The Case for Nepotism in Family Businesses

“Nepotism” is a “dirty word” in family business. It evokes images of unqualified relatives ascending to leadership roles at the expense of more qualified employees. However, in the context of family enterprises, nepotism, when approached thoughtfully and strategically, can be a powerful engine of continuity, loyalty, and long-term performance.

Our experience advising hundreds of family businesses has shown that the question is not whether to bring family members into the business, but how to do so in a way that is transparent and maximizes the potential of family employees, all while protecting the culture, credibility and integrity of the organization.

Family businesses are not just commercial entities, they are a collection of assets, people and history that blend business imperatives with deeply rooted emotional, relational, and reputational capital. Family members raised within this culture often embody the values and history of the enterprise. This embedded cultural alignment creates what we call “family capital” — a reservoir of trust, stewardship, and long-term thinking that non-family executives often take years to absorb. A well-prepared family member can bring a legacy mindset beyond their contributions, which is critical to the culture of a family business and can be difficult to replicate through external hires.

Public companies often suffer from leadership churn driven by short-term performance metrics. Family businesses have distinguished themselves in the market by thinking in decades, not quarters. When family members are integrated effectively, they provide a form of continuity that’s increasingly rare in today’s business environment. Family owners who work in their business also develop a long-term commitment to the business, which is often cited as one of the key strengths of family businesses in the marketplace.

We work with a 125-year old family business that just transitioned to its fifth CEO in its history, all of whom have been family members. External leadership can be transitional. Family leadership can signal a long-term commitment to employees, clients, vendors, and local communities, who may all find comfort in seeing a leader that they know is likely to be there for the duration of their relationship with the company.

As is well documented in TV and in the news, nepotism has more than its fair share of risks. It can erode confidence in leadership, lead to entitlement, create family conflict, hurt morale and negatively impact the performance of a business if you have unqualified family employees making important decisions. So, how do you engage in the best forms of nepotism?

Maintain the standard

In order to protect the performance and culture of the business, family members should be held to the same standard as non-family employees when it comes to entry and promotion. Of course, the standard can be somewhat subjective, so the process also needs to be transparent and free from conflicts of interest. Holding family members to the same standard as other employees protects the business from unqualified leadership, and just as importantly, protects family members from being put into positions where they could suffer imposter syndrome.

One family business we worked with implemented a multi-step process: (1) family members must work outside of the business for at least three years, (2) they must be sponsored by a non-family executive mentor upon entering the family business, (3) entry-level roles must align with their actual qualifications, and (4) all family promotion decisions had to be approved by an independent committee comprised of non-family members.

One complicated question is how much employment requirements should be relaxed in order to attract family members into the business. In our experience, it should not be so much that family members are being put into roles they are clearly unqualified for, but it should not be so little that the family misses out on high potential family candidates. For example, a family member that meets most, but not all, of the job standards may be offered a role with the understanding that they will get the training they need to meet standard. This can open the door to family members working in the business and help them become successful while maintaining the company’s standards.

Invest in the development of your family leaders early

Another tool to combat the challenges of nepotism is to invest in the development of family leaders as early as possible in order to have a qualified pool to choose from. This means exposing family members to the business when they are young and encouraging those with interest in the business to pursue the education and professional experiences they will need to be successful in the family business. At home, families can instill values such as hard work and humility and connect them to the legacy of the family business. The goal is to develop a rising generation that enters the company not only as “the founder’s children,” but as credible contributors respected by their peers.

Build great governance

Robust governance frameworks that separate ownership from management, and affection from accountability are also critical to managing nepotism. For example, the hiring or promotion decisions of family members should be made, at least in part, by non-family members who can ensure the decisions are free of bias. Family employment policies, clear compensation structures, and evaluation systems should be transparent and enforceable. Some families create family employment committees that include both family and non-family leaders to assess candidacies objectively. Good governance clarifies the rules of entry and exit in the business to family members, which can prevent situations where family members intentionally or unintentionally take advantage of their status as family members to seek out positions they are not qualified for.

Hold them accountable

But even when you’ve done the work to ensure that family members are well-prepared for leadership roles in your family business, that doesn’t necessarily mean that they should be entitled to employment for life. Like any other valued employee, they should be evaluated on a regular basis and given feedback. If their performance fails to meet the standard, they should be subject to the same consequences as non-family members. Of course, firing a family employee, as with any employees, should be handled with a great deal of sensitivity. However, for the sake of the business and the family, the consequences should not prevent the business from making the right decision. To support the objectivity and transparency of the employment process, it can help to have non-family members involved in evaluating, and if necessary, exiting family members.

Listen to the family member

Finally, it is worth acknowledging that family members caught in the crosshairs of nepotism accusations can be deeply hurt by the notion. It can eat away at their confidence and cause them to distrust the very business that has been such an important part of their life. One family member told us that she felt punished every day she walked into the office for being a family member. It can feel like betrayal, and lead to actions that spiral into conflict and resentment.

To avoid that, you need to make sure you are sensitive to the particular needs of family members working in their business. Providing them with mentorship or executive coaching, and a clear process that shows others that they earned their position, can go a long way toward attracting and retaining the best family members in their business while giving them great professional experiences.

Dismissing nepotism out of hand can be just as risky to the success of a family business as embracing it. When nepotism is based on merit and transparency and managed by great governance, it becomes not a liability, but a competitive advantage.

Originally published on Inc.com, 4 November 2025.