Trust Dynamics in Family Firms

21st June 2019

Posted In: WMB Advice

Family members in top management roles in family firms view their CEO in a more trustworthy light than their non-family counterparts. Family members are also more willing to be vulnerable to the CEO, in the context of open disclosure of information, than non-family members.

Non-family members regarded the family CEO as less caring and concerned about their welfare; feeling that a greater level of benevolence is shown towards family members of the firm.

The findings come from new research by Dr Catherine Faherty of the National Centre for Family Business at DCU whose research explores the topic of trust dynamics in family firms.

It is the first study of its kind to be conducted internationally and involved 406 Irish family executives, including 161 family firm CEOs and 245 senior managers (comprised of 105 family and 140 non-family members).

Participating firms ranged from being in business from four years to over 207 years with familial involvement extending from the first generation to the eight generation.

The research highlighted that family firms enjoy a trust advantage relative to non-family firms, as the “intense bonds inherent in familial relationships provide a fundamental basis for commitment, co-operation, reduced monitoring and open disclosure”. However, it cautioned that family firms need to work harder to maintain this source of strength, particularly across generations of the family and with non-family employees.

Dr Faherty’s research demonstrates that if family firms are to pursue continuity across generations, family business leaders must focus on developing trust among members in order to increase commitment and in turn performance.

Next generation ownership and succession is one of the biggest challenges facing family firms and the new research provides important insights into the dynamics that contribute to the success and failure of family firms.

Last week, the significance of the study was recognised on a global stage, when it was shortlisted for the prestigious Grigor McClelland Award; an international accolade awarded to research that covers significantly new terrain in management studies, or counters existing thinking.

Dr Faherty’s findings were presented at DCU’s National Centre for Family Business Conference earlier this week which examined the topic of “Building Trust in the Family Firm.” The event included a keynote address from Prof James Davis, Utah State University, one of the world’s leading experts on trust in family businesses

(The research above was conducted as part of Dr Faherty’s PhD studies at the DCU National Centre for Family Business and was sponsored by the Irish Research Council and DCU Ryan Academy. Dr Faherty is now based at Northwestern University in Chicago).