Family business ownership is a common scenario in many of the largest publicly listed firms. In a family business, one or more members within the management team are drawn from the owning family which often precipitates in several challenges. The issue of business ethics is one of the major challenges faced by family businesses yet it is a key factor in determining the performance and success in any business. The other challenges in a family owned business enterprise include conflict of interest between the family members, lack of accountability, abuse of office and authority among other challenges.
In this case study, Frank was the first non-family member to have the position of chief financial officer and part of the executive committee. Despite the doubt from the rest of the executive members on his ability to comply to the company’s culture the CEO who happens to be an in-law to the founder family, decided to ‘take a chance’ on Frank. The executive committee was considering downsizing soon after Frank joined so as to maintain the long term health of the company. Having gone through this process in his previous company where he was a senior manager Frank concurred that this was the best way to go for the 20-year-old company. He felt that the long term benefits outweighed the short term financial interests of the family members. Frank recommended that the downsizing decision be based on the annual performance review scores of the employees. Frank was faced with various ethical and moral dilemmas and several key issues came up during the process and exercise of downsizing.
The company seems to be having an ineffective human resource manual and practice. A human resource manual is a document that gives human resource policies of an organization along with a wide overview of different human resource procedures that include planning, enlisting, employee governance among other procedures. The manual contains an organizational chart which shows the structure of an organization as well as the relationships and relative ranks of its positions. It is evident that the CEO trusts Frank more on the task of downsizing than the Head of human resource division and that is his basis of giving Frank the job. There seems to be no reference to the human resource manual on a clear designation of roles played by the chief financial officer and human resource thus creating the conflict of roles. This is likely to create tension between Frank and the Head of the HR and the latter is likely to feel demoralized.
Competence, skills and trust is supposed to grow with experience. However in this case the CEO seems not to trust his long serving Head of human resource in the task of downsizing and rather depending on Frank, a new employee. The undermining of head of the human resource by the CEO definitely has negative effects on the running of the HR department and by extension the entire company since the Head of the HR can’t make independent decisions.
Organizational charts are vital for sharing the company’s strategic goals and outlining tasks, relationships and dependencies. When the departmental managers in the three departments questioned the exemption of the long time serving employees, the CEO told them it wasn’t their problem. This is a clear indication that the CEO is overstepping his authority probably because of his family ties with the founder of the company. This situation could also lead to the business managers feeling untrusted, unappreciated and demoralized because clearly their opinions don’t matter. This is setting a wrong precedent and culture because the CEO as well as other members of the family in the executive committee can make wrong and arbitrary decisions and no one can correct or question them. The decision of the CEO is unethical since it does not enhance a respectful working relation between the employees and their departmental managers which would help in forming a baseline for planning and workforce modeling.
Another key issue with the company is lack of an all-inclusive appraisal system. An efficient performance appraisal system is an integral part of performance management. The performance reviews were used to evaluate some of the employees and exempting those who had been in the company for more than six years. This does not put the employees on a level playing ground thus making it more complicated to decide on the downsizing based on performance review. The decision to exempt the said employees from evaluation is not justified soundly. On consulting the CEO on how to handle the three employees Frank was given a go ahead to lay off these employees since they were underperforming. The question raised by this situation is how the CEO concluded that the employees were underperforming yet, under his instructions, they had never been evaluated. In addition the said employees had never been informed that they were underperforming nor had they been given a warning or given a chance to improve. Laying-off these employees therefore presents an ethical challenge because there is no ethical ground to lay them off. In addition these employees had served the company for longer period thus would expect to be retained because of their experience and loyalty. The CEO also gives a financial reason for laying-off these employees as it would save the company the money it pays for their experience. The option of laying the exempts off would therefore put the company at risk of being sued by the said employees. The reaction of the CEO to such a possibility again indicates the CEO’s disregard of the right protocols, the rights and feelings of the employees.
Informality is common in family businesses where there seems to be no clear policies and business norms for family members. Role confusion is evident in the situation where Frank is given the responsibility of the head of the human resource division. There is also the tendency of hiring family members who are not qualified or lack the skills and abilities for the business. This makes it difficult when one is to be laid off when it is so clear that his/her output is not to the standard. Like it is, in this case where Frank has an option of firing the exempted cases or giving them an opportunity to prove themselves otherwise of which comes with other considerations. He is not a family member, there is lack of an all- inclusive appraisal system and the specifics exempted have not been aware of their poor performance. This puts him at a dilemma on doing things professionally and maintaining the family culture.
The CEO has a family relation and this puts him at a state of defending the family culture. The CEO seems to have a tough time balancing between family traditions and running the business professionally and ethically. When the CEO says ‘he was willing to “take a chance” on Frank’ poses a challenge for Frank. This is likely to interfere with Frank’s independent decision making given that the CEO supported him against the apparent negative attitude of the other family members. This is a likely dilemma for Frank, standing on his ground for the betterment of the long term health company or compromising to the family culture.
Downsizing has become prevalent in the business world as they opt for fewer employees that can multitask or outsource the noncore functions as a way of reducing expenses and increasing efficiency. Downsizing presents a myriad of challenges. In a family business there is the family culture of caring for the employees as long as the company can and as long as they are productive. This would pose an ethical challenge for Frank, who is a non-family member of the executive committee, in dealing with the employees. The moral/ethical dilemma facing Frank is to either uphold the family culture or follow his better judgment for the long-term health of the company.
With regard to the three employees mentioned earlier Frank is faced with the dilemma of what criteria to use to fairly gauge them alongside their colleagues who have been consistently evaluated. Despite the CEO’s suggestion to lay-off the three it raises ethical issues especially because there appears to be no moral basis to make this decision. On one hand the loyalty of the three ought to be considered and on the other there is no evaluation records to be used as a basis for deciding their fate. Frank has an option of either firing the exempted employees which would be after he has briefed them on the transition happening in the company and the reasons behind his decision.
I would recommend for him to propose the restructuring of the organizational structure. This would help in setting out clear roles and relationships. It also sets out the scope of work each position holder is meant to handle. This avoids the overlapping of duties and promotes responsibility and accountability to the respective heads. An effective organizational structure would help to communicate and solicit feedback from all employees hence enhance cohesion. I also recommend the amalgamation of the administration and finance departments which should be headed by chief finance officer. This would mean that the finance and human resource division will be answerable to the chief finance officer. I believe this would help in relieving Frank from taking the human resource’s responsibilities. This would also give Frank the moral/ethical authority to participate in downsizing exercise.
I also recommend an open and all inclusive appraisal system directed by the new administration and finance department and not the CEO. This would entail a one on one interview of the employees by the managers. This promotes a healthy relationship between the employees and their seniors. It also motivates the employees to meeting the goals of the business. It also helps the employees in identifying and remedying unacceptable performance. This also helps the managers in decision making when actions like downsizing are being considered in the company. I also recommended the implementation of performance contracts. It involves an assortment of management tools used to define roles, responsibilities and expectations between parties to achieve specific mutually predetermined results. It would help to measure the extent to which employees achieve targeted results.
In addition, as they minimize the number of employees, I recommend for them to maintain a number that is manageable and professional. To achieve this I recommend that the company includes a staff audit as part in deciding the employees to be laid off. This audit would establish the skills, competencies and training in the company as well as what the company needs or doesn’t need in terms of human resources. This may also entail a revision of the human resource manual that defines the qualification for employee recruitment. Maintaining a common ground of professionalism helps to ensure that there is no conflict of interest among the employees and thus ensures that there is a common vision.
I also recommend for the company to implement outsourcing services from professionally qualified people in the job market. This can be applied for areas in the business that seems to be having an alarming problem. In addition to downsizing, this would enhance a reduction of costs and increment of efficiency. This will also enhance its inter-relations with the outside market, which improves its reputation among consumers. It would minimize the family relation influence on work done eliminating the problems that face family businesses. Outsourcing leads to credibility of work done by the outsourced company.
In conclusion, in order for family business enterprises to succeed, it is best if its control is not entirely done by family members. There should be professional non-members who will neutralize the family influence in the running of the business. The challenges faced in a family business can cause the collapse of the business unless the leaders involved have the competence, character and commitment to successfully balance, leading to the businesses’ long term success. Business ethics helps in the intra and inter relations the business engages in.