Family businesses around the world have difficulty attracting professional talent from outside the family, for reasons ranging from below-market salaries to perceived lack of career growth. However, a series of new reports released by INSEAD suggest that institutionalization—bringing in external investors, usually private equity firms—does increase family businesses’ access to talent, especially at the C-suite level.

According to the reports, which are based on conversations with hundreds of family businesses in the Asia Pacific, Middle East, Europe, and Latin America regions, private equity firms that invest in family businesses place a high priority on strengthening and professionalizing the management team.

This is a significant step because the talent shortage in family businesses tends to be particularly acute at the C-suite level and in the board of directors.  In Europe, for example, the researchers found that family businesses almost never have a CFO or COO; in the Asia Pacific and Middle East, they “lack diversity and specific expertise”. In Latin America, the family businesses either do not have a board of directors or have a board that is “largely dysfunctional”.

When a private equity firm becomes involved in the business, it brings access to better human resource practices including the definition of roles, recruitment and training, and retention of talent. For example, some private equity firms maintain their own pool of talent management experts who are able to advise partner businesses. The family businesses covered in the reports recognized this, with some revealing that they brought in a private equity investor in the hopes of attracting and retaining top managerial talent, or to better manage their succession planning.

However, for many family businesses, the most important talent is that of family members, whose positions and employment are frequently the top priority. The INSEAD reports suggest that this sensitive issue often conflicts with external investors’ desire to improve talent management and succession planning, not to mention the objective of professionalizing the business. Ultimately, family businesses that partner with private equity investors would need at some point to make a choice between the family talent they want to retain, and the external talent they want to attract.