How to handle underperforming family employees

More often than one might expect, a complaint we frequently hear from leaders of family businesses when discussing the next generation's involvement in their organizations is straightforward: 'He or she comes in late, leaves early, and does not follow through on their assignments, and I do not know what to do!'

While we recognize that many family employees are valuable contributors to the business, it is crucial to acknowledge that family employment can present specific challenges. Rather than overlooking or denying this possibility, it is important to assess it properly, considering that underperformance encompasses two key aspects: the quality of the results achieved by the employee and the manner in which these results are produced. Both are relevant to the assessment of their performance.

The origins of the issue

When it comes to hiring and staffing, as well as career, performance management, and compensation decisions, leadership inevitably contends with the delicate balance between expectations stemming from familial bonds and the imperative of business efficiency. If not appropriately managed from the outset, these decisions risk being influenced more by kinship, relationships, and family obligations than by competence and achievements. Consequently, tensions can easily escalate and spread throughout the family and the organization, leading to frustration, resentment, and animosity.

In the case of family employees, underperformance can be attributed to two main reasons. First, it can result from recruitment choices that fail to properly match candidates with positions according to their skills, capabilities, and motivations. In such cases, the responsibility for unsatisfactory performance lies more with those who conducted or influenced the selection process than with the family employees themselves. Too often, unsuitable family members are brought into the business, while in other cases, capable candidates who lack motivation are urged to apply for positions by exploiting their sense of duty towards the family.

Second, any family employee might underperform at various points in their career. This may be a sporadic or temporary issue that can be easily managed. In some cases, however, it may develop into a persistent problem driven by the family employee's sense of entitlement or a perception of being untouchable in the organization.

A diminished work ethic, reluctance to collaborate and follow the organizational rules, and arrogance in fulfilling a role are all signs that the family employee is heading in the wrong direction. The earlier the leadership acts, the better.

Quick fixes: Not always effective

Some business families choose a drastic measure to avoid this issue: they prohibit family employment in the business altogether. When we learn that a family has opted for this strategy, a question comes to mind: Is it a rational decision, or is it motivated by fear or an inability to manage family employees effectively? We have found that negative experiences often push families towards the emotional choice. However, this is unfortunate because empirical evidence suggests that family members who join the business equipped with humility, comprehensive training, and considerable external work experience can greatly benefit the organization. Not only can they bring new competencies, but they also have the potential to rejuvenate the organizational culture and act as catalysts for change.

Another misconception is that the management of family employment is less problematic when the business leader is not a family member. Non-family leaders also face challenges when addressing this issue, as they are not immune to the emotional aspects associated with it. On the one hand, providing an underperforming family employee with honest feedback can cause relational difficulties not only with the underperformer but also with other family  members , who may hold senior positions in the business or be influential shareholders. On the other hand, failure to act professionally may compromise the leader's reputation, and authority.

How to address the issue

Tackling the issue of underperforming family employees requires competence, response readiness, and a multifaceted approach. Establishing a family member employment and career policy before a new generation or cohort of family members joins the business can serve as a precautionary strategy. Such a policy can outline the processes to follow in this respect, delineate the responsibilities of key players, set clear timings, and specify incentives, rewards, and penalties. For instance, it can emphasize that the business will support underperformers in finding their paths but will not tolerate a sense of entitlement, misalignment with family values, and arrogance. In essence, when the policy provides guidelines for handling situations related to underperforming family members, it becomes a mechanism of influencing family employees' expectations and behaviours by making them aware that such issues are not taboo and will be taken seriously.

However, a policy alone is not sufficient. Establishing a family employment and career committee, ideally incorporating at least one independent expert, has proved crucial for managing all matters related to family employment in the long term. A committee favours collective decision-making, avoiding favouritism . It also provides a means of allowing a degree of flexibility to adapt the policy to the current context and changes over time.

Other techniques that can be employed to address the issue include the following:

• Offering mentorship: Every family employee, particularly in the early stages of their career, should be paired with a mentor who should act as a neutral and authoritative figure capable of assisting the mentee in reflecting on their organizational behaviour and identifying solutions to achieve satisfactory performance. A mentor can also heighten the mentee's awareness of the risks associated with continuous underperformance.

• Providing constructive feedback: The family employee's supervisor should be capable of engaging in an open and honest discussion about the business's needs, the organizational implications for the family employee's role, and the employee's ability to fulfil the requirements of the position. A purely judgemental approach in this regard is never effective in guiding the family employee towards the correct path. Constructive feedback should go hand in hand with appropriate support to help the employee fill gaps in their competencies, learn new organizational routines and procedures, or change their organizational behaviour.

• Setting explicit performance expectations: A lack of clarity regarding what the business or the supervisor expects from a family employee is often the reason for lower-than-expected performance or an inability to assess performance fairly. Clarifying expectations in advance is essential for eliminating ambiguities. Moreover, documenting these expectations in writing is crucial for providing clarity and future reference.

• Changing roles or responsibilities: Underperformance may be due to a family employee's unsuitability for the position they hold. In such scenarios, it is wise to consider whether the employee could regain motivation and perform better in a different role . However, it is essential to avoid the mistake of inventing unnecessary positions just to accommodate the desires or demands of a family member who has a sense of entitlement.

• Changing the supervisor: In general, changing supervisors can be another strategy for providing employees with new motivation and helping them improve their performance. In the context of a family business, this choice may be even more effective because when a family employee reports directly to another family member, the dynamics of family ties and internal rivalries can sometimes lead to underperformance. In such cases, if feasible, assigning the family employee to a new team with a non-family executive as a supervisor can be a viable solution. However, this approach depends on senior leadership's unwavering support for the executive so that they can provide the family employee with honest feedback and take appropriate action without being affected by unpleasant family dynamics.

• Constructing off-ramps when necessary: Sometimes, it is necessary to explore drastic alternatives for situations that have escalated to untenable levels. Options such as granting a sabbatical or switching to part-time, flex-time, or remote employment can offer viable short-term solutions and may serve as the initial step towards termination if no improvement is achieved. For family members in senior positions, early retirement may also be considered.

• Terminating employment: If all of the above-mentioned measures fail, it may be time to arrange a fair termination for the sake of the business and the harmony of the rest of the family and ownership.

Termination as a last resort

Terminating the employment of a family member should be regarded as the last resort rather than the first step. There are two exceptions. First, serious and objective circumstances require immediate action. Second, if leadership and senior family members realize early on that a mistake was made in selecting a family member for a business role, it is best to act promptly. This means acknowledging that the family member may not be suitable for the business and helping them understand the situation, including its emotional aspects, and find a job that aligns with their expectations and strengths.

When discussing the termination of a family employee who has worked for the company for several years, given the complexity of the situation, such a decision cannot fall squarely on the shoulders of the business leader. It requires a preliminary assessment by the family employment and career committee to ensure that any potential impacts on ownership and family dynamics are carefully considered.

In these situations, it is imperative to act fairly but quickly. If reasons for termination arise, decisions should be made with professionalism and expedience, affording the underperforming family employee the dignity of choosing to resign. When possible, the family employee should also be offered support in finding a more suitable position elsewhere, taking advantage of mechanisms such as outplacement services or the family's network in the business community.

Finally, it is important to acknowledge that family members who feel sidelined during the exit process can harbour deep-seated resentment, especially if they retain an ownership stake in the business. Therefore, when such situations arise, it is advisable to find a face-saving solution that preserves – to the extent possible – the status and image of the individual who is urged, if not compelled, to leave.

Conclusion

How should one handle the case of an underperforming family employee? This is a burning question that the leaders of a family business may have to deal with and may ask those from whom they seek advice. There are specific techniques and strategies for resolving this problem, and several key points should be considered, including the following:

• Decisions regarding family employment should not rest solely with the business leader, whether they are a family member or not.

• Specific family employment governance should be in place to manage the related processes professionally.

• Expert advice should be sought to gain a neutral and informed perspective.

• The termination of a family employee should be considered the last resort.

Author: Paolo Morosetti

Photo - Credit: iStock #1053763756