Family business-how is nepotism working?

I have been in several family owned businesses. Some of them good, some of them not so good, some of them bad. No matter what the assignment is that I have taken at the family owned company, almost always, the owners want me to comment (or analyze) how the family is doing ESPECIALLY if they are employing their kids. It is very dangerous for a consultant because seldom do the answers please the owners.

Let me give you my perspective on employing family members in a family owned business. It is threefold:
1. If you do it, do it right. The best way is for the relatives, especially kids, to function in the business is for them to start at the lowest levels in the company and gradually move up. It is really good if they can work is many areas of the company. I was involved with one company where all 3 sons were in the business and all 3 had to work in Sales, Accounting, HR, the warehouse, go out in the field and work all shifts. Soon they discovered who was there to build a career and who was there to get on Daddy's dole.
2. If the family member is getting special treatment, tell everyone up front. When I coached Baseball, I would have a meeting every year with the parents. It was a mandatory meeting. In that meeting I told the parents that although I loved Baseball, I was coaching because I wanted to coach my son. I told them that he would play every game unless he was hurt or ill and if they didn't like that, they might be better served by another team. I coached that team for 13 years and had 8 of the original 14 boys the last year. If your kid (or other relative) is going to get his positions because he is related to you, tell people and then they will learn to live with it. If your kid or relative is a jerk, either terminate them or otherwise remove them. My son understood on our ball team that I expected him to set the example for everyone else. If your kid cannot do that, do not put them in a job of any kind.
3. Blood is thicker than water, as the old adage states. It really is. If you cannot terminate your relative, especially your kids, do not hire them at all. I recently had a client that had children, brothers, uncles, and a grandfather employed. They, except for one, were model employees because they had seen their Mom and Dad terminate relatives who thought that they were entitled to their job and above the rules. The employee manual should apply to everyone including the family or you will loose the good employees and others will just tolerate the family.

What about pay. Pay them according to their need and what you agreed to. Pay them what everyone else in that job would get. If you are going to pay them more or give them more or different benefits, don't brag about it and don't let the relative brag about it. If they are getting an extra few days vacation because they are family, when someone asks why, tell them it is because they are family and being part of the family does have it's privileges. That assumes, of course, that the relative isn't rubbing every one's nose in his being favored. If he does, fire 'em.

So, with that said, it has been my experience to be very careful answering the question about how a relative is doing, especially a kid. But answer I must and I do it frankly and to the point. What I usually try to do unless the kid is a total jerk, is tell them what the relative is doing that is good and what is bad and what can be done to improve them. Improving them might be suggesting that they go to work for someone who is not family and see what the real world is like. Usually relatives coming into the business after having worked at other places are respectful of others and understand their position. If they do not understand how to assimilate themselves, terminate them quickly.

What do you think?