May/June 2014 Openers

By Barbara Spector

The Edelman Trust Barometer found that family firms have the public's trust; the 2014 Northwest Family Business Survey found respondents made progress on succession planning.

The 2014 edition of the Edelman Trust Barometer, an annual global study, found that in all regions except Asia, family-owned businesses are more trusted than big businesses. In fact, people in North America trust family-owned companies nearly twice as much as they trust big businesses (85% vs. 45%), according to the survey, which was conducted by Edelman, the giant, family-controlled public relations firm. In the EU, family firms are trusted by 76%, vs. 47% for big businesses.

To produce the Trust Barometer, Edelman's market research firm conducted online interviews in October and November 2013. The firm sampled 27,000 members of the general population as well as 6,000 members of the "informed public" (defined as people age 25-64 who are college-educated, with household income in the top quartile, and who read or watch business/news media at least several times a week and follow public policy issues in the news at least several times a week) in 27 countries. Although the Trust Barometer survey has been issued for 14 years, this edition was the first to include questions on trust in business based on ownership structure, according to Ben Boyd, global chair of corporate practice at Edelman.

Respondents in North America and the EU said they trust family-owned companies more than they trust publicly traded companies (85% vs. 60% in North America and 76% vs. 48% in the EU). Family companies also are seen as more trustworthy than privately held companies in these regions (85% vs. 63% in North America and 76% vs. 57% in the EU).

In Latin America, too, family companies, trusted by 83% of respondents, have an advantage over big businesses (trusted by 70%), public companies (72%) and private companies (70%), according to the study report. In Asia, however, the 62% trust level for family businesses was lower than the figures for big businesses (73%) and public companies (74%). Boyd offers two possible reasons for the Asian statistics. One potential explanation is that leaders of family-controlled conglomerates, such as the South Korean chaebol, are viewed as too closely connected with the government, Boyd says. Another reason, he adds, could be that big business is considered a factor in the emergence of a middle class in India, China and Indonesia.


How the public views
privately held companies

The Edelman Trust Barometer also assessed the general public's perceptions of privately owned vs. publicly traded companies. Respondents said they consider private companies to be more entrepreneurial (70%, compared with 62% for public companies), more responsive to customers' needs (67%, vs. 58% for public companies) and more innovative (66% vs. 60%). Survey participants rated privately held firms more likely to offer high-quality products or services (65% vs. 61%). Private companies are also viewed as more responsive to society's needs (54% vs. 50%) and employees' needs (49% vs. 45%). In addition, they are seen as more likely to act responsibly (55% vs. 52%).


Capitalizing on the trust advantage

Family businesses have a reputation for being "more community-minded and more values-based" than other types of companies, Edelman's Boyd says. "If I ran a family business today," Boyd says, "I'd want to make sure this was understood in the public messaging of my company. I would want to talk about the values-based culture and the connection to the community."

Boyd points out that while owners of small companies tend to take a conservative approach to marketing, family businesses should trumpet their trust advantage. "This is an opportunity for family businesses to utilize social media to humanize their enterprise," the Edelman executive says.

Family business CEOs, in particular, should tout their presence at community events through full-on social media campaigns rather than just issuing a press release, Boyd advises. "Family businesses should take full advantage of a perceptual asset that many others would kill to have," Boyd says.





Family businesses in the Pacific Northwest report progress on succession planning

A new survey of nearly 200 family businesses in the Pacific Northwest has found that 59% have a written plan to address succession and ownership—an increase of 26% over the percentage in 2012.

The 2014 Northwest Family Business Survey, a joint effort of the Pacific Family Business Institute and Riley Research Associates, was conducted via telephone and online. More than 69% of the respondents reported annual revenues over $5 million, and 5% reported sales of at least $75 million. Just over half employ two generations, about a quarter employ one generation and about one-fifth employ three or more generations.

Pacific Family Business Institute co-director Mark Green attributes the planning progress to two factors: the long tradition of family business education in the region, and baby boomers' willingness to embrace a systematic approach to succession.

Oregon State University's College of Business established what is now known as the Austin Family Business Program in 1985 and began the program's educational events in 1986. It was the second family business program established in the U.S. (The first was founded at the University of Pennsylvania's Wharton School.) "We've been spreading the gospel of family business and helping advisers hone their skills," Green says. "I think that's set the stage... For the last 25-plus years, it's been part of our culture and environment."

Green adds that in contrast to their parents, who came of age around World War II and favored strict hierarchy, the baby boomers who are now retiring are taking a "much more productive approach" to succession. "They are being strategic and actually going through a process," he says.

Green points out that the succession planning process can take seven to ten years. "This is hard work; it's very sensitive and very difficult," he says. "People are living longer, and there's a lot of complexity there." The study found—not surprisingly—that older firms are more likely to have a written succession plan than those in business for 20 or fewer years.

Evolving governance structures

About a third (31%) of respondents said they have a formal board, while 30% have an advisory board and 28% have no board at all. (The remaining responses were characterized as "unspecified" or "refused.")

Green refers to an advisory board as "a step in the evolution of governance" and notes that he's seen an increase in the number of business owners who are interested in setting up a board of advisers. "They are asking questions about how that works," he notes.

Most survey participants (68%) said they have four or fewer board members; 32% have five or more. Older companies and those with higher revenues were more likely to have five or more board members, the survey report noted. The survey did not ask whether the boards included any independent members. "We will certainly add that question in a future survey," Green says. The vast majority (87%) of respondents do not compensate their board members.

Half of the respondents' boards meet between two and four times per year, while 40% meet just once a year and 10% meet five or more times.

Green acknowledges that boards with few members (especially those whose members are all family owners) and those that rarely meet are not optimal governance structures but says he expects more family companies in his region to shift to professional boards over time, as business owners educate themselves about how a board can help their companies.

Optimistic owners

The 2014 Pacific Northwest survey found that respondents are optimistic about their future. Most (71%) anticipate higher revenue over the next three years.

Participants in the study also were optimistic about their family's ability to continue or expand the family business. On a scale of 1 to 10, with 10 representing "completely confident," the average response was 7.2. The level of confidence increased with the number of full-time equivalent employees.

"They're investing in themselves, and they have confidence," Green comments. "Family businesses are flexible, adaptable and opportunistic. They're coming up with new ideas in order to grow and sustain their businesses."






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May/June 2014

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