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Family favouritism: The case for nepotism in business

We view it as distasteful, but bringing family members onboard a business is historically advantageous

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Research has shown that plants may be able to recognize their offspring and favour them by sharing nutrients through their root systems and other methods. If this is proven true, could it be labelled “biological nepotism”?

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Much has been written about elected figures and leaders of public companies who have sworn to represent the collective yet subsequently used their positions to advance their friends and family members.

But what about those who are not elected, not expected to represent the greater good, and have a responsibility to their families to teach, nurture and grow future leaders within the family enterprise? Is nepotism wrong in this context?

When we hear the word, we feel a sense of disgust or disappointment, and judgments are swiftly made. Yet nepotism in certain contexts may explain why humanity has survived for centuries, discovered advancements and developed into the world we have today. Before there were public companies, only family enterprises existed. Nepotism was both expected and used to ensure family survival.

The word is entrenched in controversy and has origins within the Catholic church, where high level officials would favour someone whom they deemed a “nephew.” Perhaps this explains why the concept today is attached to deeply rooted contempt.

But let’s look at it from a non-religious and non-political aspect. How did a blacksmith, baker or weaver become an expert in their profession? Expertise stemmed from being raised in a family-owned business where the children were expected to, and able to, learn directly from their parents and grandparents. Family techniques and recipes were closely guarded and passed on. There was no expectation of sharing such information with non-family members, nor was protecting it considered unfair.

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When an inheritor takes the reigns of a family business there is an unspoken assessment that this is somehow wrong, that he or she is unworthy, or doesn’t have the skills.

In modern days, those who choose to follow in the family business are often labelled as “having it easy” or “never making it on their own.” Rather than standing tall under the banner of a family crest, they live in the shadow of previously successful generations. The experience of quietly telling people “I work in the family business,” with hopes they won’t judge, is in sharp contrast to the historical pride that came from prominent last names and brand affiliations.

Our current culture leaves rising private enterprise leaders wondering whether they are truly successful in their own right. The phenomenon of not supporting and celebrating a rising generation is one worth challenging.

Let’s consider the origins of agriculture. People making a living off the land were expected not only to teach their children what they knew but also give them a portion of the land upon maturity. Young people learned important skills and details of successful food production by participating in normal daily processes.

Was this nepotism or just good parenting and preparation of the next generation? Was the farmer, out of fairness, responsible for gathering the neighbour’s children and teaching them as well? If the landowner did not gift children with land or cattle when they became adults, it would be frowned upon and thought of as distasteful. Today, inheriting shares in a family’s private enterprise can leave those inheritors being labelled and even feeling shameful of the succession process.

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A son’s journey in the family business

Marcus is a member of the third generation in a plastics molding business. His first job at 15 was cleaning floors, where he learned that without cleanliness serious safety risks could result. He was a sponge at home during family discussions about the business and was always encouraged to join the adult discussion table. Without formal training he picked up the nuances of business in general and often came up with ideas that his mother and grandfather implemented.

He returned from university to his community every summer, and his second job at the factory was one that the other workers mocked him for. Out of seven hundred employees, he was literally “at the bottom.” He thought about quitting and never coming back. Marcus didn’t quit. Every summer he was moved to a slightly better job. He learned the craft while figuring out how to thread the needle between having the family name on the door and being part of the team.

After he completed his undergraduate degree, he began applying for jobs that were more appropriate for his age, stage and experience. One job application went to his family’s business. He didn’t receive a positive response and he never got an interview.

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The following year Marcus applied again and was rejected. He had chosen a different profession and decided to distance himself from both the brand and the industry. On the fourth year he submitted two resumes and application forms that were virtually identical. One featured his family name and the other a fake name. He was personally rejected but, as expected, his alter-ego got a call to come in for further discussions. The bias was against him, and the employees of the firm were not interested in him working in their division simply because of his family name. He never shared this fact with his mother or grandfather.

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For this and many other reasons, family businesses often build an employment policy to help guide hiring practices within a bloodline. Reverse discrimination is often overlooked, ignored and even perpetuated by business leaders who are working inside. Family members can’t complain for fear of being labelled “entitled” and further destroying their credibility in the company.

Similar challenges can be faced in public enterprises. Qualified and quality employees have been held back from promotion based on another family member working in the same firm. Is it discriminatory when an employee hears, “We can’t promote you, even though you are the best candidate, because a family member already works here, is more senior than you, and it could be viewed as nepotism”? It happens.

Helping adult children buy a home

One of the greatest challenges in modern times is the rapidly increasing price of housing in contrast to wages. The idea of every family having the opportunity to own land and a home stemmed from aristocratic control in the Old World. The New World was where land was not controlled by nobility or pools of wealthy individuals.

Today this dream is most often accomplished with the assistance of parents or grandparents gifting or lending funds to adult children to use as a down payment. Is this considered nepotism, or is it families adapting to the financial realities of the 21st century? A few hundred years ago it was an expectation. If nepotism is defined as favouring one’s bloodline over others and we were to apply it to estate planning today, it would be considered dishonourable to leave assets to one’s children or family.

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When an inheritor takes the reigns of a family business there is an unspoken assessment that this is somehow wrong, that he or she is unworthy, or doesn’t have the skills. Fictional movies perpetuate the assumption.

Additionally, social media gives us a front row seat to the reality of inappropriate behaviours by world dictators and leaders who channel control and money into their own coffers. Let’s pause. Painting the average Canadian business successor with this same brush is an inaccurate comparison.

As privately held businesses in Canada regenerate, achieve success and face transition, family offices will continue to be designed to help inheritors manage both their natural skills and give them tools required to adapt in their landscape. Nepotism, depending on circumstances, can be harmful or advantageous. The origins were distasteful, but the assumption a family should not favour and assist their offspring is equally unnatural. (Let’s ask the trees who may be sharing nutrients with the seeds that fell from them.)

Marcus was eventually hired into his family’s manufacturing business. Within 12 months he and his team shattered all historical production records with 100 percent safety reported. People were asking to switch to his team, and the movement to ratify a union was defeated. He wasn’t preferred to get the job because of his family name, but in hindsight the company lost several years of profit, production and culture, and it clearly had developed challenges that some believed a union could correct. The fear of nepotism had cost them all.

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Carolyn Cole founded Cole & Associates, a family office strategy and design firm, after a 25-year career working with enterprising families. She leads the family office for three prominent Canadian families. Carolyn also acts as Special Advisor to Grayhawk Wealth, Family Office Service, is a member of the Association of Corporate Growth’s Family Office Advisory Committee and recently launched Family Office Administration Services. Carolyn’s writing draws upon her personal experiences both from her capacity as an advisor and as the mother of two adult sons who are fourth generation of an enterprising family.

Carolyn Cole
Carolyn Cole

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