Trust in Family Businesses
    Category: Column By : Susan Eastoe Read : 1186 Date : Friday, January 16, 2015 - 18:21:54

    For a large family business, the degree of integrity with which it operates its business; the transparency of its philanthropic effort; and the clarity with which it manages generational transition are all critical and impact directly on trust and reputation—all findings from our Edelman Trust Barometer: Family Owned Enterprises Supplement, released in October.

    The findings from the survey, which looked at trust in family owned enterprises, show that large family-owned businesses are the most trusted in Indonesia, followed by state-owned, publicly traded and privately held businesses. Furthermore, trust in large family-owned businesses in Indonesia is also the third highest out of the twelve markets we surveyed globally.

    Yet challenges still remain for such businesses. One particular issue is the importance of maintaining trust during leadership transitions. The results show that Indonesians trust founders more than next generation leaders. In fact, trust in inherited wealth is dramatically lower than in earned; in Indonesia, a difference of minus 25%. However, before alarm bells start ringing, the results also show that, if done well, trust can actually be increased when a family owned business is passed onto another family member.

    There are specific factors that make the difference between good and bad transitions and the most important factor for building trust over the transition period in Indonesia is clear, effective and transparent communications. This is ranked highest in our survey, showing that open communication during transitions is critical. Family firms cannot afford to keep to the traditional playbook of reserved, low key behavior during this period—transitions need to be communicated openly and transparently and the handover and build up to the transition planned and executed with these core trust drivers in mind.

    More broadly, large family firms need to use their trust advantage to help to address societies’ challenges. Engagement with society and the positive impact of family businesses needs to be communicated; this is especially important when it comes to philanthropy. Family firms are required to show leadership on this front; 66% of respondents in Indonesia expected family-owned businesses to focus on philanthropy more so than non-family owned businesses. Respondents wanted to see not only that the family and it’s entities were actively involved in philanthropic activities, but also to demonstrate the openness and transparency of charitable giving indicating where the money goes, to whom and why.  

    So how can family businesses maximize the potential trust premium that comes from the heritage of being a family owned company? This is a particularly important question in today’s communications landscape, especially in Indonesia, where the dominance of social media—from Twitter to Facebook to Path—means that private companies are no longer truly private and the appetite for information is constant. We believe that the development of a risk management approach, within a strategic communications architecture, can do much to help family-owned enterprises maintain and capitalize on their trust premium. Such an approach will help enterprises predict the risks they inherently face, identify their own specific risk profile, devise ways to project their perspective safely, enhance their reputation and establish mechanisms to protect the family enterprise in the long term.