One Firm’s Theory of Relativity

Landing a job at Caster Family Enterprises, a bustling real estate development company in San Diego, is no small task for the family members who own the business.

Of the eight adult children and 38 grandchildren of founder Terrance Caster, only two work for the company.

Chief Executive Brian Caster, 39, a son of the founder, has set strict standards for hiring relatives.

“We are a successful business because we have the best people in the right positions, and none of them are family except me and dad,� said Caster of the 90-employee operation, which posted sales of more than $50 million last year.

Few family-owned companies can make that claim, according to Stan Sewitch, president of HRG Inc., a human resources and management consulting firm in San Diego. Most fail to put the business first, treating it instead like a family employment agency. That can hurt the company and the family.

“Nepotism is a common and serious problem, although it’s trivialized, to the detriment of family-owned businesses,� Sewitch said.

At Caster Family Enterprises, a member of the family who wants a career at the company must have a four-year college degree in a subject that relates to the business. He or she must work outside the family business for at least three years, preferably in a related field, and receive at least one promotion. Finally, the family member must be mentored into the business.

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The written policy, which was distributed to parents and the older grandchildren, has cut family conflicts dramatically, Brian Caster said.

“We have literally saved lots of relationships in the business and in the family--and saved a tremendous amount of heartache and time,� he said.

Before the formal policy was put in place about five years ago, the business and the family were in turmoil, he said. The company was growing fast and shifting into new areas. The leadership transition from Terrance to Brian was underway. Some family members employed by the company at the time had different priorities than the management team, Brian said, and they eventually left the business.

When a friend of his father’s suggested that the company join the Family Business Institute at the University of San Diego, Caster signed up immediately. He quickly learned how few family businesses survive second-generation leaders and that fewer still make it to the third generation.

He discovered that one of the best ways to improve the odds of survivability is a written policy covering employment of relatives.

With the help of a consultant, Caster Family Enterprises put together a policy aimed primarily at the growing legion of grandchildren.

They’ve been challenged on several fronts already by grandchildren making unsuccessful end runs around him to Grandpa, said Caster, who regrets his own decision to skip college in favor of joining the company at an early age.

He’s proud that one member of the third generation, his niece Nicole, has met enough of the requirements to earn a summer job at the business this year.

As Caster Family Enterprises has learned, an effective family employment policy is built on sound business judgment, communication and a commitment to stick with the policy, family business experts say.

“It’s one thing to put it on paper; it’s another thing to really believe it and make it work,� said John Barbadian, senior consultant at the human resources consulting firm of William M. Mercer in Los Angeles.

Creating a family employment policy can be broken down into three stages: business strategy, family skills assessment and relationship development, Sewitch said.

“The strategy I preach is, first and foremost, let’s talk about what the strategy is for the organization as a business, putting all of the blood-relation issues aside,� he said.

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It helps to look at the company as an outsider might, objectively evaluating its strengths and weaknesses, its market position and how well it has differentiated itself from the competition.

Using the company’s business plan as a starting point, company executives should discuss the leadership and staff needed to meet the company’s long-term business goals, Sewitch said.

“Don’t think about the estate plan. Don’t think about ‘We’ve got to keep this in the family.’ Start with the business,� he said.

Once the company has a clear picture of its leadership and staffing needs, it can move to the second stage: evaluating family members to determine who has, or could develop, the required skills.

In Stage 3, the business examines the relationship problems between family members and key non-family company managers that could impede its goals, then creates a plan to alleviate or prevent those problems, Sewitch said.

A formal employment policy becomes increasingly critical as a family business grows.

“As you get more zeros [at the end of your revenue number] it takes a different caliber of leadership. I have to work a lot harder and surround myself with smart people just to keep up,� Caster said, adding that a college education is a basic requirement these days.

As tough as his family employment requirements may seem, the business, and ultimately the family, all of whom are shareholders, will benefit, he said.

“I’m not going to jeopardize the growth of our business or the income,� Caster said, “because these kids all benefit at the bottom line.�

If your family business has an innovative solution to a problem, we’d like to hear about it. Write to Family Business, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053. Or send e-mail to [email protected].