Are family-owned companies better armed for sustainable leadership?

ESG or a company’s environmental, social and governance performance is becoming an increasingly important leadership matter as pressure mounts across all stakeholder groups: investors, consumers, employees, regulators and even suppliers.

A 2020 report from Credit Suisse reviewed the ESG characteristics of family-owned companies using data from one of the ESG rating companies. It found that family-owned companies on average tend to have slightly better results than non-family-owned companies. Relative performance appears to have been a more recent phenomenon and has been strengthening over the past four years.

If we look at some of the key competencies of Russell Reynolds Associates’ model for Sustainable Leadership, we might find some explanation:

• Long-term activation: family-owned businesses are indeed pursuing a longer time horizon in their investment strategies. Family-business leaders tend to aim for transmitting the family asset to the next generation.
• Stakeholder inclusion: family-owned businesses are more often strongly embedded in their local region and have learned over time to care for good relationships with various stakeholders: family members and their emotions, local authorities and their political concerns, and employees. For the latter, “loyalty beats performance” prevails in family-businesses, therefore balancing better people and profit.
• Sustainable mindset: the older family-businesses (generation 3 and more compared to generation 1 & 2) have even better scores than younger firms. This can be explained by the fact that they might often be led by younger leaders who have a stronger sustainable mindset and also have younger shareholders who are pushing for family values to embrace Environmental and Social considerations.   

It is interesting to note that overall better ESG performance in family businesses is mostly led by better Environmental and Social scores. 

On the contrary, they appear to lag their non-family-owned peers in terms of Governance.

Part of the explanation is that management boards tend to be less diverse and are less likely to support minority groups. The report showed that Women make up less than 25% of the board in 52% of family-owned companies analyzed. Minority shareholder rights is also pointed out as an issue from investors.

Still, overall, we’d like to argue that family businesses are better armed for sustainable leadership.