Researchers found hiring family members led to less innovation. (original photo: Quinn Dombrowski)
Don’t hire your brother. Don’t hire your sister. Don’t hire your mother, or your father. And just to be on the safe side, don’t hire your uncle or your aunt. New research shows that adding family members to your company could be bad for business.
When you’re thinking of a succession plan to keep a family business entrepreneurial as it gets passed down through generations, the research suggests that you recruit non-family members. “If you bring in more external people in the firm and board, it’ll be positive for the company,” said Einar Lier Madsen, the study’s author and a researcher at the Nordland Research Institute in Norway. Bringing in outside employees will help the business avoid complacency and inertia.
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The study was presented recently at the 2014 Babson College Entrepreneurship Research Conference at Western University’s Ivey Business School in London, Ont., which set out to uncover the factors that “influence variance in entrepreneurial orientation”—risk-taking, innovativeness, pro-activeness—among family firms. Madsen looked at 609 family-run companies in Norway, many of which were small, first-generation companies, to see whether a firm’s family influence and dynamic capabilities hinder or promote the type of entrepreneurship the business is working towards.
The results showed that as family businesses get passed down through generations, the possibility of a company stagnating in an unchanged state could pose a threat to its overall health. Madsen said that young family businesses (those companies that didn’t have as much experience) were shown to possess or develop more dynamic capabilities than older and more family-controlled family businesses.
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During the question period it was clear that the results from Madsen’s study didn’t take into consideration whether some family members involved with the business could have been studying or working abroad. From those international experiences, family members could possibly act as an external contributor to the business, which might lead to similar results as bringing in a non-family member to the company. So, if your brother, sister, mother, father, aunt or uncle has done some time abroad, then you might want to consider keeping their application in the candidate pool.
MORE ABOUT FAMILY BUSINESS:
- The 20 Biggest Family-run Businesses in Canada
- Andrew Molson on the unique power of a family business
- Atco CEO Nancy Southern on how Canada’s energy industry is adapting now
- Seagram co-chairman Charles Bronfman on running a family business
- Why it makes sense to invest in family-controlled businesses
- Too many family-run businesses have no plan for the next generation
