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Trust Is The Beginning Of Everything In A Family Business

Trust Is The Beginning Of Everything In A Family Business
Without trust between family members, running a multi-generation ranch is very difficult.

Sydney Smith, an 18th century English writer and clergyman, once advised: "Take short views, hope for the best and trust in God."

While the third part of Smith's advice is everlasting, the first two components aren't very conducive to running a family business today. Running a successful multi-generation ranch today takes a long-term outlook and careful planning.

However, whatever you attempt to do in a family business–leadership succession, installing a board of directors, a family meeting, developing a family constitution, a business plan or an estate plan – nothing can be successfully accomplished without the presence of the one key ingredient of trust.

That's the advice of William Alexander, a faculty member of the University of Pennsylvania's Wharton School who brings with him his experience as a third-generation CEO of a central Pennsylvania construction company. Unfortunately, Alexander says, many families choose to move forward with their business and family governance without taking the time to ensure that trust is present in the family business system.

"Such actions, without trust, at best will require much more time to accomplish and, at worse, will fail," he says. "Therefore, it is essential for families who own and operate businesses to know what trust is, to know how to be trusted as an individual in a family business system, and to know how to repair damaged system trust."

For the purposes of a family business, Alexander says trust should be defined as a "feeling that another person, a group of people, or the system as a whole is performing in your best interests." Test this definition by thinking of someone you trust completely, he suggests. "Do you not feel that this person has your best interests as a top priority?"

Trust comes in various forms, he says, some good and some bad. "If you have a high propensity to trust and act spontaneously rather than with proper analysis, you may be guilty of blind trust, which isn't good," he says. "Blind trust doesn't promote proper discourse on subjects you don't understand. For example, if you have blind trust in a parent who has always provided for you, you will accept their decisions to establish a dynasty trust for future business ownership without proper discussion and analysis by all affected parties."

The type of trust that families who own and operate businesses need is "smart trust," where you combine a high propensity to trust with a desire for proper analysis of interchange between parties, he says.

However, if you are to possess "smart trust," you need to ask yourself two questions. "First, what is my propensity to trust other people? Second, what is my willingness to make the effort to analyze another person's actions to ascertain if they should be trusted? In other words, are you the type of person who wants to trust another person until they do something that causes you to withdraw your trust, or are you the type of person who does not trust anyone until they do something that justifies your trust?" The former, Alexander says, is preferred in a family business over the latter.

So, how do you as an individual either maintain the trust of those family members who have a propensity to trust or gain the trust of family members who have a propensity to distrust? Alexander says there are four key actions:

  • Ensure all family members perceive your motives as genuine and credible. Constantly ask them if this is the case.
  • Ensure your communications contain crystal-clear content (no hidden agendas) as well as an emphatic "I care about you" consideration.
  • Ensure every promise you make is kept.
  • Demonstrate competence that leaves family members assured they are dealing with someone with the capacity to perform.

Finally, Alexander says you may have to address this question – if you perfect these four building actions but other family members do not, how can you act as a trust catalyst to establish trust within the family business system? This is a difficult question to answer, he says, because trust is such a hard-to-define concept and family members may possess an historic, deep-seated aversion to trusting other family members.

"The first thing to do is to acknowledge publically that a trust issue exists. Trust will never be restored if its absence is not acknowledged," he says. "Next, use good insight into gaining an understanding of how trust was lost. Many times, this investigation will reveal that the underlying reasons for the initial breakdown of trust no longer exist."

Finally, he says, get all parties to focus on their role in this breakdown and commit to practicing the four steps to earning trust listed above. "Remember that you, as a trust catalyst, must never take any action during this process which would cause you to lose the trust of the group in which you are trying to build trust," he says.