Nepotism vs. Family Business?

17 Oct

I am slightly disturbed by a post on Nepotism on the Harvard Business Online. Although it was written more than a month ago it has been featured this morning on NPR. While I agree with many of the sentiments about nepotism I think there is a distinction to be made between Nepotism and family business. A distinction which Gill Corkindale, the author of the post, does not go into at all. Let me present you with some very strong statistics about the importance of family business in the USA, from a  Business Week article :

  • Some 35% of Fortune 500 companies are family-controlled.
  • Family businesses account for 50% of U.S. gross domestic product.
  • They generate 60% of the country’s employment and 78% of all new job creation.

We can see that family businesses are extremely important to the US economy, and are part of what makes America what it is today. So how do you reconcile a family business and these negative attitudes towards nepotism? You can not pass a family business from one generation to the next, unless family members work and run the business. Family succession planning is very important to the health of a family business. Good family succession planning means the difference between a healthy business that keeps growing and running from one generation to the next, and a business that burns out and fails, or worse gets sold out of the family (often times for bargain price to be dissolved for assets).

I am a little sensitive about this issue – as I fight against the negative connotations of nepotism in the course of conducting business. I am CEO of Palo Alto Software, a business my father started and still fully owns along with my mother. I am the family member that will take the business though the next generation. Why? Because I am my father’s daughter? Well, yes of course – otherwise it would not be a family business. But I have also worked hard, and earned this position. I went to an Ivy League school, and then spent 7 years working in technology, outside the family business. I then spent 6 years working at Palo Alto Software proving myself to my parents and to the rest of the employees. Then I became CEO. I feel that I have earned the respect of all my employees, and that they all know that I have the skills, talent, and smarts to keep this business running and growing.

I think there are right ways to bring family members into a business, and there are wrong ways to do it as well. But I don’t agree that all nepotism is bad, and that family members should never hire other family members. I think its a strategic dance, and it has to be done for the good of the business, but it can be done well. And when it is done well it means the difference between the life or death of a family business.

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7 Responses to “Nepotism vs. Family Business?”

  1. Chuck April 19, 2008 at 8:52 pm #

    The points made in your blog are very important.
    Foundational issues are being taken over by people that have no clue what they are talking about. Like, who’s great idea was it to pour all of energy resourses in ethonel, run up the price of corn – thus every ohter food item while at the same time stop refineries and oil explorations. I can assure you these are not the brain children of oil execs, who get blamed for high oild prices by the same people that will condemn the family business.

    In my blog, I am often critical of the family business, but not for nepotism, but for the extreme dificulty in maintaining high business standards and loving family relationships. To do that requires the highest character and persistance of the human spirit.

    It is very important that people like you join with low tax proponants, and freedom of speech proponants and others that form the back bone of what made america great and stand against, in stark contrast to those, within or without, that would bring us down. Stand together as family.

    • mindi November 11, 2010 at 2:44 pm #

      I want to commend you for your achievements in business, and your integrity to run your families business AFTER you earned the position. I think the real problem with “nepotism” is when the true definition of it is seen. The definition of nepotism is when favortism is displayed to family members REGARDLESS of merit. This is in fact a huge problem in SOME family owned businesses, and in my opinion is equivelent business suicide. Only because they eventually run out all of the qualified people needed to run a business and all they have left is family, “regardless of merit”. I think your family business sounds solid and I speculate that you are making a fantastic CEO, and keeping people working. If your company was displaying true nepotism, you would have never worked so hard to get your qualifications, they would have been handed to you and you would be probably looking for a real job sometime in the near future, as well as all of your employees. Keep up the good work, providing jobs with family values!!! awesome.

Trackbacks/Pingbacks

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  2. Business » Nepotism vs. Family Business? Mommy CEO - March 11, 2008

    [...] Read more about this topic from the author here. [...]

  3. Nepotism or family succession? | Business in General - August 13, 2010

    [...] about this topic before, check out their posts Serendipity Succession, Father and Child and Nepotism vs. Family Business.  It’s nice to hear a refresher on the preconceived notions of a daughter stepping into her [...]

  4. Nepotism or family succession? - March 10, 2011

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  5. Nepotism vs. Common Sense - April 24, 2011

    [...] that bad? Apparently some people call that nepotism and that sounds ugly.  In Nepotism vs. Family Business over at MommyCeo, Sabrina Parsons objects: We can see that family businesses are extremely [...]

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