Family firms pay more attention to CSR – but attention wanes as the company is passed down the generations
Companies owned by families pay more attention to issues of corporate social responsibility (CSR), such as sustainability and environmental issues, according to research from Vlerick Business School, but the research also found that attention to CSR decreases as the company is handed down to the next generations.
Dr. Kerstin Fehre, Professor of Strategy at Vlerick Business School, alongside Dr. Florian Weber from the Karlsruhe Institute of Technology in Germany, studied family firms and the attention they gave to CSR compared to non-family firms. This study, published in the journal Business Ethics: A European Review, used over a hundred of the largest HDAX listed companies in Germany and analysed letters to the shareholders published in the annual reports. Attention to CSR was measured depending on how often words associated with CSR, such as emission, environment, renewable, and diversity, appeared in the letters.
Family-firms were divided into different types: founder-owned, family foundation-owned, and those passed onto the next generations. The researchers found that companies still owned by the founders or with family foundations generally payed more attention to social responsibility, but family firms passed on to later generations did not show the same level of attention to CSR.
Dr. Fehre says,
“Founders are the first and most visible representative of a company. They have a greater attachment to the firm and want to ensure their image stays legitimate and positive, and to meet these expectations management pay great attention to CSR. As the company is passed on to the next generation, emotional attachment can decrease, especially if they see the company as a burden or something they feel pressured to continue. Some children and grandchildren of founders may see the company as a purely financial investment, disregarding the company’s impact on sustainability and the environment.”
The researchers state that a founder’s image is directly linked to the image of the company: when the company looks good or bad, so does the founder. Founders put more effort into highlighting the social responsibility of their firm and draw rewards from these non-financial social gains, due to close links to their company. Not all following generations do feel this strong link to the company’s image or a need for non-financial gain and focus on the financial aspects more.
The research also discovered that family-firm owners also put CSR higher on the agenda of firms in which they only participate as shareholders, and not only in their own family firms. This indicates that family owners don’t just care about their reputation, but genuinely care about CSR.
The researchers suggest that if a family firm is reaching a point where it is soon to be passed on to the next generation then it may be beneficial to establish a family foundation. This allows them to maintain a level of control and influence over the company in the founders interest, and continue the firm’s attention to CSR in a way similar way.