How family offices can protect the bottom line when putting family members on payroll

The article highlights the critical need for structured governance in family-owned businesses and family offices, particularly concerning the employment of family members. Joshua Gentine, whose family founded Sargento Foods ($1.7B net sales), emphasizes that many family enterprises lack clear job expectations, transparent compensation, and objective performance metrics, leading to high executive turnover and management difficulties. His firm, Bench Consulting, advocates for implementing professional standards, including independent oversight for family member roles, as crucial steps to ensure accountability, retain top non-family talent, and foster a competitive, professional enterprise culture.

Analysis

The operational risks within family-owned enterprises and family offices are significant, primarily stemming from a lack of structured governance regarding the employment of family members. Using Sargento Foods, a privately-held company with $1.7 billion in annual net sales, as a model for best practices, the article highlights the necessity of formal requirements such as advanced degrees, external work experience, and independent board oversight for family employment. The absence of such professional standards in many family firms leads to tangible negative outcomes, including high turnover rates among recruited non-family executives who often feel disempowered. This creates a challenging dynamic where managers must handle underperforming family members who are also effectively their clients. The implementation of objective performance metrics, clear job expectations, and formal development plans is positioned not merely as a tool for conflict avoidance, but as a crucial strategy for fostering a meritocratic culture, ensuring business continuity, and maintaining a competitive edge.

Key Decisions for Investors

• Investors evaluating private, family-owned businesses for potential investment should treat governance structures as a key due diligence item; the existence of formal policies for family member employment and performance management is a strong positive signal of reduced operational risk and professional management.
• For private equity funds and investors placing executives into portfolio companies, the high turnover risk in family-controlled businesses must be actively managed by assessing the firm's culture and securing commitments to objective, non-preferential performance standards before committing capital or personnel.
• Principals of family offices should consider implementing these governance frameworks within their own operations to attract and retain top-tier non-family talent, thereby professionalizing their investment management and mitigating long-term succession and performance risks.