How to Overcome the 2 Most Harmful Mindsets in Your Family Business
Dear Advisors,
Working with family has a lot of benefits. You get to spend time with people you trust and care about. You build a special bond because you’re working towards a common goal. Most importantly, it’s a lot of fun! However, there are also a lot of unique challenges. Some challenges can be divisive within the family and put the future of the business at risk.
We’re going to outline 2 of the most harmful mindsets in a family business. Each comes with its own triggers that you can watch for in your family business and some solutions you can start implementing today.
The first mindset is commonly known as the Fredo Effect. This occurs when an inexperienced or unqualified family member, we’ll call him Fredo, is given a job that either involves a high level of authority or is highly compensated. This is also called nepotism. Some of the triggers you can watch for include:
Fredo evades responsibility without consequences
Fredo rarely gets a bad performance review
Fredo is not required to follow processes and procedures
The second mindset is the Post-Fredo Effect. This occurs after a family business has dealt with a Fredo situation. They are hyper-aware of the appearance of favoritism. Then, an experienced and qualified family member, we’ll call her Frida, is placed in a job but is discriminated against because the family doesn’t want to show signs of nepotism. Some triggers include:
Frida is given extra responsibilities without additional compensation
Frida rarely gets a good performance review
Frida is punished for anything that appears to be wrong, even when all processes and procedures were followed.
Not only is the family impacted by these mindsets, but other employees and family members outside the business are also affected. It can be demoralizing to the team when Fredo is rewarded for little or no work. The Post-Fredo Effect swings to the other end of the spectrum. Frida becomes the scapegoat when the team sees that it’s okay to overload her with projects and blame her for their mistakes. Both of these situations can cause distrust to flourish and employee morale to crumble.
While it may sound harsh, the truth is that every position on your team is replaceable. As the business owner, it’s healthy to acknowledge it may be better for the business, and the family, to have a non-family successor. It may also end up better for Fredo or Frida to find another job that allows them to be themselves, spread their wings, and ultimately create a life they love.
Whether there’s a Fredo or a Frida on your team, you can try some of these solutions to start your team and your family on the road to recovery.
Write a job description that clearly defines the standards and expectations. Fredo should be held accountable to those standards. If he exceeds expectations, he should be rewarded appropriately. The same goes for Frida. If she exceeds expectations, the family should be held accountable to promoting her according to the stated career track. This eliminates the threat of nepotism because all family and non-family members will be held to the same standard.
Establish a general council to facilitate open communication and make difficult decisions. The healthiest council involves checks and balances between 3 parties: the business owner(s), one or more leaders from the family who do not work in the business, and one or more leaders from the business who are not family members.
Hire an outside firm to perform the functions of HR in your office. If someone on your team conducts performance reviews, your Fredo or Frida problem is likely to get worse. An unbiased HR firm is most likely to treat all your employees equally, which is healthy for everyone.
The Fredo Effect and Post-Fredo Effect are the 2 most challenging mindsets in a family business. If you’re starting to see these in your office, you know what to do: write clear job descriptions, meet with your general council regularly, and hire an outside HR firm today. If all else fails, consider hiring a consultant, like Ellevate Advisors, to help you achieve your goals. Your Fredo or Frida will either learn to grow into the right position in your firm, or they will move on and create a new life for themselves. You will be free to make the right decisions to secure the future of your family and your business.
Warm regards,
Brooklyn
P.S.
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