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Helping Family Businesses
Prosper Across Generations®

Family Fingers in the Till

Dear Advisor:
What do you do about employee theft when the thief is a family member?


A third generation family business scion, now an attorney, loved to tell this story: “My daddy used to say: “Only let family members handle the money. That way, Daddy would say, if someone’s stealing from you, at least it’s going for a good cause.”

As every business owner knows, the threat of theft, fraud, embezzlement and other inappropriate or illegal uses of the company’s precious resources is very real. And when the perpetrator is a family member, deep insult is added to injury. In short, it’s no laughing matter. The crisis can rapidly impact the business and the family.After all, as we stated in previous issues of the Family Business Advisor, trust is family business’ greatest competitive advantage. Whatever injures family trust shakes the business’ very foundation.

Rationalization

Sometimes, the offending action is very clear. A family member is caught with a hand in the till. The problem comes when the event is explained. “How can that be stealing?” protested one such individual, “its our money!”

“I planned to pay it back!” offered another.

“Well, I was being underpaid and underappreciated, so I was just trying to make things right,” said another.

“I was just doing what you do, Dad,” confronted another. “You’ve been taking cash out of the drawer and putting it in your pocket for years!”

What to do? Different families take different approaches. Sometimes, the offending party is fired on the spot, particularly if the infraction has become public knowledge inside the company. Sometimes, criminal proceedings are initiated. Sometimes, a chance to repay and regain trust is offered.

If family practice has been less than pristine, the problem gets thornier in succeeding generations. When the founding generation — with the knowledge of the family — charged personal expenses on company credit cards, used company employees for personal errands, took from inventory, bartered company goods or services for personal gain, skimmed cash from the till, etc., precedents were set and lines were blurred. What seemed appropriate when business and family were all in “one pocket” can become the source of conflict and distrust when the business feeds many families.

Lay Down The Law Perhaps most important, family members in the business should sit down to clarify which behaviors are acceptable and which are not. Rules should be established and consequences discussed in advance.The best family businesses clearly delineate personal and business use of assets; have explicit policies about pay, benefits and perks; require authorization for expenditures over a certain amount and for loans from the company; and clearly define when participation in side businesses is permitted.

Good families also are alert and sensitive to family members who may be having financial difficulties. Family members often pledge to help each other if trouble comes, reducing potential pressure and temptation to take money from the firm.

In our experience, successful family businesses evolve toward the straight and narrow, sometimes through bitter experience. It is usually better to lay down the law earlier rather than later and to hold all employees accountable for high standards of business ethics.

The Advisor

 

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