In the best of circumstances, a family-owned business (FOB) is good for every family member involved because they share the burdens and successes of working together toward a common business goal. Communication is open, roles are clear, the commitment of each family member is total. They drive each other and the business to shared, fairly distributed prosperity.


And they are quite common. There are over 5 million family-owned businesses in the US that account 57 percent of total U.S. GDP, or about $8.0 trillion. FOBs employ most US workers and are responsible for 78 percent of all new job creation.

FOBs have powerful cultures that can be a great strength. But when they grow from startup, become larger in scale, and have more stable revenues, many consider standardizing processes, setting up a more professional structure, and hiring external talent to fill knowledge gaps. After all, the company founder can't do everything on an ad hoc basis, and not all members of the founding family have the capabilities necessary to grow a business, especially in the areas of finance and marketing. As they bring in outside talent in order to add value, FOBs are rightfully concerned about the unique, powerful family culture that got them there.

Attracting top talent to a family-owned business can be a major challenge. Bringing in an outside executive can feel tantamount to losing the close control they're used to and also alter the important "family feeling." This skepticism can cause some members of the family to not be fully transparent with outsiders, thus hindering the business. For outside talent, joining a family business might feel daunting or, worse, uncomfortable because of the strong, existing family relationships. The outsider may feel excluded from "dinner-table" conversations where business decisions are made, even if that outsider is a full participant during the FOB's office hours.

Moreover, the issue of sharing the FOB's equity with an outsider is a major concern. There may be strong intra-family disagreements about offering stock to outsiders working within the company. The challenge is making non-family members who join the company feel part of the culture and also allowing them to share in the financial growth of the FOB while maintaining the family's culture and legacy of ownership. FOBs that get this wrong will limit their growth, but those that do it right will accelerate growth by leveraging outside talent and combining it with their unique family culture. How should FOBs approach attracting and retaining outside talent to maximize benefits and avoid problems?

  1. Clearly define the outside talent's role and authority. You can't bring someone in from the outside and then ask them to negotiate what they'll be doing and how. No outsider will join an FOB unless roles and authority are clearly detailed and enforced. When conflicts arise between the outsider and family members, it must be clear that business imperatives drive the decisions, not "insider" relationships among the family. Both sides must understand this in order to build trust.
  2. Prepare both the outside talent and the family for cultural integration. The cultural fit between an outsider and a FOB is so important that preparations must be made to integrate the two. Non-family members must feel part of the FOB's power structure. Including them in relevant communications is crucial. Involve them in management discussions in the office. And if important decisions get made outside the office, such as at family gatherings, find a way to get the outsider involved. All members of the family must understand the need for greater transparency.
  3. Carefully consider how to structure incentives for outside talent. The base pay FOBs offer must be competitive, but you'll also need to consider short-term incentives that align with your FOB's operational goals and long-term incentives that align the outsider with the strategic vision of the FOB. You'll need to share any added value the outsider creates, and the distribution should be fair. Stock, or sharing the FOB's equity, is just one way to do this. Think carefully about cash incentives and how value generation gets measured and distributed within the FOB.
  4. Promote clarity and fairness. Most importantly, both parties must be clear about what they're getting into. The FOB needs to understand that outsiders can bring valuable know-how into the company. The outsider needs to understand the importance of fitting into the FOB's unique business culture and work within those cultural boundaries. Finally, the value created by outsiders must be recognized, respected, and fairly compensated. Sharing equity might be one way to do this, but FOBs should also think outside the box to find other long-term (non-equity) incentives to motivate and retain outside talent.

Boston-based Chuck Leddy is an NCMM contributor and freelance reporter who contributes regularly to The Boston Globe and Harvard Gazette. He also trains Fortune 500 executives in business-communication skills as an instructor for EF Education.