Nepotism and Business Ethics: What You Need to Know

With a family business, the owners are often a married couple who anticipate passing the business on to their children. But there can be a fine line between grooming your children to take over the job and participating in nepotism, the practice of hiring or promoting someone simply because they are related to you and not because of their professional qualifications.

Ethical nepotism is possible

Hiring your children or naming them as future partners in your succession plan is not inherently unethical. But if you have other partners you are not related to, bringing in relatives or planning to have them succeed you as co-owner could cause resentment and other problems if not handled carefully. Some things to consider when deciding whether one or more of your children should succeed you at your company include:

• Business structure. A sole proprietor or partnership between a married couple can decide for themselves who to hire and who should succeed them. But a business with more complicated structures, like an LLC, typically has more partners who are not part of the same family. You would have to handle including your relatives in your hiring or succession plan more carefully.
• Company policy. While larger companies often tend to post job openings publicly, for smaller businesses, nepotism is often tolerated, if not encouraged. Informal references and hiring practices are common for such businesses, which often lead to relatives getting the job. But going against established hiring policies to bring in your son or daughter could ruffle feathers with your partners.
• Practicalities. If you inherited the business from your parents, it’s natural to want to continue the tradition and keep the business in your family’s hands. But are you sure your children want to join the family business? Are they motivated and capable of running a business, or at least have the potential to do so?

With careful planning, you can handle hiring and succession planning with minimal risk of a partnership dispute or other disruption. Call Sjoberg & Tebelius to discuss.