The fundamental question that needs to be explored and decided is: Can family members do business with the business? For example, your son is an architect. Should he be hired to design the family firm’s new cafeteria? Or, you don’t work in the family business but you’re a shareholder; you’re also a licensed pilot and you own your own airplane. Should your brother, who runs the company, hire you to fly executives between company plants in different states?
We frequently see business families encouraging such relationships. However, many problems can arise. A family can benefit from consciously developing policy around conflict of interest, self dealing and overt nepotism, discussing such questions as: If we use family members as suppliers, how do we establish price? How do we evaluate their performance? Where do we draw the line? Are we sending a message that any family member can do business with the family firm, no matter what their business is?
An important issue is perception. Even if you can arrange arm’s-length deals with family members and objectively evaluate their performance, what signal will you be sending to family business employees? Despite your best efforts, and despite employees’ willingness to give owner-managers of healthy businesses significant degrees of latitude, will they think family members are just feathering their own nests?
What precedents will you be setting? If family members are allowed to do certain things, are nonfamily employees also permitted to do them? If the VP-Sale’s wife is starting a meeting-planning service, would the family be comfortable having her plan its next sales meeting?
Conflict-of-interest policies also include the dimension of investments. Can family members invest in suppliers to our family business? If I learn about a fantastic real estate investment opportunity in my capacity as president of our business, for example, should I share the information that I have with all family members so that they have the same investment opportunity? If I am on the board of the community bank because I am president of our business and the bank gives me an opportunity to buy stock in its next stock offering, must I share that opportunity with the rest of the family or may I purchase stock on my own? Unless such questions are clarified, such actions and decisions can cause significant resentments in family businesses involving multiple siblings or cousins.
SAMPLE POLICY: AVOIDING CONFLICT-OF-INTEREST AND SELF-DEALING
Lincoln Hardware Distributors and the Lincoln family have long enjoyed a reputation for honesty and integrity–among employees, customers, suppliers, and competitors, and in the community. Since the company was founded in 1971, the family and business have both grown in size and complexity. Several family members and/or their spouses have now founded businesses of their own and others are also considering launching their own enterprises. In light of these developments and in order to preserve the reputation for honesty and integrity that is the legacy of Lincoln Hardware Distributors and the Lincoln family, we hereby adopt, and will abide by, the guidelines below. It is our intent to avoid any conflicts-of-interest, real or perceived.
- Lincoln Hardware Distributors shall not engage in business with any family member and/or spouse who has his or her own enterprise or who is employed in another company. It is the intent of Lincoln Hardware to use suppliers and service providers who are unrelated to the founding family in any way.
- Family members, their spouses, and their children, whether or not they work inside the business, will not be permitted to avail themselves of the services or the resources of Lincoln Hardware Distributors for personal use.
- Family members, their spouses, and their children shall attempt at all times to avoid any perception of impropriety in business matters. Toward that end, family members will not invest in companies that are suppliers to Lincoln Hardware nor seek to benefit financially from information and opportunities gained as a result of their association with Lincoln Hardware.
- Lincoln Hardware will not intercede on behalf of family members seeking employment with other companies nor in any way pressure or encourage suppliers to hire any member of the Lincoln family.
- Family members, their spouses, and their children will not be permitted to seek charitable donations from Lincoln Hardware employees or suppliers or their employees. Fund-raising by family members and relatives at any Lincoln Hardware facility is not permitted. Fund-raising at Lincoln Hardware will be limited to the United Way and to those charitable organizations and causes designated by the Lincoln Hardware Employee Leadership Committee.
- Copies of the Lincoln Hardware Distributors Conflict-of-Interest Policy will be distributed to all family members, company employees, and suppliers.