Embedded Family Offices: Human Capital and the Two Masters

Why enterprising families require two very different leaders at the top of their balance sheets and operating businesses

April 30, 2025 —

As families grow and their requirements become more complex, members often unknowingly create an embedded family office to benefit from the skills, expertise, and capacity of the operating business to support the family. Family members look to existing staff to take care of their private investment, financial, tax, concierge, and estate management matters, but what might seem like an organic step for families in their journey to professionalization could negatively impact firm performance and, ultimately, family success.

The first complication arises with a liquidity event, often the springboard to family office creation. When the operating business is sold, its organizational structure disappears along with it—leaving families with substantial investible capital and the need to create new infrastructure to support them.

We often hear about the euphoria associated with selling a business, taking one public, or receiving an infusion of private equity capital, but little is attributed to the extremely overwhelming next step for families who often find, too late, that their accounting, tax functionality, bill pay, concierge and household level lifestyle and estate management are all tied in with the company they just signed away.

The legacy creation mindset

It is a problematic scenario that can also impact the performance of families who retain their legacy businesses as part of their family office portfolio. With two masters to answer to, namely the Principal and the operating business, staff can often lack objectivity and efficiency as well as the skillset, expertise, and philosophy required to make the right decisions for the broader family.

There is a very different mindset required at the top of the balance sheet compared to the mindset required from an employee working within the asset. While businesses work to achieve their long-term plans, most family offices are built with legacy creation in mind and family objectives that span multiple generations into the future. This is a key differentiator that impacts both the talent each ecosystem employs and the skills needed to accomplish their respective objectives.

When families hire for their operating companies, they look for competency and experience to successfully accomplish their business objectives. These hires are paramount for firm performance and, therefore, need to possess relevant financial literacy, ability, and agility. In family offices, however, there is an additional layer of prerequisites, personal characteristics, and trait requirements from each hire. They need to be strategic thinking partners that help family leaders successfully plan for the future of their family beyond the operating business, while also considering the impact each decision makes on the family as a whole and ensuring alignment with its values and philosophy. This is something an employee within a portfolio company may not ever need to consider and includes looking at other holistic aspects of family wealth, often including reputational, social, and intellectual capital.

Untangling the knot

Regardless of what precipitates the separation of the embedded family office from the business, enterprising families have three options. This includes the creation of a single family office, building a virtual family office, or joining a multi-family office. For those with a requisite amount of capital, as well as the time, resources, and appetite to build and manage their own wealth, the single family office route can be incredibly successful. In fact, this is the most common avenue taken by enterprising families today. A guest speaker who recently joined us on the Mack Podcast stated,

“Embedded family offices are a knot that needs to be untangled by the people who know what they are doing or to avoid unintended consequences.”

But before a family looks for talent to sit at the top of their balance sheet, they need to refine their purpose – a step they might think they had long passed – and create a governance structure that sets the parameters of their family wealth for generations to come.

A liquidity event unlocks access to capital, but it also opens the door to a new existence, identity, and purpose. The family and business systems overlap to such an extent in the family enterprise ecosystem that business owners often have one identity and purpose as the business owner. When the business is sold, families need to redefine their purpose, goals, and objectives for the future. This will also inform the future governance framework they decide to create, as well as the human capital requirements to support it. As we explored in our article on 2025 Talent Predictions, family office leaders need to be in total alignment with the family values and objectives to ensure future success.

Purpose, governance, people

Industry experts suggest that families with operating companies and contemplating a significant liquidity event that involves a change in ownership should plan their exits three to five years in advance. Families need to put the pieces of their new plan together in a way that allows them to not only optimize the transaction, but refine their long-term purpose and build a sustainable platform, including exceptional leadership talent that will help the family span generations.

Great leadership is the cornerstone of every successful family enterprise ecosystem, and the right leaders are key to shaping a lasting legacy.

For more insights and guidance on transitioning from an embedded family office to a family enterprise and finding the right talent to succeed, subscribe to the Mack Podcast and find our recent conversation regarding embedded family offices.