Family employees should not be fireproof

Dismissing a relative is never easy. But the company can't afford those who subvert the goals of management.

By Léon Danco

Business owners tend to pussyfoot when faced with the necessity of firing a family member. They want to be loved, they agonize. They just don’t like to fire anybody, let alone a relative: “If I fire cousin Charlie, Aunt Emily will never speak to me again.” And the more successful the business, the longer they’ll keep the nonperforming family member on the payroll. “Oh hell,” they say, “the business can afford it.”

But businesses can’t afford to keep around incompetent relatives whose lack of productivity undermines morale. Moreso, they can’t afford to carry disruptive family members who do not support the overall goals of the company, and instead undermine the plans of the competent, motivated family and nonfamily managers.

In such cases, the CEO has no choice but to dismiss the family employee. The decision can be heartrending when a parent must ask a child to leave, which sometimes occurs. One second-generation business owner I know who has three sons faces just such an anguishing decision. Son A is highly motivated and shows great promise as a leader; Son B works hard but has only average ability; Son C lacks talent and, worse, thinks he knows more than Son A, who manages the company. The father wants the three brothers to get along and run the business together. Son A says he will not take over the business unless his father gets Son C out of his hair. The father refuses, and Son A quits.

Now the father has only Son B, with average talent, and the antagonistic Son C to succeed him in the business. I applaud Son A for opting out under the circumstances. Dad has to have the guts to fire Son C if he wants to get Son A back and salvage the family company. His only other choice is to sell the business.

Aging entrepreneurs often don’t get around to fixing these kinds of problems before they leave a business, because they never imagine leaving. This can lead to another situation that occurs frequently: the owner, once he does retire, dumps the problem of older, nonperforming relatives in the lap of the successor.

Uncle George, who was given a job in maintenance at the end of World War II, may not have shown up for work sober for years. His brother, the owner, is thinking of retiring. If the owner’s son is willing to carry Uncle George after Dad retires, everyone may stay happy for a while, but it won’t last. Or the son may say to his father: “He’s your brother, not mine. Pay him off. Do what you have to do, but I don’t want him around here.”

The son is right. If Dad wants to maintain Uncle George as his personal charity, he should ask the company for a raise, and provide for Uncle George’s comfortable retirement out of his own pocket. If Dad doesn’t do it, the son will then have to fire Uncle George and any other family hangers-on, after which he will surely be branded as “that nasty kid.”

To fire or not to fire a family member becomes an even more troublesome issue in later generations, when more relatives work in the company and feel as “entitled” as those in their age group who have emerged as leaders. Here the problem is siblings and cousins or nephews who have unrealistic expectations and feel envious and frustrated. Often it is the jealous, demanding significant stockholder who causes real havoc.

Two brothers I know didn’t enjoy working together. The less capable brother was only a minor irritant until he began to publicly challenge the brother who was in charge on some issues and refused to do the work assigned him, telling his brother, in effect, to take a leap into the ocean. Such family members are not only unwilling to respect the productive achievers in the business, they seem to feel exempt from higher authority, protected by family—that is, they think they are “fireproof.”

“Family” should not be a Yalu River behind which incompetent family employees can safely lob grenades at the management. Nor can the business be a halfway house for relatives who, for whatever reason, are in need of rehabilitation.

The best way to avoid having to fire incompetents, of course, is not to hire them in the first place. But business owners are not clairvoyant; family job applicants who appear motivated and promising at first may prove otherwise. It is possible, too, that a family member who fails in a specific job may burst into bloom when given a new assignment for which he or she is better suited. Jobs can be shuffled. Relatives who are disruptive can perhaps be reassigned to departments that remove them from the center of the action.

Usually when a CEO is thinking of firing a family member, however, the person has a history of repeated misbehavior or blatant incompetence. Then the question becomes how to do it.

The CEO must examine his own motives as well as the need and justification for terminating a family member. It is easier for the CEO to let someone go if his moral sensitivities have been offended in some way, if the person is guilty of dishonesty or disloyalty. It helps, too, if some written evidence is found of the family member’s plots against the management. One way of assessing the rationale for the firing is to ask oneself: Would the person’s behavior be grounds for dismissal in a public company?

To be sure that he is acting with a disinterested motive and not out of pique, the owner-manager should, of course, confer about the planned dismissal with other strong leaders in the company, with directors if he has an outside board, and with trusted advisors. As in a public corporation, moreover, the offender is entitled to be warned of the behavior that will not be tolerated in advance, and given opportunties to correct it.

When firing is inevitable, it has to be orchestrated to soften the blow on the person’s immediate family and the rest of the family as well. The decision should not be a precipitous “Saturday night massacre.” The reasons for the step have to be clearly communicated to the family beforehand.

Ultimately, though, firing is a business decision not a family decision. The CEO has to take responsibility—the buck stops with him. The outside directors did not sign on to fire family members. Nor should a family council be convened; the outcome of that could be a first-class family fight with all sides dredging up old grievances and venting their spleens.

Firing a family member is never easy, and you can’t expect that everyone will love you forever after. No matter how well you handle the situation, at some point you will hear the person’s spouse refer to you as “an absolute snake.” Decent people usually make decent decisions. I have yet to hear a business owner who had to fire a family member say years later that the decision was not justified. I have heard a few say that if they had known what the emotional cost would be—in terms of broken family relationships—they probably would have sold the business instead.

That is sometimes the price for sticking to principle.


Léon Danco is the founder of the Center for Family Business in Cleveland and the author of four books on family business.