Family firms: A good reputation can come at a price

Family firms traditionally enjoy high levels of consumer trust and are widely perceived as responsible, value-driven businesses. Previous research has therefore suggested that they benefit from their positive reputation in times of crisis. However, a new study by an international research team led by Philipp Jaufenthaler from WU (Vienna University of Economics and Business) reveals that this reputational advantage is not unconditional. The decisive factor is whether consumers perceive a negative incident as being within the company’s control and therefore preventable.

Benefit of the doubt in uncertain situations

In two experiments, the researchers examined how consumers respond to negative corporate social responsibility (CSR) incidents, such as cases in which employees were paid below the legal minimum wage.

When it is initially unclear whether a company could have prevented such an incident, family firms benefit from their positive reputation. Consumers are more likely to assume that the company had little control over what happened. As a result, family firms are evaluated more positively than comparable non-family firms, even after a negative CSR incident.

“Family firms are more likely to receive the benefit of the doubt when the circumstances surrounding an incident are unclear,” explains Philipp Jaufenthaler. “Many consumers assume that such incidents are more likely to be the result of unfortunate circumstances than of a deliberate decision by the company.”

Higher expectations, greater disappointment

The picture changes significantly once it becomes clear that the incident was within the company’s control and could have been prevented. In this case, the reputational advantage turns into a disadvantage: family firms are judged more negatively than non-family firms.

“Our findings are the first to demonstrate a reversal effect,” says Jaufenthaler. “Precisely because family firms are perceived as particularly responsible, consumers react more strongly when these expectations are disappointed.”

According to the researchers, this is due to the high moral expectations many people associate with family firms. When these expectations are violated through deliberate or controllable misconduct, consumers perceive this as a particularly serious breach of trust.

Implications for crisis communication

The findings suggest that family firms should carefully consider the role of their reputation in crisis communication. As long as the causes of an incident remain unclear, communicating the company’s identity as a family firm can help preserve consumer trust. However, if it later becomes evident that the incident was within the company’s control and could have been avoided, this same family identity may intensify negative consumer reactions.

“A strong reputation is a valuable asset—but it also raises expectations of responsible behaviour,” Jaufenthaler emphasizes.

Methodology

The findings are based on two experiments involving a total of 534 U.S. consumers. Participants first evaluated a fictitious company that was described either as a family firm or as a non-family firm. They then received information about a negative CSR incident and evaluated the company again.

• In the first experiment, it remained unclear whether the company could have prevented the incident.

• In the second experiment, participants additionally received information indicating whether the incident had been within or outside the company’s control.

This allowed the researchers to examine how consumers’ perceptions of a company’s ability to prevent a negative incident shape their evaluations of family firms.

FURTHER INFORMATION

Paper

• When Family Firm Reputation Backfires: The Role of Controllability in Consumer Responses to Negative CSR Incidents. Entrepreneurship Theory and Practice, 1–30. https://doi.org/10.1177/10422587251406322

Authors

• Philipp Jaufenthaler (corresponding author): Department of Management, Institute for Family Business, WU Vienna University of Economics and Business, Austria; Department of Management and Marketing, University of Innsbruck, Austria

• Roland Schroll: Department of Management and Marketing, University of Innsbruck, Austria

• Franz W. Kellermanns: Department of Management, University of North Carolina at Charlotte, USA; Center for Family Enterprises, WHU – Otto Beisheim School of Management, Germany