The accelerating pace of technological advancements, coupled with the gradual shift towards a more sustainable economy, have prompted companies worldwide to respond by proposing and developing various environmental management practices. As a result, many corporations have made promises to behave in more planet-friendly ways.
As the most ubiquitous form of business in every world economy, family businesses are not exempt from the need to manage the escalating demand for greener business practices. Adopting environmental management practices poses unique challenges for family business owners who face uncertainty and complexity on their way to sustainable development. However, what — if any — impact does a family firm structure have on how organizations respond to these challenges? Moreover, are family businesses, with their concentrated management structures, any better at navigating the demands of environmental regulations and eco-conscious consumers than their peers?
An international study of the internal and external environmental management practices of 1,690 family and nonfamily firms from 29 countries and 19 industrial sectors between 2007 and 2014 revealed that pollution prevention, green supply chain management, and green product development practices vary greatly across different types of family firms.
Historically, research at the intersection of family business and environmental management has tended to address the topic mainly from a socioemotional wealth perspective (Mariani et al., 2023), with a focus on average effects (Dekker & Hasso, 2016; Dou et al., 2017; Memili et al., 2018), based on the assumption that the “family effect” remains the same across different environmental management practice intensities.
One of the more surprising findings of the longitudinal study mentioned above is that the “family effect,” cited in many historical studies of family businesses, is not a constant across family firms, but ranges from extremely negative to no effect at all. As a class, the heterogeneity of family firms exceeds that of their nonfamily counterparts across the spectrum, showing equivalence among the most positive exemplars, but inferiority among the poorer corporate citizens.
Against a list of criteria, including pollution prevention, green supply chain management, and green product development practices among the companies included in the longitudinal sample, the negative effect of family influence on environmental management practices was reduced for older and smaller family firms and those with more independent and institutional investors. In addition, the magnitude of the effect depends on the type of firm, the industrial context, the type of economy, and the stages of the business cycle.
“Unlike other sustainability initiatives, the 2030 Agenda emphasizes that its successful development requires international collaboration among all stakeholders, including corporations at the forefront of the program”
The debate in regulatory, business, and academic communities on the adoption of environmental management practices by publicly traded firms (Hollis, 2019; Roston, 2019) is likely to intensify in the coming years. In fact, meeting the societal environmental expectations — which were further fueled by the establishment of the 2030 Agenda for Sustainable Development by the United Nations — through the adoption of environmental management practices can be a way for companies to demonstrate their substantial commitment to sustainability. Unlike other sustainability initiatives, the 2030 Agenda emphasizes that its successful development requires international collaboration among all stakeholders, including corporations at the forefront of the program.
There are two major reasons why family firms are particularly interesting subjects for studying environmental management practices: First, their non-economic goals shape their strategic decisions more than is the case for nonfamily firms (Gomez-Mejia et al., 2007; Gomez-Mejia et al., 2011; Pinelli et al., 2023). This can lead to both extremely positive and negative environmental management practices (Le Breton-Miller & Miller, 2016; Miller & Le Breton-Miller, 2021). Second, research in family business has paid far less attention to environmental policies than those regarding a firm’s governance and social and financial performance (Evert et al., 2016; Yu et al., 2012). Understanding the differences across environmental practices is essential as investments in environmental management practices reach $600bn annually worldwide (Paul, 2019).
It is certainly the case that family firms, with their idiosyncratic characteristics, are overrepresented among groups with the poorest and most superior outcomes. Whereas renowned firms like Patagonia, Body Shop, and IKEA are at the forefront of their ESG policies and actions (Vayrynen & Heaps, 2020; Winston, 2019), others, such as Volkswagen, Fiat Chrysler, and Exxon, have been forced to pay multimillion-dollar settlements due to environmental misconduct (Dennis & Eliperin, 2019; Siano et al., 2017).
Other factors make a difference, too. For example, family firms in developed countries and those with stringent environmental laws also have better environmental management practices, although other factors such as industry “dirtiness,” industry concentration, and stages of the business cycle also mitigate these family effects.
Given the unique space they occupy in the business landscape, family firms and other businesses with concentrated ownership structures are well placed to strengthen the environmental pillar of their strategy and become “green champions.”
From pollution prevention to green supply chain management practices, the most environmentally friendly family firms often demonstrate subtle differences from their peers in their motivations and actions regarding caring for the natural environment. For these firms, the decision to reduce waste and thereby cut costs may be driven by reduced access to capital and higher market valuations. Green product development practices further enable these firms to engage better and meet the expectations of various stakeholders, including customers, suppliers, non-governmental organizations, regulators, and communities.
They may strive to be more environmentally responsible, primarily to preserve their personal and public reputations, which are crucial to their business success. And, as many are unusually embedded within and attached to their local markets and communities, they may form longer-term relationships with their stakeholders, thus facilitating a partnership approach and making it harder to ignore their broader environmental impacts. In so doing, they can create novel growth opportunities, ranging from the discovery of novel technologies to opening new markets (Dangelico et al., 2013), which is particularly attractive for those family businesses seeking hypergrowth to accommodate additional family members in the business.
On a less positive note, many other family firms tend to neglect environmental management practices. These firms may take an overly cautious approach to spending on green projects driven by non-economic goals, such as family control of the firm, career for offspring, or prestige in the community, especially in developing countries with weak capital markets and less stringent environmental regulations. Another factor is the prevalence of nepotism, favoritism, and family-dominated boards whose economic preferences may hinder progress toward adopting investment-intensive technological solutions to environmental problems. How family businesses address and overcome these problems, however, can yield useful data for companies with concentrated ownership structures and nonfamily businesses, too.
The trend among family firms to have extremely heterogeneous environmental management practices has important implications for policymaking globally, and for decisions made by investors and business owners, particularly when dealing with firms that have different ownership and management structures.
Regulators have a significant role to play in this process by considering family governance tendencies when establishing more stringent environmental policies and regulations, particularly in developing countries and problematic concentrated industries. Meanwhile, family business owners should consider strengthening the environmental pillar of corporate strategy to keep up with competitors and become environmental champions. Investors can benefit from insights into the nature of firm ownership and ownership structure when evaluating environmentally related business opportunities.
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