Why high-potential non-family employees may hesitate, and what owners can do about it
For graduates and early-career professionals, one question shapes many career decisions: Where can I grow?
Family enterprises should have a compelling answer. Many offer purpose, proximity to decision-makers, long-term orientation, entrepreneurial energy, and the chance to make a visible difference. At their best, they give employees access to something rare: a business where ownership, identity, and strategy are closely connected.
Yet the same features that make family enterprises distinctive can also create uncertainty for talented outsiders. A high-potential candidate may admire the family’s commitment and still wonder: Will the most important roles truly be open? Will performance matter as much as family membership? Will I be rewarded for the value I create? Will I have influence, or will I always remain adjacent to the real decision-makers?
These questions matter because family firms do not compete for talent only through job descriptions, compensation packages, or employer branding. They compete through the credibility of their system. High-potential employees are not only evaluating a role. They are reading the organization for signals about fairness, advancement, influence, and reward.
That is why a new working paper by Morten Bennedsen of INSEAD, Margarita Tsoutsoura of Washington University in St. Louis, and Daniel Wolfenzon of Columbia Business School deserves attention from owners, directors, and advisors. The paper does not simply ask whether family firms employ talented people. It asks whether family control changes the kind of talent firms are able to attract.
A rare window into who works in family firms
In “The Talent Gap in Family Firms,” the authors use comprehensive Danish administrative data, including IQ scores from mandatory military draft sessions, high school records, and matched employer-employee registers. This gives them an unusually detailed view of talent allocation across family and non-family firms.
Their headline finding is striking. Employees in family firms score, on average, about 2.15 points lower on IQ tests, roughly five percent of the population mean, than employees in non-family firms. They are also 17 percentage points less likely to have completed high school. These differences persist after accounting for industry, firm size, and other worker and firm characteristics.
The gap is not evenly distributed. It is largest among top managers and in high-skill occupations, precisely the roles where judgment, problem-solving, and strategic capability may matter most. At every level of the hierarchy, employees in family firms have lower measured cognitive ability than their counterparts in non-family firms, but the difference is most pronounced near the top of the organization and in skill-intensive roles.
This finding should not be read as a judgment on any individual family firm. It is a population-level pattern from Danish data. But it raises a question every enterprising family can ask itself: what does our ownership system signal to the people we most want to attract, develop, and retain?
Why the signal matters
One possible explanation is that family firms differ from non-family firms in ways unrelated to family control. They may be smaller, concentrated in different industries, or located in different labor markets. The authors address this concern through several empirical tests.
They examine CEO successions, comparing firms where an outgoing CEO is replaced by a related family member with firms where the successor is unrelated. After family successions, the average IQ of new hires declines relative to non-family successions. They also use an instrumental-variables strategy based on the gender and number of the departing CEO’s children, which helps isolate variation in whether a family successor is likely to be available. These analyses support the interpretation that increased family control contributes to a decline in workforce talent.
The authors then add a survey experiment with students at the University of Copenhagen. Participants evaluated synthetic job postings in which firm age, size, wages, benefits, and ownership status were randomized. Some firms were described as non-family firms, others as family-owned, and others as family-owned and actively controlled by the family.
The results are especially useful for owners because they isolate perception. In the full sample, there was no strong average preference for or against family firms. But among high-achieving students, the pattern changed. They were significantly less willing to receive an offer from family-controlled firms than from otherwise identical non-family firms. The reaction was strongest when active family control was made salient.
In other words, high-potential candidates may not be rejecting the work, the industry, or the company. They may be reacting to what active family control appears to imply about their future.
Two mechanisms owners can actually address
The most actionable part of the paper is its explanation of why this talent gap emerges. The authors identify two mechanisms: promotion practices and wage policy.
The first mechanism is promotion. Using machine-learning techniques, the authors estimate the organizational rank employees would be expected to hold in a non-family firm, based on observable qualifications. They then compare that predicted rank with the actual rank employees hold in family firms.
The pattern is clear. Family members hold positions above what their qualifications would predict. Non-family employees hold positions below what their qualifications would predict.
This is the critical point for family enterprises. The issue is not only whether family members are capable. The issue is whether the system gives non-family talent enough confidence that advancement is real, earned, and open. If key roles appear reserved for relatives, ambitious outsiders may choose another employer before the family firm ever has the chance to prove them wrong.
The second mechanism is wage policy. Previous studies had shown that family firms often pay lower wages on average. This paper goes further by separating worker quality from firm pay policy. The authors find that family firms pay less than non-family firms for equivalent talent. The compensation penalty is especially important for high-ability workers.
Together, these mechanisms change the practical implications. The solution is not simply “better governance.” It is more precise than that. Owners need to redesign the signals that high-potential employees use to judge whether the enterprise is a place where they can grow.
From family advantage to talent advantage
Family ownership can be a powerful advantage. It can support patience, stewardship, trust, and continuity. But those advantages do not automatically translate into talent advantage. Talented non-family employees need evidence that the system will recognize contribution, reward value, and offer a credible path to influence.
For boards and owners, this means asking three design questions.
- First, are promotion pathways explicit enough to be trusted? Families may believe they promote on merit, but employees judge the system by what they can see. If criteria are informal, if family members move faster without explanation, or if senior roles appear pre-assigned, the organization sends a signal that ambition has limits.
- Second, does compensation match the level of talent the enterprise wants? Purpose and loyalty matter, but they do not replace competitive reward. A family firm that wants world-class non-family executives needs a wage philosophy that reflects the market value of those executives, especially in senior and high-skill roles.
- Third, does the family distinguish ownership from entitlement to leadership? Family members may have a legitimate ownership role without having an automatic claim to management authority. Making that distinction explicit can strengthen the enterprise. It protects the business from underqualified leadership and shows non-family talent that opportunity is not closed by design.
The deeper issue is not whether family control should continue. For many enterprises, family control is the source of identity, patience, and strategic distinctiveness. The issue is whether family control is practiced in a way that invites talent in or quietly pushes it away.
A note for the next generation of family talents
Graduation season also reminds us that career decisions are rarely just about jobs. For many next-generation family members, the question is whether to enter the family enterprise now, build credibility elsewhere first, or pursue a different path altogether. While the paper focuses primarily on non-family talent, its findings raise an important reflection for family talent as well: when family members do enter, what systems help them earn credibility, rather than simply inherit authority?
For those standing at this threshold, the decision does not need to be rushed or framed as all-or-nothing. Nor should growth and credibility be assumed to require experience outside the family enterprise. For some next-generation members, working elsewhere can be valuable. For others, circumstances, timing, family needs, or personal aspirations may make entering the family business the right path. What matters is not where development happens, but whether it is intentional, structured, and accountable.
Entering the family enterprise should not mean “come in and we will see,” or “learn by watching me.” Experiential learning is powerful, especially in family firms where tacit knowledge, relationships, and judgment matter deeply. But experience without clear expectations can create confusion, dependency, and mistrust. A next-generation family member needs the same clarity any serious professional would need: a defined role, clear responsibilities, decision rights, key performance indicators, regular feedback, and a credible performance evaluation process.
When these elements are in place, development inside the family enterprise can build both competence and legitimacy. It helps the next generation learn by doing, while also showing employees, relatives, and owners that authority is connected to contribution. The goal is not to prescribe one path, inside or outside. The goal is to avoid accidental development. Whether next-generation members grow in the family business or elsewhere, their path should help them build identity, capability, accountability, and trust.
Family firms often ask whether outsiders will understand the family. This research invites a different question: what do talented people understand about us before we ever ask them to join?
Questions for reflection
- What signals does our ownership structure send to high-potential non-family talent?
- Where might ambitious non-family employees perceive limits on their future influence, even if we do not intend to create them?
- Are our promotion criteria visible enough for employees and candidates to trust them?
- Does our compensation philosophy match the caliber of talent we say we want?
- How can family control become a stronger signal of opportunity, not a signal of constraint?
- For next-generation family members, what would make entering the family enterprise feel earned, supported, and intentional?
To our graduating students and alumni from enterprising families: we send you forward with our full encouragement. Whether you step into the family business now, later, or never, your growth matters. Your questions matter. Your path matters. And our community remains here to support you as you build the competence, confidence, and clarity to shape what comes next.
