The Family Business Paradox

We live in an era of unprecedented distrust in government, media and NGOs — and business is holding on by a thread. The 2017 Edelman Trust Barometer showed that one of the drivers of this collapse in trust is an underlying “mass-class” conflict — a majority of people around the world believe that the system is biased against regular people and favors the rich and powerful. This sentiment has perilous implications for continued trust in business and, in particular, in family-run businesses. With family business estimated to create 70-to-90 percent of global GDP (and as a family business ourselves), now is the moment to examine where family business falls on the trust scale and to uncover people’s expectations for its role in the marketplace and society.

We learned that family business enjoys a significant trust advantage: It is trusted more than business in general by a 16-point margin globally. (This finding is consistent with our previous study of trust in family business in 2014.) This higher trust is premised upon the favorable views held by employees and customers. A vast majority of family business employees told us that they would recommend their business’s products and services to others and would recommend their organization as an employer. More than twice as many people said they would rather work for a family business than for a regular business. When people know that a business is a family business, they are three times more likely to pay more for its products or services.

The trust advantage for family business, however, sits on a foundation of sand. In areas that are the hallmarks of a strong business, family business falls far short. Fewer than one in three view family businesses as job creators, despite the fact that the sector originates 50-to-80 percent of jobs (Family Firm Institute). Compared with business in general, family businesses are much less likely to be considered long-term thinkers (45 percent vs. 21 percent), innovators (45 percent vs. 15 percent), or drivers of financial success (43 percent vs. 15 percent).  Although the vast majority of the world’s largest family businesses practice philanthropy (E&Y and Kennesaw State University), just 17 percent see them as leaders on societal challenges.

The underlying “mass-class” distrust of the world’s wealthiest is coloring these attitudes. The majority of people believe that wealthy individuals should create foundations or other vehicles to channel their wealth into society, and they expect them to support their local communities and work to improve society. Yet 78 percent of respondents believe that the wealthy create foundations for self-serving reasons, such as to gain political influence, to assuage wealth-related guilt, or for vanity.

Inherited wealth is also viewed with suspicion. Two-thirds say people who earned their wealth deserve what they have, versus 40 percent for those who inherited their wealth, and only 35 percent consider people with inherited wealth to be good role models. These views cast a dark shadow on the next generation of family business leaders, who are starkly distrusted. The majority of people say that the next generation will mismanage the company, is less impressive and talented, and is less committed and passionate about their business. Overall trust in the next generation has decreased eight points since our last study of family business trust, in 2014.

In total, these findings tell us that the playbook of low-key, let-the-results-speak-for-themselves behavior, traditionally displayed by family businesses, will not work in an increasingly skeptical society upset by growing wealth inequality.

The solution to the trust paradox lies in action. In a time when populist fervor and national identity crises challenge people’s belief in the system, respondents agreed that family business has an obligation to take a stand, especially on issues that affect its customers (44 percent), employees (44 percent), and products (41 percent). They also want family businesses, as employers, to make an impact in areas like creating and keeping jobs at home (73 percent), addressing income equality (68 percent) or encouraging employees to volunteer (68 percent).

My father, Dan Edelman, started our business in 1952, and today my family (my brother John and sister Renee, and two of my three daughters, Margot and Tory) work every day to uphold his high standards of excellence. We also take lessons from our Trust Barometer studies, and counsel our clients to take action — before they communicate — on the issues that matter most to their stakeholders. It’s the most powerful way to build trust in a world where it is in increasingly short supply.

Richard Edelman is president and CEO.

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