Stakeholder management – What are family businesses doing well?

Regardless of its size and nature, the growth and success of an organisation ultimately depends on the engagement and contribution of the people who, in whatever capacity, play a role in its development. In particular, it relies on the collaboration and successful interactions of the different networks of stakeholders who have an influence on its strategic decisions and their implementation.

When it comes to family businesses, it is even more evident how communication and solid relationships can make or break a company. Like other organisations, they need to identify the most suitable management strategy to engage with internal and external stakeholders. However, choosing the most efficient approach becomes even more complex within a family-owned business. This is due to the fact that, in addition to traditional stakeholders, these organisations are characterised by the coexistence of two unique sets of them: family members either directly or indirectly involved in the business – often from different generations and representing the current and perspective management – as well as non-family members.

As much as an effective collaboration between family and non-family stakeholders can be the key element for sustainable growth and business success, it might also because its main weakness. First of all, the professional relationship between family members can be heavily affected by pre-existing personal dynamics that are often transferred to the organisational environment.

As a result, it is essential to have a solid governance that defines roles and responsibilities clearly – the involvement of spouses and children, for example, is often a bone of contention if not managed properly. Nepotism and favouritism – or the mere suspicion of it – are two of the most common criticisms made against family businesses.

In order to avoid the negative influence of potential family feuds and disharmony, successful family businesses find it essential to acquire the knowledge and expertise of non-family members (employees, consultants and advisors). They not only have specific skills that can benefit the business at every seniority level, but they can also guarantee the objectivity required to make key strategic decisions and improve performance levels.

So, what do family businesses do particularly well to create a collaborative environment and strong relationships among the different stakeholder groups? When it comes to internal stakeholders, successful family businesses are characterised by:

Effective recruitment processes

Because of the widely recognised importance of creating positive relationships between family and non-family individuals within the business, these organisations use the recruitment process not only to assess technical skills but also to look for individuals who share their values and respect the ownership’s approach. Looking for a combination of skills, personality and shared work ethics goes a long way to help select the right people compared to recruitment processes that are merely based on specific qualifications and achievements.

Communication and ‘direct’ interaction with management/ ownership

Frequent and honest communication is key to build trust and promote transparency across all levels of the organisation. The advantage that family businesses have compared to bigger organisations is that, in most cases, employees have a direct interaction with the owners. This helps humanise the values and beliefs of the organisation, so that employees can relate and identify more with the strategies and policies and, as a result develop a sense of belonging.

Higher levels of (actual) employee engagement

Even though family businesses might not have a structured HR strategy in place, they seem to achieve high levels of employees’ loyalty and retention.  Because of their nature and, often, smaller size, these organisations naturally promote a more organic process of employee development. In order to maintain high levels of flexibility, family businesses support the continuous development of employees through specific training, diverse experiences across the organisation and the understanding of different roles.

Also, as a consequence of the direct relationship with the company’s ownership/management, employees feel more involved in the decision making process because they are given the opportunity to be heard and for their ideas to be considered and potentially taken on board. This creates a sense of equality and fairness as well as a collaborative culture where team efforts are key to an improved performance.

Similarly, family businesses can leverage their identity and nature to create and improve their interactions with external stakeholders, including clients, suppliers, external collaborators, other organisations operating within their industry and the wider community. Best practises include:

Increased customer loyalty and retention

Compared to their non-family owned counterparts, family businesses create relationships that are based on higher levels of emotional engagement with their current and potential customers. This is because customer can relate more to their authentic history and clear identity as opposed to more ‘artificial’ story telling. Even though this might be purely a matter of perceptions, it helps customer identify with the brand, its owners – as actual individuals – and its values, and make the decision to purchase into a specific lifestyle. This represents a very powerful way to create longer-term loyalty and support to an organisation and what it stands for.

 Reliability and trustworthiness

In many cases, the involvement of family members is key when it comes to negotiations and relationships building with suppliers and other external collaborators.  The fact that the organisation’s and the family’s reputation are perceived as one can work as a guarantee of the reliability and trustworthiness of the company.

Clusters creation and knowledge sharing

Due to their size and nature, family businesses often promote collaborative relationships within their industry. This does not mean that the competition is less fierce within this sector than in others, it only translates in the recognition of the importance of promoting shared infrastructures (distribution channels, economies of scale, etc.), shared networks (specialist suppliers, complementary products or services, etc.) and shared practices (knowledge spill over, specialist expertise, etc.).

 Strong and ‘genuine’ brand identity

It goes without saying that family businesses have a clear advantage when it comes to communicating a message of authenticity, tradition and continuity as well as of social responsibility. The direct involvement of family members across different generations is a powerful tool to prove commitment in front of all stakeholders and the wider community.

As an independent project manager and consultant, Valentina Lorenzon helps companies implement change and advises clients on strategic decisions like, for example, the development of new products, markets and propositions. Valentina is experienced working with companies of all sizes across different sectors and, has specialist expertise in supporting SMEs and family businesses.  Get in touch here.