these questions, then it is quite likely you are a sought-after mentor, a wise elder and a “juicy” person that younger people seek out for conversation.  If these do not apply to you, then you have a lot to think about, for these elderhood qualities are the same profile of the person who ages with style, grace and power.  It is your call…

In future posts, I will discuss the mentor relationship in family enterprise.

I first met Norman Paul, MD, at a professional meeting in 1986.  We both were sitting in the back of a conference room and he coveted my copy of the New York Times.  I jokingly responded, “What’s the problem?  Are you to cheap to buy your own copy?”

That exchange marked the beginning of a wonderful, mutually enriching relationship.  Norman was born in 1926, eleven years ahead of me.  He called himself a “recovering psychiatrist.”  That meant that while he was grounded in his profession, he had long since stopped functioning in the traditional manner that characterizes nearly all of his more traditional colleagues.

Norman’s thought process knew no boundaries.  He was creative, inventive, curious, and a voracious reader (He had 8,000 – 9,000 books in his library and had read them all!)  Those qualities, coupled with genius-level intelligence, made for one extraordinary human being AND a very insightful professional.  In the course of my long history serving families in business, I worked with Norman on many occasions to assist in unlocking the complex issues that block progress in so many families.

“We are blind by design,” he would say, and then elaborate on how our eyes are positioned to see what is before us.  We can’t see ourselves and are often totally unaware of our behavior and our impact on others.  Norman used a unique methodology he developed to unlock relationship mysteries for many people.

I arrived in Boston on October 10,2011 in the early afternoon.  The plan had been for me to visit with Norman that day, but he was too ill for visitors.  His condition did not improve and Norman died on Saturday, October 15.  For me and many others, it was as if a giant had passed from our midst.  Norman was my elder, my mentor and my friend.  While he is gone, his wisdom lives on in the countless people whose lives he influenced.

Norman and I were not related biologically but we were men of the same spirit.  We thought alike, we laughed a lot at ourselves and we were passionate about serving our clients.  We both have certain “crusty” qualities that help us not take ourselves too seriously.  This quality is useful to everyone.  I am grateful for the years Norman and I had to work together and for the lessons I learned from this wise man. He was my mentor, my elder and my friend.

This experience with Norman reminds me that everyone, including those in family enterprise, needs wise elders who serve the same functions that elders provided in both ancient and modern “tribes.”

In my next post, I’ll talk more about the role and importance of elders for families in business together.

In the mid-80s, I worked with Frank Beddor, a very successful entrepreneur. He built a large printing empire by purchasing printing businesses that were marginal, then beefed up their management and sales teams while introducing the most modern equipment. Eventually, he had a collection of more than 25 independent companies.

At my urging, Frank made a “Black Book,” literally a three-ring binder that had a tab for each company. Under each tab was the critical information for that business unit, including:

• Who was in charge
• Key persons under that leader
• The sales and profits for the previous year
• Pertinent information about property holdings and/or leases
• A summary of the rolling five-year plan for that business
• Who to really trust in each business

There were two copies of the Black Book, one in the office of the corporate attorney and one in the hands of Marilyn, Frank’s wife. The Beddor Black Book was updated every 18 months, at which time Frank reviewed the contents with Marilyn and the top leadership.

The contents for such a book might include some or all of the following:

• Location of last will and testament with name of executor
• Names of banks and account numbers, with proper documentation on who has access to them
• Record of properties owned or leased
• Most recent consolidated financial statement for the company
• Key, trusted advisors’ names and pertinent information on how best to use their skills
• Insurance policies
• Stock portfolios information
• Location of safe deposit boxes
• Persons who must be notified
• Succession plan (If you don’t have one, make one!)
• Strategic plan for the business
• Any special instructions for the company

This list is a good beginning. It is in no way exhaustive and needs to be customized for your family so they will be fully prepared, should the unexpected show up on your doorstep.

The death of a founder or key executive in a family business is a very difficult situation. Family members must deal with a sudden lack of leadership in the business while grieving the loss of a loved one and a valued leader. It is a sad scenario by any measure. It points out just how fragile life can be and reminds us that none of us is exempt from such forces.

Bonnie Brown Hartley, Ph.D. has written a handbook titled, Sudden Death, a fire drill for building strength and flexibility in families. It is an excellent guide to developing an action plan for such an emergency in a family. There are questions and topics for discussion that will help a family prepare for a host of emergencies. The value lies in the family discussion that takes place while completing the exercises in the handbook.

In the course of my 40+ years as a consultant and strategic planner serving family enterprise, I have assisted families in preparing for the challenges of dealing with the death of family members who were key to the business. In many cases I have assisted clients in the creation of a special personal file that I label, “At time of Death or Emergency.”

These experiences caused me to create my own personal file with that label. Its contents include my last will and testament, details of trusts I have created for my heirs, comprehensive financial information and data about life insurance, a “Letter to my children” which I update from time to time, special bequests, instructions for disposition of personal property and collections and, finally, my express wishes for my funeral and burial.

For details on compiling such a file, stay tuned for my next post.