Loyalty is not a strategy: How family businesses get stuck with the wrong people

In my work advising some of the most successful family business owner-operators across the world—from mid-sized companies to billion-dollar conglomerates—I’ve seen one mistake come up again and again. It’s not a small slip-up. It’s one of the most common, most dangerous blind spots in leadership: equating loyalty with competence.

Let me be blunt: Just because someone’s been with you for a long time doesn’t mean they’re still the right person for the job.

Loyalty feels safe—but can be deadly

This is especially true in family businesses. I’ve seen this firsthand with over 83 percent of our clients being family business owners. In these environments, loyalty is currency. It’s tied to legacy, continuity and trust. And that’s understandable.

Unlike corporate CEOs who are brought in from the outside and typically stay two, three, maybe five years, family business owner-operators think in decades. You’re not just running a business—you’re building a legacy. That means you need people around you that you can trust. People who won’t bail the second things get hard.

But here’s the danger: loyalty can blind you to performance. When someone’s been by your side for 10, 15, or 25 years, it’s easy to overlook the fact that they stopped growing five years ago. Or that they’re now blocking progress. Or worse—protecting their own turf instead of pushing the business forward.

Real-world example No.1: Loyalty almost cost them their legacy

One of our clients—a US-based family business conglomerate generating over $125 million in annual profit—faced a hidden leadership crisis. The owner-operator had deep trust in one of his top executives. This executive had been extremely loyal to the family and delivered great results in the past—but in a completely different business unit.

When the owner put him in charge of a newly formed, strategically critical division—the one most vital to the company’s future revenue—we were called in to help professionalize the business and increase profitability. We ran a full executive audit and quickly realized: this person was no longer the right fit. Not for this role. Not for the demands of what lay ahead.

I broke the news to the owner personally, during a car ride to a private dinner. You could feel the emotional weight—this executive had become part of the inner circle. The owner wanted to believe he could still deliver. But loyalty and history were clouding his judgment.

Eventually, the owner listened. The executive was reassigned. But by then, the damage was done: a critical product launch was delayed by nine months. Competitors gained ground. Market share slipped. And because the executive had been given too many overlapping responsibilities, the inefficiency had spread.

Look, he was a nice guy. But as I tell all my clients—“if you want nice people, have a beer with them. But don’t confuse being likable with being qualified.”

This is your legacy. Don’t let loyalty put it at risk.

Real-world example No.2: The COO blocking progress

One of our clients in Southeast Asia was the founder and CEO of a fast-growing family business. He had a chief operating officer (COO) who had been with him from the early days. Loyal, dependable, always there.

But as the company scaled, the CEO noticed new initiatives kept stalling. Every time the younger generation proposed digital transformation or process automation, the COO pushed back—always with the same phrases: “That’s not how we do things.”
 “It’s too risky.”
 “Let’s wait.”

Eventually, the owner brought us in to assess the leadership team. We ran a strategic performance audit. The COO had no updated knowledge of tech, wasn’t learning anything new, and had no plan to upskill. Meanwhile, his direct reports were frustrated and disengaged.

The truth? His loyalty had become a liability.

When the CEO finally made the hard call to reassign him and bring in a forward-thinking executive, things changed fast. New projects moved forward. Morale improved. Innovation returned.

The high cost of misplaced loyalty

You pay a steep price for misplaced loyalty.

You pay it in missed opportunities. In innovation that never happens. In high performers leaving because they’re tired of outdated leadership. You don’t see it on a P&L (profit and loss) sheet—but it’s there. It’s in your culture. It’s in your stagnation.

Let me put it plainly: Their comfort becomes your company’s ceiling. And the longer you wait to act, the lower that ceiling gets.

How to spot the loyalty trap

Audit your team:

• Who is still learning and evolving?

• Who is just holding onto their seat?

• Who challenges the status quo—in a constructive way?

• Who are your sacred cows? (The ones nobody is allowed to criticize)

• If this person applied for their role today, would you still hire them?

That last one hits hard—but it’s often the most revealing.

Real-world example No.3: The family friend in sales

One of our clients in Europe had a long-time family friend running the sales department. He’d been with them forever, sat at all the family dinners, and was considered “part of the inner circle.” We brought in benchmarking data and compared their sales team with others in the region and industry. The verdict was clear: they were underperforming across the board.

Eventually, they made the tough call: gave him an honorary advisory role and brought in a new head of sales. Six months later, new client acquisition was up 22 percent.

Loyalty not equal to legacy

Loyalty feels like legacy—but it’s not the same thing.

Loyalty says: “He’s been with us for 20 years.”

Legacy says: “We’ve built a company that’s still relevant 20 years from now.”

You have to choose. You didn’t build your business to hand it off to people who coast. You built it for your children and grandchildren to take it further than you ever imagined.

That requires fresh thinking, hard decisions and the courage to protect the business—even when it’s uncomfortable.

Don’t reward history. Protect the future.

Your job isn’t to hand out ‘thank you’ for years served.
 Your job is to make sure the company survives and thrives—especially in a fast-changing world.

That means being brave enough to separate emotional loyalty from strategic competence.

You can still treat people with dignity. But you don’t owe anyone a seat at the table if they’ve stopped earning it.

Three to thrive: How to avoid the loyalty trap

1. Run regular leadership audits:

At least once a year, assess your top people. Don’t just look at tenure—look at results, learning and relevance to the company’s future.

2. Invite external eyes.

You’re too close. Bring in outsiders who will tell you what others won’t. In family businesses, insiders often stay silent. Outsiders bring the truth.

3. Build a growth-first culture.

Make one thing clear: it’s not about how long you’ve been here—it’s about how much you’re still growing. Promote learning. Reward relevance. Prioritize momentum.

Bottom line: Loyalty matters. But competence builds legacy.

If you want your family business to thrive into the next generation, don’t reward history—secure the future.