Conflict Of Interest Family Members Working Together

Conflict Of Interest Family Members Working Together

I may be a divorce attorney by day (well, sometimes all hours of the day), but I am also a business owner who has worked with family members, both in the past and present. In my “day job,” issues pertaining to family businesses and divorce frequently come up and questions regarding conflict of interest family members working together and nepotism policies do arise, such as:

  • Are family members allowed to work together?
  • What are some examples of nepotism and how do you define it?
  • What is an example of a family conflict of interest?
  • What problems can arise when family members work together?
  • What’s the best way to handle hiring a family member?

I will tackle these questions and more in the article below. In the meantime, if you’re looking for a family business lawyer near me who handles high-net-worth divorce, and you live in the Dallas / Fort Worth area, contact us to schedule a confidential case review

Are family members allowed to work together?

And can siblings work together? There is no law in Texas that says family members can’t work together in a family business. Rather, the question should be: should a family work together? There’s really no clear answer to that. Ordinarily speaking, the general rule is don’t do business with friends and family.

That’s not to say a family business can’t be successful when family members are involved—many family businesses do quite well under those circumstances. But in my opinion, the reason to avoid doing business with people close to you is because friendships and family relationships should always trump business decisions.

And the reality is business has no friends, and business has no family. If you really are running a business the way you’re supposed to, it should be objective across the board and be based on data. I’m not saying you should get robotic about it, but your decisions ultimately to hire, fire, promote, demote and give accountability should not rest on the fact that you may have Thanksgiving with somebody next week. Nepotism policies can help ensure business decisions remain as non-subjective as possible (more on this below).

What are some examples of nepotism and how do you define it?

Let’s start by considering what nepotism means, starting with what our friend Google tells us when we search, “nepotism define.” Google’s dictionary defines nepotism as “the practice among those with power or influence of favoring relatives, friends or associates, especially by giving them jobs.”

Our friends at Merriam-Webster define nepotism much more simply: “favoritism (as in appointment to a job) based on kinship.” In other words, favoritism when hiring family is called nepotism. Most references to nepotism do relate to instances of favoritism involving family working together, though giving preferential treatment to an employee who is a friend falls into the same category.

Which brings us to, what are some examples of nepotism? Common examples include:

  • Promoting a family member when a better qualified employee would have been more suitable for the position.
  • Disregarding a family member’s frequent tardiness, while penalizing other employees.
  • Giving family members more time off than other employees who do the same job.
  • Allowing a family member’s poor work performance to go unchecked, while holding others accountable.
  • Giving family members easier job assignments than other employees performing the same role.
  • Giving family members higher salaries, bonuses or other perks compared to other employees doing the same job.

What is an example of a family conflict of interest and is it the same as nepotism?

There is quite a bit of overlap between nepotism and issues regarding conflict of interest family members working together. The University of Central Florida nailed the definition of conflict of interest involving family and friends. They define it as follows:

“A conflict of interest occurs when an individual’s personal interests— family, friendships, financial or social factors—could compromise his or her judgment, decisions or actions in the workplace.”

You can see how favoritism of a family member, or nepotism, could be regarded as a conflict of interest family members working together. An example of a family conflict of interest may include allowing a supervisor to decide whether an employee who is a family member gets a job, raise or promotion. Other examples may be allowing a supervisor to conduct performance reviews of a family member or make decisions about disciplinary matters.

What problems can arise when family members work together?

While most horror stories about working for family businesses involve allegations of nepotism by non-family-member employees, nepotism rubs both ways. Some family members are subjected to reverse nepotism, where they are scrutinized at a higher level than their non-family-member colleagues or not given opportunities to advance.

I’ve seen this happen a lot, both among my clients and friends. For example, it isn’t unusual for siblings to have different roles, compensation or degrees of ownership in a company. These situations can lead to jealousy and animosity among family members that make it difficult to collaborate effectively at work, while compromising family relationships outside of the business.

On the flip side, when favoritism and nepotism run rampant in a company, employee morale is likely to suffer, which can have a direct impact on a company’s bottom line. Non-family employees can also be left in the dark about decisions family members are making about a company. This can be problematic, especially for non-family employees who have a financial stake in the business. You never know what goes on behind closed doors.

In a time when employee retention is so challenging, there is no room for nepotism in family businesses. Business owners and the C-suite should be proactive and put measures in place to reinforce the non-subjectivity of decision making I mentioned earlier in this piece.

What is the best way to handle hiring a family member?

Hiring a family member or members is commonplace in family businesses. Having guidance on how to deal with hiring decisions and other employee matters is necessary to curb nepotistic behavior and can be facilitated by establishing boundaries and inking it in the contractual language of company documents. Nepotism clauses and nepotism policies can help address these issues.

For business owners who are concerned with hiring practices and being a good employer (for both family and non-family employees), nepotism policies can be critical. Company documents (often included with the articles of incorporation) that cover the hiring and onboarding process and/or employment agreements can include built-in factors for bonuses, KPIs, promotions and whatnot.

Nepotism policies or clauses can also include language that prevents family members from making hiring decisions about or supervising other family members. Establishing these guidelines in writing, including the fact that they apply to all employees, can help eliminate subjectivity of personnel decisions and cut out a lot of emotion. It can also put non-family employees at ease instead of in a state of worry about being treated unfairly because they’re not related to the owners.

Family working together can complicate divorce

We frequently deal with issues pertaining to family members involved with family businesses inside of divorce cases. It isn’t unusual for one spouse to play a bigger role in a business than the other spouse, and it isn’t unusual for multiple family members to have a stake in the business. It’s critical to monitor what’s going on inside of the business during divorce and restrict certain actions via the temporary orders.

For example, you may have one party in charge of the business bank account, while the other party just gets a little bit of money each month to pay their expenses. Or you may have one party that has access to a business credit card, while the other party has no idea what’s going on. During the temporary orders phase of divorce, we can place restrictions on how business funds are used and get access to company financials when more transparency is needed.

We can answer your questions about conflict of interest family members working together

If you live in the Dallas / Fort Worth area and are contemplating divorce involving a family business, we can help. To schedule a confidential case review with a family business lawyer near me who handles divorce, please call the Sisemore Law Firm at (817) 336-4444 or connect with us online

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