Managing a family-owned business is not easy. It’s even tougher when you’re not part of the family.
One key reason a successful family-owned business looks outside the family for a chief executive officer is the lack of ability of the “next generation” to lead.
There are no statistics on how many non-family members are CEOs of U.S.-based family-owned businesses, but 66 percent of America’s family businesses “have not passed the business on to the next generation,” according to the most recent Family Enterprise USA 2026 Annual Family-Owned Business Survey.
The survey polled 710 family business leaders and found 70 percent “expect the next owners to be the family,” but a large majority still don’t know who will run the business in the future.
To be clear, family-owned businesses are big business. They drive a large portion of the U.S. economy.
According to research, America’s family-owned businesses contribute $7.7 trillion annually to the U.S. gross domestic product, accounting for 83.3 million jobs, or 59 percent of the country’s private workforce.
The reasons for looking for leadership outside the family are many, and complicated. Having a weak leadership bench isn’t the only issue.
There is often a lack of capital solutions to pay for a strong outside CEO, or to pay for potential future growth. In addition, there is often a lack of focused planning by the controlling generation, until it’s too late. Another big issue is the lack of desire to give up control to the next generation, or to an outsider.Then there are qualified family leaders who just aren’t interested in running the business.
Being an outsider CEO for a mid to large-sized family business has layers of challenges a chief executive officer of a publicly traded or privately held corporation never has to deal with.
The first hurdle is gaining trust.
Even with a solid search by the family board or council, building a foundation of trust and legitimacy is never easy.
Family members are often, and rightly, wary of an outsider’s motives and loyalty to the family. The family watches for conflicting priorities, such as family values versus pure financial metrics, or meeting business objectives at the cost of lost income to family members.
The family is always on high alert for cost-cutting moves that threaten traditions and family legacy, especially cuts to family members not pulling their weight.
Family members will test the outsider to see if he or she is really “in charge,” or is the family leadership running the show as a kind of “shadow CEO,” using veto powers to undermine decision-making.
Then there is compensation.
Creating a fair pay and incentive system for the new CEO that family members can agree on is no easy formula. The family may also demand buy-out packages, liquidity or control of bonuses which cause financial and governance strains.
The family wants their money, the outsider CEO wants a fair compensation package. Aligning family and non-family interests is difficult and often political dynamite.
Then there is being left out of the loop.
Often there are secrets, or information, family owners withhold that limits the CEO’s ability to make informed decisions and this can hurt profitability, trust and ultimately the family “brand.”
So, how does the outsider CEO manage these obstacles?
The first step goes back to building trust. This comes in the form of transparency, regular communication, inclusion and respecting and preserving elements of family culture and business while at the same time professionalizing business operations. It’s about balance.
Next, decision-making authority must be clear. What does the CEO do? What does the board or family council do? What do senior family members do?
When it comes to compensation, hire external, unbiased advisors to create fair compensation and reward packages. This avoids pay battles, or conflict of interest issues later.
When it comes to making major changes, the outsider CEO needs to be extremely sensitive to family legacy, so start changes with small pilot projects and get some early wins.
Running a family-owned business as an outsider is not easy, but when it works you have the opportunity of being part of something larger. You’re part of a family.
