Family owned businesses and sustainability: a recipe for success?

Nadine Exter

 

Posted in: Ethics, Governance, Speaking Out, This month...

Family owned businesses and sustainability: a recipe for success?

December 13, 2017

Family owned businesses have distinctive characteristics that can give them a sustainability edge. Corporate Citizenship’s Nadine Exter writes. 

What do you imagine when you think of family-owned businesses? The typical SME – the ‘mom and pop’ corner shop down the road – or some farm in rural England handed down generation to generation? Family owned businesses are actually hugely varied in size, industry, sector and type. Some family owned businesses are indeed the ‘mom and pop’ shops, but others are huge multinationals such as Mars, Associated British Foods (ABF), Heineken, Ikea, Lidl, Novartis, Linkedin, and H&M.

In fact, 87% of UK businesses are family owned and employ 47% of all private sector employment[i]. In most countries around the world, family businesses are between 70-95% of all business entities, and employ between 50-80% of all private sector jobs. And although it is true that among the oldest running businesses globally it is family businesses who tend to be prominent, most start-ups (85%) are actually funded by family money.[ii] Therefore, the likelihood is high that you are, have in your value chain, or have as a customer a family owned business.

And family owned businesses can be very different to publically owned businesses. Legislative and regulatory requirements are different, in areas such as reporting, transparency, and governance for example. This can negatively impact on their performance in rankings such as the GRI or Good Governance disclosures. But family owned businesses can excel in the areas of stewardship, stakeholder investment, and long term thinking. Family businesses tend to take a much longer term view than their traditional publically listed counterparts, with a focus on stewardship for the next generation. This provides a very different motivation of core business purpose, investments, and entrepreneurial shifts; research from consultancy Ernst & Young shows this motivation is more likely to be affected by the closer proximity that family-owned businesses tend to have to stakeholders and especially local communities and customers. At the very least, this provides a powerful story of why a family business can lead in being sustainable and how family values guide their approach to being a responsible corporate citizen.

Family businesses can also have more subtle approaches to decision-making, resource allocation and leadership support for initiatives and change; often depending on the support (or lack of) from a family member for the initiative and on the long term value the initiative has in maintaining the business for the next generation of family owners. This subtle decision-making can also manifest in surprising ways, especially when practically assessing material impacts, priority spend, and stakeholder wants and needs.

On the whole, family owned businesses in Europe recognise the importance of being sustainable, even if the word ‘sustainable’ is not their entry point into the agenda – ‘stewardship’ or ‘long term resilience’ may be their language of choice. A key work stream of the European Federation of Family Business, and the UK Institute for Family Business, is how family businesses approach, embrace and show their sustainability credentials. Corporate Citizenship is pleased to be a network partner with the UK Institute for Family Business. Together, we are looking at how we can practically help members embrace and benefit from being a sustainable family-owned business. The Institute for Family Business (IFB) is a not for profit, membership organisation supporting and promoting UK family businesses through connections, advocacy and expertise.

Consider the research that shows that family businesses do more for stakeholders than the average S&P 500 company does[iii]:

“Family firms, for example, were more likely to nurture their relationships with local communities through the establishment of local charities, or improves interactions with employees, through better pension plan provision.”

Another compelling statistic is that 73% of family businesses surveyed plan to make strategic investments in the near future[iv] (a characteristic of family businesses who in tough times tend to invest when listed companies are decreasing their investments).

Given these characteristics, there is a strong case that embedding sustainability into everyday practices could come more easily to family owned-business – so long as they recognise the opportunities available to them. As Andrew Wates, retired chairman of UK firm Wates Groups, said: “Family businesses, perhaps, have an advantage when it comes to sustainability. All companies with a strong value set are beginning to address the issue, but the difference with family businesses is that the next ownership generation are in the same room.”[v]

[i] 2016: Institute of Family Business.

[ii] 2016; European Family Business Fact Sheet.

[iii] 2012: Network for Business Sustainability research insight: Family firms teach long term survival.

[iv] 2016: KPMG. European Family Business Barometer.

[v] 2012. Ernst & Young. Built to last.

 

Nadine Exter is an Associate Director at Corporate Citizenship.

 

Image Source: Family definition by Nick Youngson at the Blue Diamond Gallery. CC 3.0.

COMMENTS