Are family firms really more socially responsible?

For socially responsible firms, corporate performance is more than financial statements and shareholder returns. Looking beyond the balance sheet, they aspire to serve all stakeholders, from employees, customers and suppliers, to local communities and society at large.

In the realm of family-owned firms, a core dimension of this focus is socioemotional wealth (SEW), which refers to affective, non-financial goals like status, identity, reputation and preservation of the family legacy.

Accumulated over time, SEW defines the family firm as a unique entity and sheds light on why it might behave differently from other organizations. As part of my research on these affective endowments, five aspects of socioemotional wealth stood out:

  1. Family control and influence
  2. Identification of family members with the firm
  3. Binding social ties
  4. Emotional attachment of family members
  5. Renewal of family bonds (dynasty)

Family firms and CSR: a four-year empirical study

Guided by these dimensions and their intrinsic long-term perspective, family firms are widely considered more socially responsible than their non-family counterparts. But is this really true?

My colleagues and I conducted a four-year empirical study to find out, analyzing data from 598 family firms across 22 countries and differentiating their socially responsible actions into two realms: internal versus external stakeholders.

Internal stakeholders

Despite commonly held views, the umbrella of social responsibility in our sample did not extend to internal stakeholders like employees or governance systems. In some cases, family business owners might view non-family employees or board members as a threat to familial control if they become overly attached to the company or exert undue influence in the eyes of family members.

This lens can lead to lop-sided compensation practices and a narrow pool of independent directors in order to retain power in the hands of the family.

External stakeholders

And what about external shareholders? Given their long-term outlook, shouldn’t family firms show greater concern for environmental, community and customer issues? Again, this hypothesis didn’t hold up in our research, which found no statistically significant differences between family and non-family businesses.

With SEW preservation shaping the decision-making process in family firms, external factors seem to hold less weight. The same is true when family firms record lackluster financial performance: they are more likely to cut their CSR initiatives in the face of waning profits.

In family-controlled companies, socioemotional wealth seems to act as a double-edged sword by provoking both socially responsible and irresponsible behavior: their long-term outlook might make them more impervious to leadership fads and short-termism, yet more prone to disregard key stakeholders and important industry shifts.

With this in mind, executives in family firms should carefully weigh the firm’s long-term outlook and strategic priorities when implementing social programs.

Prof. Berrone’s research on socioemotional wealth has led to his distinction as one of the world’s most highly cited scholars for the third consecutive year.