Trust – A “soft” but “tight” connection

In family businesses, trust is understood as an ethical bond among family members, based on mutual accountability, expectations of fairness, and a sense of responsibility that goes beyond blood ties. According to Sundaramurthy (2008), trust is not merely a personal emotion but a mechanism that regulates behavior in an environment where economic power and family relations intersect. Trust enables long-term collaboration, reduces monitoring costs, and strengthens cohesion in situations lacking external control (Eddleston et al., 2010). There are three interwoven types of trust in family businesses that form this “foundation of faith”: (1) interpersonal trust – trust in people; (2) institutional trust – trust in the company, system, or governance structures; and (3) strategic trust – trust in the family’s or family enterprise’s strategic direction. Many family businesses neglect building trust and instead seek to “legalize” or over-regulate family systems, which often leads to breakdowns and erodes the family identity that once gave meaning to the business.

Sundaramurthy’s (2008) research highlights three characteristics of trust: (1) it is built through consistent behavior over time; (2) it is difficult to quantify but manifests in critical decisions such as succession, asset allocation, or conflict resolution; and (3) it is easily eroded when there is a gap between words and actions within the family. In practice, many family businesses in Asia and Europe are institutionalizing trust through family constitutions, succession policies, or “soft” power-sharing mechanisms. When nurtured properly, trust becomes the foundation for continuity and internal stability. Conversely, when trust weakens, family structures can fragment and fracture, threatening the survival of the enterprise itself.

Trust – The slow and steady build

Figure: Six key factors reflecting trust in family businesses

Trust does not merely exist in slogans or verbal commitments; it is embedded in actions and the family structures sustained over time. Trust permeates every corner of the business and gradually forms the “framework” guiding behavior among family members. It can be seen when founding parents step aside to allow their children to grow, when members are confident that others will put collective interests above individual positions, or when mistakes are accepted and corrected without fear of exclusion. Repeated actions like these create an unspoken “underground culture” of trust, becoming a widely accepted standard of internal behavior.

Institutionalizing trust is an important step. Many business families around the world are translating intangible values into semi-formal mechanisms such as family constitutions, family councils, succession rules, or codes of conduct between branches. These mechanisms are not legally binding but carry deep moral authority. They are not meant to control but to articulate shared expectations and maintain ethical boundaries. When each family member clearly understands their role, authority, and what others expect from them, they have a framework for behavior, reinforcing trust instead of relying on fleeting emotions.

Trust is also evident in how a family handles conflict. No family can avoid disputes, but those with strong trust tend to choose dialogue over confrontation. They have the ability to listen and see disagreements not as threats but as opportunities for adjustment. This creates not only a psychologically safe environment but also sustains unity in the long-term vision. Another dimension of trust is consistency between words and actions. If family values are constantly emphasized but never realized through concrete actions, trust will erode. Conversely, alignment between what is said and what is done from dividend distribution to personnel appointments becomes the foundation for the next generation to believe they are inheriting a truly worthy legacy.

Trust – Woven through time

Family businesses are unique organizational structures where family ties and economic interests coexist and interact closely. Trust must be built and nurtured over generations; once it becomes deeply embedded, it defines the sustainable value framework of both the business and the family. In this context, trust among family members plays a foundational role in sustaining cooperation, sharing power, and making effective decisions. When trust is established, members act based on mutual confidence and shared commitments rather than depending on formal controls or oversight. This is particularly crucial during generational transitions, asset allocations, or conflict resolutions. According to Sundaramurthy (2008), trust in family businesses not only substitutes for formal control mechanisms but also enhances flexibility and the capacity for long-term commitment. Conversely, the absence of trust often breeds suspicion, defensiveness, and conflicts of interest whose factors diminish performance and disrupt continuity. Therefore, building trust is not merely an ethical ideal but a prerequisite for safeguarding the longevity of a family business over time.

Reference

Eddleston, K. A., Chrisman, J. J., Steier, L. P., & Chua, J. H. (2010). Governance and Trust in Family Firms: An Introduction. Entrepreneurship Theory and Practice, 34(6), 1043–1056. https://doi.org/10.1111/j.1540-6520.2010.00412.x

Sundaramurthy, C. (2008). Sustaining trust within family businesses. Family Business Review, 21(1), 89–102. https://doi.org/10.1111/j.1741-6248.2007.00110.x

Jaskiewicz, P., Carney, M. G., & Hansen, C. (2021, July 23). When trusting your family hurts your family business. Harvard Business Review. https://hbr.org/2021/07/when-trusting-your-family-hurts-your-family-business

Source: FBV Team