Family-Owned Firms Pollute Less

A study found that family-owned firms have a better environmental record than their non-family counterparts.

A study of 194 US firms found that family owned public corporations have a better environmental record than their non-family counterparts. This study credits the non-financial factors, such as reputation, recognition, and public image, as reasons for higher environmental performance among family firms. The emotional connection a family has to a local community helps maintain a moral obligation to that community.

Background

Within a company, CEOs or top management may pursue their own goals (prestige, pet projects, risk minimization) at the expense of other stakeholders. As a result, many environmental initiatives are often just greenwashing. These publicly traded non-family firms likely focus on the appearance of compliance. By contrast, family owned firms place a greater value on their role in the community. In this study, the authors compare environmental performance of 194 U.S. family owned and non-family owned public corporations engaged in the manufacturing industry from 1998 to 2002.

Findings

• Family owners care about non-economic factors. They derive a sense of self and identity from the firm and tend to think more long term. Image and reputation are important, as is recognition for generous actions. These corporations are better able to enforce environmental policies.
• Environmental performance is better when a family firm’s headquarters and subsidiaries are concentrated in one area. Community pressures can be targeted (e.g. at one plant), making them more concrete.
• Publicly traded firms in which CEOs own stock have higher emissions than family owned firms. Stock ownership leads to more conservative decisions.

Implications for Managers

Managers of publicly traded firms can learn from family owned firms and improve environmental performance by:

• Thinking long-term.
• Recognizing the value of reputation.
• Ensuring incentives align with your firm’s strategy and values. Stock options, for example, encourage executives to avoid risk and focus on short term financial outcomes.

Implications for Researchers

This research advances a new theoretical line of reasoning, specifically, socioemotional wealth, in explaining corporate environmental performance. Future research could extend and develop this theoretical positioning to other contexts and other dependent variables.

Methods

The authors focused on firms in industrial sectors required to report emissions under the Toxic Release Inventory program of the Environmental Protection agency (i.e. generally large firms with high-polluting manufacturing processes). Family corporations were those in which at least 5 percent of the company’s stock was owned by the family.

The total sample included 194 firms of which 101 were family firms. Researchers used archival data spanning a five-year range from five sources: COMPUSTAT, the Securities and Exchange Commission, the Environmental Protection Agency, LexisNexis Corporate Affiliations’ database and the U.S. Census Bureau. Environmental performance, the dependent variable, was based on emissions at the plant site. The authors tested hypotheses using OLS regression with lagged independent variables..

Berrone, Pascual, Cristina Cruz, Luis R. Gomez-Mejia, and Martin Larraza-Kintana. (2010) Socioemotional wealth and corporate responses to institutional pressures: Do family-controlled firms pollute less? Administrative Science Quarterly, 55 p 82–113.

Originally published at https://www.nbs.net on December 15, 2020.