Issues to consider before joining a family-owned business or one with family members in leadership

by Mar 29, 2020Lessons Learned

I have been part of 5+ companies* that had at least two senior execs, founders, or owners related to each other. Be it family-owned, family-affiliated, or dominated by family leadership, issues a non-family member will face I have found to be about the same. And these issues are also about the same if you are dealing with siblings or spouses.

Should you be discouraged from joining a company like that? Not if you can manage the risks. It might even be a great opportunity if you will handle the politics.

Here is a sampling of considerations if you are looking at joining one:

  • Blood is thicker than water. It makes zero difference where you stand in the seniority or capitalization table, you are not family, and there is a high chance you may experience a lack of fairness or professional treatment.
  • Family politics are unavoidable. Divorces and other marital issues, sibling rivalry, etc., are part of the business’s daily politics. The more senior you are, the more you will become part of it. I have seen family members start by doing a great job keeping it all business, but it never lasted.
  • Family traditions. Family ways can infiltrate the business and become part of the operating procedure. That may be OK with the laws governing the business, but you may not think it is fair.

There are a lot of family-run companies that treat their non-family employees with absolute respect. Families are aware of the issues above and work hard to keep them at bay. I have seen several companies with independent board-level committees to deal with arbitrating family issues within the business. For transparency, I worked for my father when I was a teenager, and he did not cut me any slack for being his son. Frankly, I think my father held me to a standard much higher than my peers, so I would not cause any embarrassment to the family. I have also witnessed several family-run companies that did reach an exit event (sale or merger, etc.) and shared the wealth generously with their employees. 

So you still want to join one and have an employment agreement in front of you. Here are safeguards I would make sure I had (some you will get, some you will not, proceed based on your risk tolerance levels):

  • Cash is king! I would discount the equity portion of compensation and focus on the salary. If the profit-sharing option exists, push there more than equity.
  • Do the job, deliver the value, but do not forget, you are not family. You can be the superstar, but it will not be enough. It is smart not to get comfortable and make sure you are only in the business as long as it works for you.
  • Develop strong ties with the part of the leadership not related to the family. That is your insurance policy to make sure you have good references not tainted by family politics.

*Not revealing full count, since some went to great lengths to make sure outsiders did not know it was family business, and I respect the reasoning for it, even though the NDAs are long expired.

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