Hubler For Business Families

The Trust Paradox of Family Businesses

Definitions of Trust
Trust is the central component to the development of a family firm's social capital according to Pearson and Carr's "The central role of trust in family firm social capital". Their work raises the questions of what trust is and how to sustain it as the family business evolves. Over the past 30 years I have worked with family businesses in the area of transitions, succession planning, and managing what I describe as emotional breakdowns of trust in either business or family relationships. As a result, I believe building trust in the family and in the structure of the business are mutually beneficial to family harmony and a successful family business.

In the family business literature Poza presents a nuanced definition of trust: "Trust is not an article of faith among adults. As adults, trust comes from information, reliability and predictability, accessibility, shared goals, emotional bonds, a sense of fairness and transparency." 1 The definition of trust that I use, based on my experiences working with family business, is that it is a reciprocal relationship premised upon shared reliance, both behaviorally and emotionally. For example, "You are there for me when I need you" demonstrates how trust is defined by many families that I have worked with. Even in dramatic sibling rivalry cases, it is not unusual for the siblings to privately state that they know their sibling would be there if a crisis were to occur.

An example to illustrate the point of being there occurred in a family business where two sons were at odds with each other. The older son had bypassed college to join his father in the family business, assisting him in completing a series of government contracts. He anticipated being the heir, but when his younger brother, who had gone to college and traveled throughout Europe, decided to come into the family business, he was placed at the same level of responsibility and salary. The older brother was miffed and was unable to work out any resolution with his father and  Graham younger brother. He left the family business and has since started up as a competitor in a neighboring state.

One winter evening the older brother was acting as a Good Samaritan to help a driver who had gone off the road. Unfortunately, a drunk driver hit the older brother's car when he was standing between his car and the car that had gone off the road. The older son's leg was severely crushed in the accident. He was rushed by helicopter to a regional hospital, and when he awoke, his younger brother was standing there holding his hand. There was not a dry eye in the room, and at a subsequent family meeting when the story was shared, it became the basis for the development of trust in their brotherly relationship.

There are many facets to the building and evolution of trust in a family.2 First, as the definitions above allude to, trust must be cultivated. For example, deprived of water, nourishment, and sunlight, a houseplant will wither and die. This is an analogy I often use with my clients to discuss trust in families. Trust must be nourished in order for it to survive. Second, trust requires that family members act in expected ways. When this does not happen and a breach of trust occurs, whether it is related to family, business, or financial issues, feelings are hurt and in the context of a business family, strain occurs in the workplace.

Yet, this does not mean that all interactions among family members will be perfect. In other words, it is near impossible for a family "not to inadvertently step on each others' toes occasionally." In those instances when trust is broken and a breach occurs, a family business must move on. For a family to move on, forgiveness must happen.3

Maintenance and nurturance of trust in business families requires action and the willingness to contribute to the common good. Ken Kaye, in a presentation on trust at the Psychodynamics of Family Business (PDFB) spring 2010 meeting, discussed trust in business families as a function of risk in relation to what you are willing to risk. What are you willing to risk or contribute to the family if there is not guaranteed payback? From my perspective I ask, "What are you willing to risk in order to create a new beginning?" This requires an action on the part of the family to either maintain or rebuild trust.

Promoting Trust In Family And In Family Business
When I suggest to business families the need to create formality and structure in their family business, many believe that structure is not necessary because they all love each other. I explain that because family members love each other structure must be created to preserve trust and family relationships. Hence, intervening to create formality in the business will create clarity and trust in the business. A symbiotic relationship is created between the business and family regarding trust. 

Involving family members in goal-setting and policy-making is important to developing trust and unity.4 Based on my experience, these policies need to occur on both sides of the family - business equation. The emotional strategies created in families not only strengthen family trust, but also permeate into the business creating a sense of trust. By the same token, creating structure, discipline, and formality in the business not only generates trust, predictability, and profits in the business, but also has a positive impact on family emotional trust. There is a bilateral relationship between the activities done in the family to build trust and its impact on the business. This is the family business trust paradox. Intervening in families to strengthen trust automatically strengthens trust in the business, while enhancing the family's social capital. This table lists activities that promote trust in business families.

Activities to promote trust in family business
Maintaining Trust
  Family  Family-Business Relationship Business 


Sustain/build social relationships through family retreats or service projects

Establish and maintain policies and rules regarding compensation and working in the business

Agree on business strategies and goals

Expert external support

Obtain facilitators and counselors

Establish a board of directors or advisors and/or seek expert help from consultants

Trust Building in the Family
Several situations I have dealt with in my work exemplify this bilateral dynamic on the family side. The first depicts building trust and emotional equity in the family through a family retreat. During the retreat, family fun time and business discussions were important. The dad invited all six of his adult children, spouses, and 14 grandchildren to a dude ranch in Arizona. The idea was to strengthen family relations, but also integrate the older cousins, 15 years and older, into the family council discussion.

In this example, the family's commitment to build the emotional equity or strength of their family by having the cousins - who live in different parts of the country - participate in fun activities, not only strengthens their family relationship, but also is a mechanism for building trust in the family. In addition, having the younger-generation cousins participate in the family council discussions strengthened their confidence and stature in the family and continued the process of trust and collaborative problem-solving. This ultimately strengthened trust to build a stronger family and family - business relationship.

A second example of the bilateral dynamic combines a family activity with a service project. A family business sponsored a picnic and fireworks for a local charity. Not only did the family strengthen its bonds, but their business relationships improved. Specifically, they have been more generous with each other and are not severed by minor differences. The family collaborated, planned, and executed in a positive way a major service activity for a large group of recipients and as a result of their collaborative efforts they were able to strengthen the trust in their business and family relationships. They are also more receptive to acknowledging each others perspective on family business issues. As a result they were able to give each other the benefit of doubt and not get so easily stuck by minor differences.

Trust Building in the Business
Two additional examples come from the business side of the equation. The first concerns a father who recruited his son into the business with a promise of being able to run the business. The son had a successful career in a large Midwestern real estate firm, but was eager to take control of the family business. He wanted to show his dad what he could do. Prior to formally entering the business, the father and son had a great father-son relationship. The son worked in the business as a teenager, but upon his return to the family business as an adult, he and his father clashed over the direction of the business and how much risk to take. These business differences played themselves out as father-son issues, resulting in the erosion of trust and the quality of their relationship. The solutions to the father-son family issues stemmed from the business side of the equation.

The first was a strategic planning effort where father and son were able to use a strategic business planning discussion to resolve their business differences and subsequently were able to rebuild the trust and closeness of their father-son relationship. They were able to reunite around a new opportunity for the business. In this same family business, we created an active board of directors with outside advisors who participate in board meetings and objectify the business. Even though the father is on the board of directors, the fact that the son is reporting to a board of directors as opposed to his father, has not only strengthened the performance of the business, but has also created more trust and closeness in their father-son relationship.

The second example concerns a large family business that experienced the death of the owner-father. The mother and five adult children owned the business in various percentages. The oldest son was recruited to join the business upon his father's death and has worked in the business for approximately 25 years. The other adult children had careers outside of the family business and were not involved in any capacity. Unfortunately there were no formal family business mechanisms in place such as a family council or an active board of directors with outside advisors. Recently the oldest brother's compensation [salary] was revealed and the revelation shook the foundation of trust between the oldest brother, the president, and his siblings.

The creation of a board development committee, with three family board members, to carefully select and recommend four outside members with expertise necessary to create a governance process was a mutually beneficial activity accepted by the family. The formality of having the board responsible for negotiating a compensation plan that is fair and equitable to all concerned is another factor in the rebuilding of the trust. As in the previous example, the structure, formality, and objectivity of the outside members of the board and the structure of the board are what I believe helped rebuild trust and confidence in the family that all will be treated equitably.

A common error in many business families is that they concentrate their efforts on the business side of the equation, while neglecting nurturing trust and emotional equity on the family side. An example of this dynamic is highlighted by a St. Paul Pioneer Press article discussing couples in business together.5 A number of couples who worked together in the restaurant business divorced, but kept their business relationship. While marriage and divorce are complicated matters, this article illustrates how easily couples emphasize their business relationship at the expense of their marriage and the personal side of their relationship. Thus, all of the examples in this paper demonstrate how important it is to set up structure in both the family and the business. Even if trust is implicit in families, it must be maintained and nurtured to survive - just like the houseplant. The best way to accomplish this is to create a family council and charge it with the responsibility to generate a dialogue within the family about the most appropriate structures to promote trust in a business family.

In conclusion, based on upon my experience in working with family businesses, I stress the importance of creating trust on the family emotional side, as well as creating structure and formality in the business. The end result will be a major contribution to trust and social capital, which is the secret to success. Doing both enhances the performance of the business and strengthens family harmony.

1. Poza (2010, p. 58).
2. There is some evidence that not only are there factors in the family environment and socialization, but we might also have a predisposition to trust. Dan Gilbert, a Harvard psychologist in a January 2010 PBS Series This Emotional Life touches on this topic (see Mcgee and Kinhardt, 2010). It appears that we are wired for the trust response and that the creation of trust is an implicit response to this biochemical process.
3. Forgiveness is critical to the revitalization of trust in a family or family business where there has been a breach of trust. When trust is violated in a family, as regularly happens in many families, there needs to be an internal mechanism that allows the family to begin anew. From my perspective, that mechanism is forgiveness.

There are two examples that illustrate the point. First is a family business where two sons, active in the business with their father, and the older son and father had not spoken in four years and ran all of their communications through their brother. In addition, the five other children, who were not active in the business vilified their older brother and blamed him for the problems that were occurring in the family. As a result of participating in a family business forgiveness ritual in their family business and forgiving each other, the family was able to have a new beginning and trust was re-established in both the family and family business.

To further illustrate this point, a second family constituted of an uncle and his nephew, who were in business together. As a result of a plane crash where the boy's parents were killed, the uncle raised his nephew from childhood. As a consequence of major business differences between the uncle and nephew related to unclear business expectations, trust was broken and parties could barely speak to each other at the time of the consulting engagement. In addition to business interventions that included business planning, the whole family, including the uncle's two sons and wife participated in a family forgiveness ritual. The family was able to share their hurt feelings, forgive each other, create a new beginning, and rebuild the trust in their family. For a complete discussion see Hubler (2005), which elaborates on these phenomena.
4. Poza (2010).
5. Ngo (2004).

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