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Human Resources is a Critical Part of an Effective Family Business

Originally published in Family Business Magazine January/February 2019.

Human resources is an essential component of any well-functioning business, but in many family companies, HR is merely an afterthought. Even those family business owners who recognize the importance of the HR function may take an informal approach to fulfilling it.

For instance, a family member may be given HR responsibilities in addition to the person’s “real” job. In such cases, the HR function might get short shrift. If the family member lacks HR training, there is no assurance that best practices are being followed.

When a family member serves in the HR position, role confusion can interfere with adherence to policies and laws. The family system is based on family members’ support for each other through thick and thin, while the business system is based on merit and adherence to the rules. Family HR managers must be sure to wear the “business hat” rather than the “family hat” when acting in the HR capacity.

HR responsibilities require appropriate training 

Without a clearly defined HR department, employees may not know where they should turn to report claims of discrimination or harassment, or even just how to register a change of address.

This ambiguity is a problem for family businesses. HR is the front line of defense in ensuring the company complies with labor laws, wage and hour laws, etc. Non-compliance can result in costly government audits and lawsuits. HR should also be the front line in ensuring employees are motivated and that the business isn’t being harmed by low productivity.

While benefits administration and payroll may be fairly straightforward or relatively easily contracted out, other HR functions are not. One example of a complex process is navigating leave administration under the Family Medical Leave Act or Americans with Disabilities Act in combination with workers’ compensation laws.

In the case of a sexual harassment claim, an internal investigation must be initiated. The company should ensure the investigation is conducted by an appropriate person. If the responsibility is given to an HR manager who is related to the alleged harasser, it is likely a jury or government agency will rule the investigation ineffective or a sham. An outside counsel or a consultant is a better choice in this situation.

HR helps avoid legal exposure

HR, when run effectively, is management’s partner. Good people practices minimize the risk of unhappy employees — and unhappy employees are the ones who sue. More importantly, happy employees are productive employees.

Expending the resources to build out a full-fledged HR function will save the company legal fees, interruption of business to deal with government agencies and litigation, and big headaches in the long run. It also can prevent business issues from spilling over into family issues. Furthermore, good employment practice makes the company a safe place to work.

Organization charts ensure productivity and transparency

In small family companies, family members may be asked to lend a helping hand when a task needs completing, as they are at home. However, when employees have no defined roles and everyone is responsible for everything, productivity suffers. Moreover, no one can stay in their lane when they do not know what lane is theirs!

An organization chart provides transparency about roles and who reports to whom. It can be critical when multiple children of the CEO work in the business. If these adult children report to a non-family manager, they may be inclined to appeal to their parent if they disagree with the manager’s directive or decision. This maneuvering undercuts the manager’s authority. An organization chart helps identify — in a clear, objective way — the reporting chain of command.

An organization chart also provides transparency for non-family employees. It explains who is next in line to take over the company and what, if any, growth opportunities exist. Retention of high-performing non-family employees can be difficult if they assume they have no room for advancement. An organization chart shows what positions might be available.

Job descriptions aid in legal compliance

Job descriptions are a best employment practice. They clarify what each employee’s role is — and what duties fall outside that role. In addition, job descriptions are crucial for ensuring compliance with employment laws. For instance, federal and state departments of labor examine job descriptions when assessing whether an employee is appropriately classified as exempt from overtime. They look at what tasks the employee is required to do as well as what the person is actually doing. While job descriptions are not determinative in this context, they provide support for the company’s position.

Job descriptions are also helpful when an employee asks for a reasonable accommodation under the Americans with Disabilities Act or similar state or local law. Under federal law, the employer is required to engage in the interactive process to determine what, if any, accommodation can be made so the employee can perform the essential functions of the job. To do this, employers often must refer to the job description to analyze which tasks are essential job functions and which are not. While this does not end the inquiry, it provides helpful support for the company’s accommodation analysis.

When claims of unfair treatment arise, organization charts and job descriptions are a key to your defense. Therefore, it is important to have job descriptions and an organization chart prepared and implemented.

Onboarding and exit interviews strengthen the culture

Dedicated HR professionals are also helpful when employees enter and exit the family business. The HR department conducts an orientation to teach new employees about the company’s policies and the corporate culture.

In a family business, it’s important to ensure a new non-family employee understands the culture and fits into it. Employees who are not properly introduced into the culture may feel ostracized, which could lead to discrimination lawsuits. While it is not illegal to favor family employees over non-family employees, any favoritism in a business setting leads to unproductive behaviors, and this is an unnecessary cost.

Another function of the HR department is to conduct exit interviews when employees leave the company. Exit interviews are vitally important in family businesses because of the challenge of retaining talented non-family employees. The exit interviews provide a great insight into how the family is perceived and what went wrong from the employee’s perspective. The next challenge is to devise a strategy to address the weaknesses uncovered in exit interviews.

HR helps managers communicate effectively

Skilled HR professionals can train managers to communicate more effectively with their employees. This is especially important in a family business, where operations tend to be informal because a large part of the workforce is related or has been with the company a long time. HR professionals can help ensure the family does not lose sight of the fact that work hours should be spent working, not resolving family drama.

Communication skills are also important in dealing with employees who have issues with family members. Family members must be trained to listen to the employee’s point of view.

Finally, HR can help a family business harness the perks of working with family and deploy them to make the company more successful. For instance, family businesses inspire a strong sense of loyalty and commitment to succeed because if the business fails, the whole family will feel the impact. If someone can properly direct this strength, the family unit becomes more successful.

Ultimately, HR is a strategic partner in all business operations. In family businesses the importance of this function is heightened because the family dynamic affects business operations in many ways.