For family businesses, reputation is everything, past, present and future.
It’s about maintaining a positive image today, while preserving a legacy that can be passed down through generations.
More so than non-family firms, where the business and employees’ personal lives often occupy separate realms, family firms are deeply connected to their reputation. This also makes it harder for them to gain distance from negative reputational fallout–and why they do everything possible to avoid it.
Reputation as an asset
Family firms often go above and beyond, from their emphasis on environmental sustainability to their support of charitable causes and caution when making financial decisions.
These actions demonstrate a desire to leave behind more than just a business: family firms aspire to leave a positive legacy that will resonate today and for generations to come.
Family-controlled firms are also known for their stellar customer service, a reputation which is backed by research: customers typically view family businesses as more trustworthy and dedicated than non-family-owned firms, largely due to the family’s direct involvement.
When a high reputation becomes a risk
Do strong reputations always work in favor of family businesses? Expectancy violation theory suggests otherwise.
When a very reputable company falls short of expectations, disappointments can hit harder for stakeholders. As saying goes, “The higher they fly, the harder they fall.”
My recent research, carried out with Profs. Marta Elvira and Christine Scheef, underscores this concept.
When comparing customer lawsuits filed against family and non-family firms, we found that, while family firms generally face fewer lawsuits thanks to their positive reputations, the backlash can be worse when major issues arise.
In these cases, high reputation–typically an asset–can amplify the negative repercussions.
Two strategies to protect your reputation
How can family firms protect their reputation and avoid this double-edged sword? Extant research and anecdotal evidence highlights two particularly valuable strategies:
1 – Crisis preparedness
Family businesses often face higher reputational risks because the family and the business are so closely intertwined. A reputational crisis can hit the business hard and affect the family personally–making recovery more difficult.
A robust crisis management plan, grounded on transparency and a proactive approach, can minimize long-term reputational damage.
2 – Balancing tradition with adaptability
Family firms often pride themselves on their legacy, but it’s important not to let tradition hinder progress. The ability to embrace innovation while upholding core family values is key to staying relevant in today’s fast-changing markets.
This balance helps the business remain dynamic and resilient in the eyes of customers and other stakeholders. It conveys that the business honors its heritage while being forward-thinking and future-ready.
Navigating reputation is a delicate balance for family firms. While they enjoy the benefits of strong customer relationships and loyalty, they also need to stay mindful of risks that come with high expectations.
As our research shows, managing reputation isn’t just about maintaining a positive image–it’s about preparedness for when things go wrong and the flexibility to pivot when necessary.
Homepage image: Nadin Mario · Unsplash