The Peter Principle at Work in Family Businesses

Perhaps nowhere is the Peter Principle more prevalent than in a family business. Lawrence J. Peter and Raymond Hull wrote about the principle in their 1969 book “The Peter Principle,” which stated simply is “Employees tend to rise to the level of their incompetence.”

I thought about the Peter Principle when I was reading an article on the Harvard Business Review Blog Network about the effect enabled family members could have on a business. Keeping incompetent or unskilled family members as employees can be devastating to a business and can ultimately cause it to fail.

I’ve seen it so many times. Uncle Joe runs a division of the company because he invested a couple thousand of dollars when the business was formed 20 years ago but he doesn’t have a clue what he’s doing. A couple starts a business and their son takes over and runs it when they retire. But he’d spent most of his time playing golf and traveling, stopping by occasionally to pick up a check and flirt with the women in the sales department. The only thing he knows how to manage is his account at the country club.

Even if they don’t know how to do their present jobs, they sometimes continue to be promoted. And the business suffers.

The authors of the article, Josh Baron and Rob Lachenauer, co-founders of Banyan Family Business Advisors, included a quiz so you can determine whether you are coddling a family member. If you answer yes to four or more of these questions, then you probably are overindulging him or her. Here are their questions:

1. Has a family member worked exclusively in the family’s business?

2. Has he reported within his parent’s span of control for most, or all, of his career?

3. Has she never received 360 feedback on her performance?

4. Is the family member paid above the market-based compensation for his position?

5. Has the family member been promoted beyond his capabilities?

6. Is the family member’s behavior often outside the boundaries of acceptable value-based behavior of the company?

Do these scenarios sound familiar to you? Coddling a family member does no good for anyone. The business suffers if someone is incompetent to handle his or her job. The individual often knows he or she is not performing the job the way it should be done and is ashamed or may be embarrassed. Morale at the company suffers when the other employees witness the family member receiving preferential treatment and not handling their job responsibilities.

In a previous column I gave five tips for successful family businesses. If you have a suspicion you may be coddling a family member, I suggest you pay particular attention to one of these suggestions: Put the right people in the right jobs. I don’t care if Uncle Joe gave you seed money to start a division of your company. If he doesn’t know how to manage a department don’t put him in charge of it. Don’t let the Peter Principle be at work in your family business.

For tips on how to handle the situation of a coddled relative, please read my next post. 

One thought on “The Peter Principle at Work in Family Businesses

  1. Pingback: Tips for Handling the Coddled Family Member on the Job | The Turnaround Authority

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