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Bringing the family business community together

Trust In Family Businesses

18th May 2016 Roberta Fenech

Trust is a fundamental basis for both cooperation and competitive advantage in family businesses

The words ‘trust’ and ‘business’ written within such proximity may raise some eyebrows. However trust is a fundamental basis for both cooperation and competitive advantage in family businesses. Trust entails the acceptance of one’s vulnerability based on one’s expectations of the way others will behave. This vulnerability is central in many definitions of trust and is the condition of being open to harm, criticism or attack.
 
Gene politics hold the business together through ties of trust, flexibility in decision-making and power in execution.
 
Trust is a multidimensional, complex and dynamic construct that includes an emotional attachment of care and sincere concern. Risk propensity is also an element of trust. It is associated with qualities like consistency, competence, fairness, responsibility, helpfulness and benevolence. Shared trust in family businesses that are governed by fairness and justice emerges from a set of relational ethics that value cohesion and consensus.
 
In family businesses, harmony within the family is characterised by trust and mutual understanding. Family business owners who have difficulties in trusting are characterised by passivity, pessimism and isolation. These types of leaders seldom speak positively of non-family coworkers and are described as paternalistic. On the other hand, family businesses owners who engage in trusting relationships have been associated with optimism and pro-activity. This type of leader embraces involvement of others in the family business. Among other things, these owners are transparent about the rules governing family members’ entry and involvement in the business.
 
Communication, which is indispensable in any form of business, entails revealing oneself, being open to others, trusting, as well as raising issues that might generate conflict. Open communication about difficult issues is vital and this requires trust and willingness to be vulnerable. Family forums, such as meetings and councils, are valuable mechanisms to enhance trusting relationships, to improve communication and prevent and manage conflict effectively in the family business.
 
Consultants and advisers may act as trust catalysts in family businesses by inspiring members and business partners to trust each other. Trust catalysts serve as a reminder of the family glue: they are good listeners, remain calm and put a damper on destructive conflict.
 
Gene politics is a term that is used to describe the ties of blood that run through the family business and the biases such ties bring. Gene politics exists only in family businesses and generates a culture that is capable of motivating, nurturing, integrating and innovating.
 
Gene politics hold the business together through ties of trust, flexibility in decision-making and power in execution. Trust in family businesses provides a means of co-ordination, reduces risk, and may lead to greater investments, and economic efficiencies. Trust enhances performance and long-term orientation.
 
Leaders act on trust and this is especially so in family businesses where shared leadership is the prevalent form of leadership as the business grows through generations. Owner-managed businesses develop into sibling partnership and cousin collaborations demanding an ever-increasing form of shared leadership. In shared leadership there is tacit understanding, intuition and trust between parties. Trust needs to be sustained and nurtured throughout, particularly as the business grows and expands.
 
The incumbents’ trust towards successors, and vice versa, is an important criterion for successful succession. Mechanisms that may lead to trust in the successors’ abilities in one family business may not work in another. To ascertain whether the abilities of the next generation will fit in with the needs of the business, open discussion between owner-manager, potential successors and other family members is recommended.
 
Lack of trust is one of the causes of problematic relational factors that cause conflicts and that obstruct successful succession. Trust is also positively related to the transfer of knowledge in succession that needs to be created, shared and transferred over time to create value to the family business.
Interpersonal trust that is indigenous to family businesses stems from common heritage and can be sustained by fostering additional and complementary forms of trust. This additional trust is fostered through openness to outside influence, clear and transparent policies and strong communication.
 
The evolution of trust in family businesses is different from that in non-family businesses. In non-family businesses, relationships, formal contracts and controls are initially used to start business relationships. These are gradually complemented with relationship-based trust.
 
Initially in family businesses, relationships based on trust are central, however, as the business evolves, additional processes that engender competence and system trust become increasingly significant. A recommendation for family business leaders is to juxtapose processes typically linked with control, such as policy formation, with those associated with trust building, such as communication. Sustained levels of trust are key ingredients for emotional capital that is central in the success of every family business.
 
Roberta Fenech is an associate consultant for EMCS and a lecturer at St Martin’s Institute of Information Technology.
 
 

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