Hubler For Business Families

Family Businesses - The Trust Paradox - Part 2

Trust is vital to the family and its business

Key Takeaways:
  • All too often, business families concentrate on their businesses at the expense of emotional equity in the family.
  • Formality in the family business produces greater clarity and stability.
  • Unlike conventional businesses, a family business can make it difficult to separate work life from home life.
  • Russian playwright and short-story author Anton Chekhov once quipped, "You must trust and believe in people or life becomes impossible.

In Part One of this article, I suggested that trust is plagued by ambiguity, paradox and emotional challenges, yet it is essential to a successful family and family business. Here we'll look at how families create formality and structure in their businesses as a way to promote trust in the family as well as in the business. This represents yet another paradox relative to business families.

Trust Is Best Kept Formal
Many business families will tell me, "Formal structure is not necessary because we all love each other." In my experience, structure must be created to preserve trust and relationships because the family is also a business. Formality in the business produces greater clarity and stability because, unlike conventional businesses, the family business includes the added symbiotic relationship between business and family that can make it difficult to separate work life from home life.

To do this, family members should be business partners when goals and policies are developed. They become arbiters for trust and unity. Emotional strategies developed in the family strengthen family trust that ripples through the business.

In a similar yet reciprocal way, creating structure, discipline and formality in the business generates predictability, productivity and trust in the company as well as positive impact on the family's emotional reliance on each other. This bilateral relationship recycles positive actions taken in the family and in the business to build a culture of trust. When families consciously strive to increase trust among relatives, this social capital automatically strengthens trust in the business.

This blended or bilateral dynamic exists as overlapping spheres representing the family and the business. The figure depicts examples of actions the family, the business, and both can take to support trust.
Trust Building Actions

Examples of Trust Building Within the Family
In my practice, I have had many situations in which building emotional equity in the family has positively flowed to the business. Here are two quick examples, a family retreat and a family service project:

Example 1: Family Retreat
During a family retreat, the family took time to both have fun and discuss business. Both were important. The father invited all six of his adult children, their spouses and 14 grandchildren to an Arizona dude ranch. The goal was to strengthen family relations as well as integrate cousins aged 15 and older into family council discussions. The cousins came from different parts of the country. They joined in on the fun activities that strengthened their family relationship as well as participated in the family council, which strengthened their confidence and stature within the family. This simple approach built trust in the family, encouraged engagement in the younger-generation cousins and nurtured business collaboration and problem-solving because of stronger family ties.

Example 2: Family Service Project
A family business sponsored a picnic and fireworks display to support a favorite local charity as both a family activity and a service project. The family collaborated, planned and executed the effort for a large group of recipients. After sponsoring this service project, family members were more generous with each other and not distracted by minor differences. They are now more receptive to acknowledging each other's perspectives on issues in the family business. The service project helped the charity and enhanced business relationships, even as it strengthened family bonds.

Formal, planned events such as these bring families together to develop emotional equity or social capital. They give family members a common cause and ways to interact with each other that are safe, positive and constructive. They build trust.

Trust Building in the Business
Trust is also built on the business side by adding formality and structure to family member interactions and expectations. I offer two examples from my thirty years of experience:

Example 1: Promises Realized
A father recruited his son into the family business with the promise of running it. The son already had a successful career in a nonrelated industry but was enthusiastic about taking control of the family business. He was eager to show his dad what he could do. They had a great father-son relationship, and the son had worked in the business as a teenager. However, when the son returned to the business as an adult, he clashed with his father over the direction and risks he thought the business should take. Business differences became father-son issues that eroded the trust and quality of their relationship. The solution arose on the business side rather than on the family side. Father and son used strategic planning discussions to resolve their business differences. They reunited around a new opportunity for the business and created an active board of directors with outside advisors who participated in meetings and objectives. The father is on the board of directors, but the son reports to the board - not just to his father. This has strengthened business performance as well as the trust and bond between father and son.

Example 2: Formalizing Fairness
The unexpected death of the father of a large family business threw the widow and the couple's five adult children into a dilemma. Each owned various percentages of the business. The oldest son was recruited to join the business. For 25 years he worked in the family business and became president, while the other adult children had independent careers and remained uninvolved. No formal family business mechanisms were in place: there were no family councils, no active board of directors or outside advisors. After all those years, the oldest sibling's very high annual salary was revealed to be $1 million. It shattered the trust between him and his siblings. To repair trust, it was necessary for the family to create a board development committee composed of three family board members who recommended four outside members who had the expertise to establish a governance process that was beneficial and acceptable to the family. The board became responsible for negotiating a fair, equitable compensation plan. With this structure and formality, trust was restored and each family member felt confident and equitably treated.

Trust Needs Awareness by Family and Business
All too commonly, business families concentrate on their businesses at the expense of emotional equity in the family. This was the subject of a 2004 St. Paul Pioneer Press newspaper article ("Divorce Running a Restaurant") in which the author discusses divorced couples who continued to maintain their family restaurant business relationships. The article illustrates how readily couples emphasized their business relationships instead of their marriages and the personal side of their relationships. The examples also demonstrate the importance of structure in both the family and the business.

While trust is implicit in families, it must be maintained and nurtured. If not, it will wither like a neglected plant. Similarly, the family business must be nurtured with structured, regular dialog and family councils to promote trust within the business. Formalizing both produces the social capital - family harmony and business emotional equity - imbued with a culture of trust. This is the foundation for success.

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