ISSUE 11 FEBRUARY 2010

Why is trust so valuable? If people trust each other, there is less need to check on everything. Processes can have short cuts; decisions can be made more quickly. In short, it saves time and money.

It’s natural to trust family members more than other people. After all, they’re family, aren’t they! This can potentially give family businesses an important advantage.

If we trust someone, we believe that they will tell us the truth, do what they say they will do, support us in front of others, and make every effort to fit with expectations.

It’s possible to strengthen trust by focusing on communication, governance and transparency:

Communication

Family business leaders at the 2009 FBN Global Summit pointed out that trust between the family and the business is built on communication:

• Consistent communication - the family ownership group should speak with one voice. This may mean choosing a single person to be the link between the family council and the business board.
• Clear communication - important information should be communicated in writing.
• Broad communication - it’s important to talk with, and get feedback from, everyone involved in the situation. This means not just the family but also board members and non-family managers.

One comment was: “As a family, we make sure that we are visible to the business. We pick one family member to speak for us because that helps the family to communicate in a consistent way.”

Good communication can improve trust and, in turn, a high level of trust can improve communication. People are prepared to be more open, perhaps voicing ideas and concerns that could make a significant difference to the business.

Governance

Governance is another key to building trust, including between family members who work in a business and those who do not.

Governance is about structures that limit power and force leaders to be accountable to others.

It’s good for families to trust their leaders...but it’s even better to remember that no human is perfect.

Family leaders at the FBN Summit talked of the importance of “checks and balances”.

Suitable structures might include a genuinely independent board, a family council that meets regularly, and separation of the offices of Chairman and Chief Executive.

But even structures like these require a willingness to make them work. Common issues include:

• the adulation bubble - where no-one dares question a powerful leader;
• inappropriate Board members - they might be chosen for their position in the family, not for their ability to check and control the business;
• forbidding discussion - a leader may ban talk of certain topics. Family businesses have traditionally been very slow in addressing governance issues.

Only a small percentage of families over the world have adopted formal governance systems for family and business.

But such systems do lead to greater trust - and to more successful businesses. Good governance is not easy, but it is well worth the expense, time and effort.

Transparency

One of the killers of trust is when family members feel that their relatives are taking unfair advantage. Salaries may be too high compared to business contributions. Or family members may make excessive use of benefits such as company accommodation.

Some families keep salaries and remuneration a secret in order to avoid conflict. But the uncertainty may result in a lasting, unconfirmed sense of unfairness that can never be dealt with.

Trust is best served by transparency in compensation. This means that family members know the salaries of those who work in the business, and how it relates to the usual market rate in similar businesses elsewhere.

Crises can build trust

Strange as it may seem, crises can be good opportunities to build trust.

That’s because trust comes from working through problems and sharing experiences.

The more intense the experience, the deeper the trust. So if you want to build trust, don’t just have a cup of tea together. Get involved in a difficult struggle that pushes people close to their limits.

Another benefit of crises is that they can reveal where there has been too much trust. As Stephen Covey, author of The Speed of Trust, recently said during an event at IMD Business School: “Trusting indiscriminately is not smart”.

Trust is good but, like a rich chocolate cake, you can have too much of it. Businesses can be harmed by too much trust.

Leaders can take advantage of the situation to do things that benefit themselves rather than the business or family. After all, no human is perfect.

Crises can be like a blazing furnace that burns off excess trust and refines the “gold” of genuine, evidence-based trust.

Though painful at the time, at least this refining process allows opportunities for trust to be rebuilt on a firmer basis.

Getting through difficult experiences can build deep trust.

And that ‘firmer basis’ will include those three key factors for building trust:

• communication
• governance
• transparency

For more information see “Family Business Key Issues” (Denise Kenyon-Rouvinez and John Ward, Palgrave MacMillan, 2005).

In this issue

Onvest Oy and Maarit Toivanen-Koivisto
Onvest Oy is a leading family business in Finland.

Marrying into the business What is it like for people to marry into a family business?

How families manage risk Taking risks is at the heart of entrepreneurship.

Never waste a good crisis (Part I)
Family leaders came together for a unique "ideas café" at the FBN's 2009 International Summit.