Human resources (HR) is a cornerstone of your business’s health. It ensures smooth operations and harmonious workplace relationships covering areas including recruitment, training, performance management, employee relations and much more. HR is complex at the best of times, but in family businesses, the delicate balance of regular HR duties and family politics can make it especially challenging.
In 2024, it’s pretty much agreed that HR should be seen as a strategic partner rather than just a support function. The rise of the chief human resources officer (CHRO) is a testament to that change, and the strategic relationship between HR and every aspect of the business – including a seat at the leadership table – is never more crucial than when dealing with a family business.
Here, we discuss how HR functions in a family business environment in comparison to a conventional company, and I’ll argue that it’s only when HR is used strategically that many of the problems associated with family-run enterprises can be mitigated.
How HR functions in a conventional company
Let’s start with a quick recap of what we might expect from HR in a typical organisation that is not family-based. In such companies, HR plays a crucial role in recruitment, onboarding, training, and development. HR also evaluates employee performance, develops compensation and benefits packages, and ensures compliance with labour laws and industry standards.
Since all of these points apply to any business, the next question is, what specific issues will HR need to address in family-owned companies?
Unique HR challenges in a family business
Family-owned businesses often benefit from strong commitment, loyalty and long-term vision – and they have the potential to foster a unique culture and the kind of personal touch that can enhance customer relations. But here is what I see as the specific challenges for HR professionals when it comes to working with these types of companies:
- Clarifying organisational structure and roles: In large and complex family businesses, it’s essential to clearly outline responsibilities and expectations for each role to ensure smooth operations and employee satisfaction. These things can get a little tangled in family businesses when they start and often fail to get untangled as they grow. So, well-defined organisational charts can help with this, as well as ensuring that each team member truly knows their role, their position within the company, and how it contributes to the company’s goals.
- Succession planning and hiring: To my mind, this is the biggest challenge because succession planning is critical for the survival and continuity of a family business. The problem here is that there is often insufficient planning ahead of time, and not enough consideration is given to what an external candidate might offer. Equally, insufficient work is done to develop a pipeline of capable internal candidates ready to step into key roles. All of this must be executed within the family’s overall vision for the business while balancing it with what will make the company competitive in the long term.
- Mitigating legal risks: Navigating employment laws and regulations can be particularly challenging for large family businesses that may have grown without an HR front and centre. So, any incoming HR professional must ensure compliance with labour laws and employment standards to reduce the risk of costly legal issues. This proactive approach helps protect the company’s financial interests and maintains its reputation with employees, customers and the community.
- Embedding culture and values: Family businesses often have unique cultures and values that reflect the family’s beliefs and aspirations. HR must ensure these core values are integrated into all aspects of the organisation – from recruitment to daily operations. This helps reinforce the company’s identity and fosters a strong sense of belonging and loyalty among employees. Effective onboarding and exit interviews can also enhance this company culture.
- Balancing family and professional dynamics: We talked about workplace harmony as a duty of HR in any organisation, but when we look at family businesses, we find that professional relationships can be particularly complicated. HR must navigate the delicate balance between family loyalty and fair treatment of non-family employees, ensuring that if favouritism or conflicts of interest arise, they are dealt with quickly and fairly. Establishing well-defined policies is crucial, as is creating guidelines for family involvement in the business, conflict resolution procedures, and professional boundaries.
- Family and non-family communication: As an overall principle, encouraging open dialogue between family members and non-family employees can help address issues before they escalate. Regular meetings and feedback mechanisms can promote transparency and inclusiveness.
When to hire from outside
As noted above, hiring from outside will be one of the biggest challenges for HR in a family business. However, bringing in external hires – whether in leadership positions or more junior roles – can introduce fresh perspectives and innovative practices that might not be present within the family. This infusion of new ideas can help the business adapt and grow in a competitive landscape.
While sometimes they are indeed the best person for the job, family members may sometimes lack the specific skills or experience needed for certain roles, making external candidates more suitable. Hiring externally can also help maintain objectivity, providing an impartial viewpoint that helps balance family dynamics.
Who should perform the HR role in a family business?
We have discussed the specifics of HR’s role in a family business, but who should head up HR itself? In the early stages of a business – family-owned or otherwise – HR responsibilities may be assigned to someone with another primary role within the company. In this kind of scenario, the HR function can suffer from neglect, especially if the person in charge lacks formal HR training.
A specific problem arises if the person in charge of HR is a family member, and the lines between personal and professional responsibilities start to blur. The family dynamics of mutual support and loyalty can conflict with the business’s need for adherence to regulations. So family members in HR positions must ensure they follow established HR protocols, rather than allowing personal relationships to influence their decisions. The alternative to this is bringing in an external head of HR (or CHRO) who may be able to help the company by giving more objective advice and guidance.
HR’s role in family businesses is not just about managing personnel but also about fostering a supportive environment that aligns with family values and business objectives. By embracing a strategic approach and integrating HR practices with broader business goals, HR can significantly enhance family-run enterprises’ overall performance and cohesion.
As we have seen, navigating the intricacies of a family business presents unique challenges for HR professionals. While they must perform traditional HR functions such as recruitment and performance management, they must also address the complex interplay of family relationships, succession planning and fairness.
By developing clear policies, fostering open communication and considering external expertise, HR can effectively balance family dynamics with professional needs, ensuring the long-term success and harmony of the business.
The writer is the founder and CEO at Talent Higher.
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