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Weigh Consequences, Motives of Hiring Relative

November 12, 2001

Executive Roundtable is a weekly column by TEC Worldwide, an international organization of more than 7,000 business owners, company presidents and chief executives. TEC members meet in small peer groups to share their business experiences and help one another solve problems in a round-table session. The following question and answer are a summary of a discussion at a recent TEC meeting in Southern California.

Question: My sister, an equal partner in the firm, wants to bring her husband into our business. He worked at a Big Five accounting firm for many years before leaving to become chief financial officer for a dot-com company, which folded a year later.

We need a new controller, but I'm concerned that my brother-in-law is too high-powered for the job. I'm afraid he will get bored and leave or try to take more of a leadership role in the company.

Either way, I don't have a good feeling about this. Do I have legitimate concerns or am I just being paranoid?

Answer: When it comes to inviting any family member into the business, it's best to look before you leap. Given that you're considering hiring the spouse of your partner, who already happens to be a family member, we suggest an extra long and hard look.

From a practical standpoint, start by consulting your employee handbook. Do you have any written rules, regulations or policies that prohibit relatives or spouses from working in the company? If so, case closed. If not, you have a whole raft of issues to consider.

The place to begin, suggests Bill Knauf, president of Arroyo-Knauf Insurance in Los Angeles, is with your sister's motivation for bringing her husband on board. Is she looking for a quick fix to their short-term personal financial problems, or does she see a real place for him in the business? Does she envision the controller position evolving into a CFO role in the near future? Does her husband have skills or experience that could fill a major gap in your company?

Finally, is this really her idea or is her husband putting the pressure on? Until you have a heart-to-heart with your sister around these questions, you can't begin to formulate a course of action.

Next, says Ding Kalis, president of Magnus Industries in Santa Fe Springs, come the family/partnership issues. If you hire your brother-in-law, who will he report to? How will that affect your partnership and the balance of power within the company? Will it change the way decisions get made? On a personal level, how will it affect your relationship with your sister?

"My previous company was owned equally by myself, my wife and my father-in-law," Kalis said. "The dynamics were constantly changing, which made it very difficult to reach agreement on many critical issues. You may have an equal partnership for now, but the balance of power will definitely swing your sister's way should her husband join the firm."

Last but not least comes the issue of the job itself. As a former CFO, your brother-in-law probably exceeds the technical and experiential requirements for the position.

The issue, then, is determining how he will react to the constraints of the situation. Will he get bored and leave? Will he try to assert himself in other areas of the company? Does he tend to exceed his limits everywhere he goes or does he have a more compliant personality?

Given the vast scope of these issues, Kathleen Ellison, president and chief executive of B&K Electric Wholesale of Industry, believes your best bet involves bringing in an objective third party to facilitate the discussion.

"An outside facilitator can give you an unbiased assessment of the situation and take a lot of the emotion out of the process," she said. "I've used one several times during important discussions with my brother, and it has helped tremendously.

"The conversation should explore several areas, including your sister's motivations, where the company needs to go from a strategic standpoint and what kind of people it will take to help you get there.

"Ultimately, it may lead to a bigger discussion about what is best for your brother-in-law rather than just focusing on whether he should come to work for your company."

One alternative, suggests Paul Villa, president of Commerce-based Great West Produce, is to hire your brother-in-law as a consultant for three to six months to see how he works out. Or, hire him on a project basis to help you set up better financial systems and hire the right controller. With his CFO background, he should be ideally suited to accomplishing those goals. Even then, Knauf strongly urges caution when proceeding.

"This situation is a potential time bomb within your business," he said.

"If it goes down a bad path, it could ruin your partnership, destroy your relationship with your sister and possibly jeopardize their marriage.

"My brother and I have an unwritten rule that spouses do not get involved in our company, and so far it has worked very well. I would definitely recommend finding someone else with the same knowledge and skill sets and avoid the family issues altogether."


If there is a business issue you would like addressed in this column, contact TEC at (800) 274-2367, Ext. 3177. To learn more about TEC, visit

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