Leila Willingham, Account & Business Manager, writes on the value of reputation within family owned and operated organisations
As family businesses, we benefit from unique advantages such as a shared vision, strong values, and a long-term outlook. However, we can also face difficulties such as being resistant to change, undertaking succession planning and transitioning to the next generation. A huge differentiator between family and non-family-owned organisations is how the personal and emotional element of the business plays into corporate decision making; for the better or worse.
Businesses with such history and preserved financial assets can be complex organisations to protect reputationally, and with a family name so closely attached there is even more at stake. Whether the family is central to the brand or not, there is a degree of uniqueness in each family-owned organisation that demands a tailored and considered approach to reputation management.
Reputation is the result of what a business does, what it says and what others think about it. Some academics such as Rindova argue that reputation is an asset that provides a sustainable competitive advantage and influences an organisation’s financial performance, meaning it is certainly something worth thinking about – especially when we intend for our businesses to thrive not just today and tomorrow but for years to come.
Reputational strength in family firms
Family businesses tend to be more values led than other organisations, due to the desire to protect the family’s assets, image and reputation. These values are often brought to life through a strong approach to employee engagement and the workplace, a high-quality product or service offering, ethical business practices and good management – all things that earn good reputations. The extra layer of care, attention and cautiousness that is inherited as a steward of the family business helps keep us out of trouble.
Plus, if communicated well, our values and their positive impact on our organisations and stakeholders can give the business a competitive advantage. Brand management theorist Kapferer claims that a business’s fatal differentiation from its competitors is the respect for its brand values and the status of the brand name built upon these – great news for family businesses!
Reputation management isn’t all about preventing and protecting, but also about building and strengthening too. A solid reputation is a unique selling point in itself and one that is very difficult for competitors to replicate. This competitive advantage is crucial to the long-term success of a business intended to remain strong for generations to come.
Although, while this is all positive, we mustn’t be naïve. We cannot predict and plan for everything, the pandemic has taught us that much. We must expect the unexpected and know how to respond to it.
Some view reputation management as a function that ‘kicks in’ during a crisis; a damage limitation tool. However, to be most efficient, it should be used as a preventative, not a cure. As business tycoon Warren Buffett once said, “it takes 20 years to build a reputation and five minutes to ruin it” and this is rings especially true in the context of family businesses, which may have upheld their reputation for centuries.
What reputational hazards put family businesses at risk?
Every family business is different and a ‘one size fits all’ reputational evaluation just doesn’t exist – reflecting on your own business’s reputation, you need to consider all the unique nuances that may play into it. Reputational hazards could be anything from a faulty product to a director caught with their pants down in the pub.
All the common family business challenges pose reputational risks and, unfortunately, can feel much more personal and emotional in our world – think succession planning, the next generation, disagreements, long-term ownership, finances, the board and decision makers, employees and customers. Exploring a few common examples helps to identify how reputational risks come in all varieties of scale and strength:
- Family members
You might not think that your parent, sibling or cousin are capable of serious reputational damage. However, family members, whether they are involved operationally or not, are potentially the biggest reputational risk to the business (sorry!) and this needs to be recognised. Not only is an errant family member emotionally difficult but can cause huge reputational concerns too.
- Financial status
The Sunday Times’ yearly ‘Rich List’ reveals that several of the wealthiest people or families resident in the UK are those governing or running family-owned organisations. Financial strength, performance, growth prospects and resilience all support a positive company reputation; however, with that comes challenges.
Even businesses with retained profits and working capital need to remain efficient and this sometimes means difficult decisions are made in order to do so. With such financial reserves, decisions such as redundancy can seem conflicting to the company’s financial status and unnecessary by stakeholders. The comments on this article regarding Andrew Nisbet and his family firm demonstrate the potential response from stakeholders if not managed properly.
The reputational impact when one leader takes over from another must be considered, especially when it involves family. As the leader of a business changes, an opportunity for a reputational shift, positive or negative, opens. Through this sensitive period, it is key that the good feeling, trust and admiration (all things that contribute to a healthy reputation) that is felt towards the business remains and, crucially, is transferred from one leader to another.
Governance is very important to many family businesses and disagreements within the family and wider team aren’t uncommon. Sixth generation Clarks Shoes came close to being sold in the early 90’s because the aspirations of family shareholders had become disconnected from those of company management.
Reputationally, this moment could have disastrous for the business. If the debate had slipped outside of the boardroom, its impact would have ricocheted through the business, impacting morale and the sense of security of the workforce as well as external impressions of the brand. Would you want your employees or customers catching wind of the debates that took place in the board room? What would you do if they did?
Reputationally protecting a family business
Reputation management is required to be an ‘always on’ function and can’t just be used as a first aid kit. The RepTrak Reputation Model provides a great framework for benchmarking a business’s reputation and says that reputation is built through the good feeling, trust, and admiration that stakeholders feel towards a company. The model states that a business’s products or services, innovation, workplace, governance, leadership, citizenship and performance all contribute to a healthy and valuable reputation.
At the heart of reputation management for a family business sits the need to protect its history and heritage. Yet, as explored, there are also a variety of day-to-day factors that can massively influence reputation.
The subtle complexities of our unique organisations must be understood, recognised and managed to build and protect the business’s reputation. Identifying and awareness of reputational risks coupled with strategic communications is the winning formula to doing so.
Risk management provides structured information to assist with business decision making and is also invaluable for reputation management and can help make the unexpected less daunting. In a family organisation, all unique facets must be considered through this exercise: family feuds, death of a family member, personal wrongdoings. Experts, including Andrew Griffin, suggest that internally driven issues are the hardest to manage and so risk management for family firms is exceptionally important.
Issues identification and risk management for family businesses must predict, prevent and prepare for reputational risks including those involving all family members, on a personal and professional level. PR pros Michael Regester and Judy Larkin are famous for the phrase ‘an issue ignored is a crisis ensured’ and this perfectly encapsulates why identification of potential threats is important from an operational and reputational perspective. By doing so, family firms can look to make changes to reduce risk and head off any challenges before they even arise.
All company communications (internal and external) should be mindful of reputation. Communications play a critical role in building and maintaining the key ingredients for a good reputation; the good feeling, admiration and trust people feel towards an organisation. It for this reason that one of the top five things the IFB recommends when planning succession is good communication.
Communications should be used to share the great work and achievements all stakeholders should feel pride in. However, communications are of equal importance when delivering tough messages such as redundancies or significant updates such as a change in leader. Making sure that all communications are delivered in a sensitive manner will help to maintain or build the good feeling, trust, and admiration that stakeholders feel towards the family firm – this should be the same for positive and less positive communications.
Although reputation should be managed proactively as opposed to reactively, the role of communications is undeniably important in a crisis.
As family organisations we are often more naturally inclined to act in a personal and human way when it comes to business. However, a careful balance of emotional and corporate communication is critical, particularly within a crisis or issues management situation.
When a family business client witnessed a devastating fire destroy part of the organisation’s head office, not only were they concerned for the operational impact, but they were watching a highly historic building disappear. It was a devastating tragedy for the family.
Upon reflection, the management team recognise that their Chairman, a family member, shouldn’t have been or have been expected to be the spokesperson in that crisis. The client now has crisis planning in place that, in some circumstances, requests family members to leave the site to allow for ultimate efficiency to protect the reputation of the business long term.
The closeness of their relationship with the organisation can compromise family members in a crisis. The emotional link to a business can cloud their thoughts, rationale and ability to make decisions; all factors that can pose additional risk to reputation at a critical moment.
As plenty of evidence and theory supports, there is a particular requirement for careful decision making in a crisis. The timely construction and delivery of messages, that are in keeping with the business’s tone of voice and address the issue in the most appropriate way possible, is going to underpin the success of this process. Balancing the emotional response with one that will protect the business long term is notably important.
Reputation: the armour around a family business
The circumstances identified here are only a handful of the factors, unique to family businesses, that influence an organisation’s reputation. There is no singular most important factor that must be considered and these all need managing to either bring benefit to the business or to mitigate a risk.
For long term success, beyond the lifetime of the current leader, opportunities to build on the business’s reputation need exploring and the risks needs managing.
Businesses with years of history, even those with exisiting, positive reputations, must protect and continue building these to support ongoing success for generations to come. A family-owned business that doesn’t manage its reputation can leave it open to being a target by the media and other stakeholders.
View reputation as your most valuable possession, something that must be protected, kept safe and away from harm. An organisation that is so highly regarded by stakeholders could be at more risk due to its status – you wouldn’t leave your most valuable piece of jewellery in an unsafe risky place, so why do the same with your business’s reputation?
Reputation management should provide a layer of armour not only around the firm, but around the family as well. It shouldn’t be seen as an investment but as a requirement, the same as how we view a safe place to store tangible items at home or in our offices.
Reputation is so critical to the success of a long-term vision and many generations of reward – there is no other type of organisation that should prioritise it as highly as family businesses should.