The Three Biggest HR Hiring Mistakes Family Businesses Make (And How to Avoid Them)
- Erin McNulty
- 4 minutes ago
- 6 min read
Family businesses excel at maintaining personal relationships with employees and preserving organizational culture across generations. However, when it comes to rare, high-stakes hires like HR leadership succession, these same strengths can create mistakes that undermine both operational effectiveness and the culture you're trying to protect.
In our experience advising families, there are three consistent mistakes family businesses make with regard to human resources. Recognizing these patterns early and knowing how to circumvent them can determine whether your HR transition strengthens or weakens your organization.
Mistake #1: Viewing HR as Purely Transactional Risk Management
There's a tendency in family business ownership to view HR purely as transactional risk management. You can really see the origins of that in the name and title of "human resources." That origin comes from looking at humans as a line item on a profit-loss statement. In most cases, in every business, for the most part, the most expensive component of a business is employing staff, and there's huge risk associated with that.
This is a valid lens to look at managing people, but it's also very limited. Yes, you need to have legal compliance. Yes, you need to manage compensation and benefits. Those are key components to managing any human operation. But it fails to look at the broader component of strategy and culture and aligning people with interest, providing training and coaching and making your organization a very strong employer brand.
You are competing in the talent market today. Prospective people considering joining your company are sitting out there looking at your organization and comparing it to others. They're logging onto websites like Glassdoor or LinkedIn, and they're reading company reviews. What they want to see is an organization that will support them and provide them a career. Yes, compensation—of course, they want money. But they also want to work with an organization that aligns with their values.
How all of that gets controlled and communicated out into the market is truly a function of human resources, where they're connecting the values of the business and creating an employer brand that aligns with the expectations of the talent market.
When you get those things right, you bring the best people into your organization.
If you hire an HR leader expecting only payroll management and compliance, you'll either frustrate a strategic professional or succeed in hiring someone incapable of providing the value your business actually needs.
Mistake #2: Missing the Link Between Ownership Values and Human Resources
The second mistake family businesses make when assessing and managing their human resources practices is overlooking the link between ownership values—the family's values—and human resources.
You'll see in family businesses, and also in a lot of businesses across the economy, value statements on their websites and hanging in every office, oftentimes even behind the screen on webcams. They'll list things like stewardship and accountability, and "we value collaboration," or whatever the stated values are.
But what you'll find in their hiring practices, in how they communicate with their staff, how they manage their meetings, is that those core values to the ownership, to the family, to the business are just words written on paper and hung on a wall. They look good. They're marketing language, perhaps, to people who might consider joining a business someday.
This misses a huge mark in building culture in a business and making sure that the people you're bringing into your company align with the values of ownership. It means one thing to say you value accountability, and it means something else when your employees are truly accountable. That is the missing link between HR and values.
Truly exceptional HR leaders manage both the operational nuts and bolts of compensation and risk AND remain attuned to ownership values. They institutionalize family priorities in ways that scale with organizational growth and persist through business challenges.
When you hire HR leadership without clearly articulating your family's values regarding employees, values around loyalty, community commitment, work-life balance, or long-term thinking, you risk hiring someone who will make recommendations that conflict with everything your family stands for.
Mistake #3: Outdated Compensation and Position Descriptions
The final mistake we see is an incredibly common one in family businesses: outdated compensation and position descriptions.
Ideally, when someone comes in to review an org chart, position descriptions, and compensation, there's a direct link among them that is transparent and understandable. A person comes in, understands their job, responsibilities, requirements, and compensation.
Critically, here, what you'll find is that the most antiquated is bonus incentive structures. You'll see time and again that family businesses have a "discretionary bonus." What that means to the talent market is this: your prospective employees imagine you sitting in a back room, smoking a cigar, debating which employee you like the best, and giving that employee a handsome bonus while giving other employees, whom you perhaps don't like for whatever reason, less money.
Because it is discretionary and arbitrary, it lacks transparency and leads to adverse cultural effects within the business. But the standard practice today is giving clear line of sight into what a performance bonus is and that is tied to objectives for each position.
The most common way to articulate this clearly is with sales. A salesperson very likely has a low base salary, but no cap on their variable compensation, meaning that they get a commission on every sale. If they make their sales targets, they know what they're earning. When they're selling a car, a service, or any widget or service the company provides, the salesperson knows what they are earning as they do their job.
What's interesting, though, is that when extending this approach to less directly revenue-related areas like accounting, human resources, or manufacturing line work, the challenge becomes understanding their objectives.
How do you link these objectives to a bonus in a way that employees can comprehend, see how their performance impacts their bonus, and thus motivate their actions?
Building Effective Compensation Systems
Your Organization Has Evolved
Consider how your business has changed:
You've grown from 50 employees to 1,000, but your compensation approach still assumes everyone knows each other personally
You've expanded from local operations to multiple states, but your employment policies haven't adapted to varying state regulations
You've shifted from skilled manufacturing to technology-enabled operations, but your recruitment and training approaches remain unchanged
You've transitioned from family management to professional leadership, but your performance review processes still assume family oversight
Your People Systems Have Changed
Different organizational structures require different HR capabilities:
Do you now work with unions? HR leadership needs negotiation expertise.
Is your labor seasonal (like agricultural businesses)? You need HR systems that can scale up and down dramatically.
Have you shifted from commodity labor to highly specialized roles? Your recruitment and retention strategies must evolve accordingly.
Building Effective HR Leadership Succession Strategy
Successfully navigating HR leadership transitions requires understanding common challenges and implementing systematic planning.
Start with Clear Expectations
Define what you need from HR leadership across three dimensions:
Operational Excellence: What transactional and compliance functions must be managed flawlessly?
Strategic Capability: What people-related challenges will your business face over the next decade?
Cultural Alignment: What family values regarding employees must be preserved and institutionalized?
Articulate Your People Philosophy
Document your family's beliefs about employees:
How do you balance profitability with employee welfare?
What level of loyalty do you expect from employees, and what loyalty do you offer in return?
How do you approach work-life balance and employee development?
What role does community connection play in your employment decisions?
Consider Your People Systems
Understand the unique characteristics of your workforce:
Seasonal versus year-round employment patterns
Unionized versus non-union environments
Skilled specialists versus broader labor pools
Multi-generational tenured employees versus higher turnover functions
Your HR leader must be capable of managing these specific realities.
The Path Forward for Family Businesses
Successful family business HR leadership combines operational expertise with a genuine understanding of your family's values and vision for the future.
Your HR leader should manage the business's human systems with excellence while serving as the guardian and institutionalizer of the culture and values that make your family business distinctive.
When you get HR leadership right, you gain someone who protects what makes your organization special while building the people and systems necessary for sustainable growth.
Ready to discuss your HR leadership succession planning? Contact us to learn how we can help you avoid these common mistakes and develop a succession strategy that protects both your operational effectiveness and family legacy.
