Among the big three U.S. automakers, the first to begin developing a hybrid was the one that carries a family name. Ford’s hybrid Escape came out in 2004, and the company now advertises “the most fuel-efficient SUV on the planet.” Pascual Berrone, assistant professor of strategic management at the IESE Business School in Madrid, thinks that’s no accident.
“On average, family firms pollute less than nonfamily firms,” Berrone says. They are more likely to “consider affective elements that go beyond the economic rationale, like caring about others, treating your employees as relatives and friends.” That may sound more like a mom-and-pop operation than it does like Detroit, but Berrone’s sample consists of several industrial giants.
Berrone and his coauthors considered massively polluting firms in the United States, those that manufacture or process more than 25,000 pounds of toxic chemicals annually. Of 194 companies reporting toxic releases to the U. S. Environmental Protection Agency, 101 were family firms. The researchers found that when family members own or control at least 5 percent of the voting stock, “they do tend to invest more in pollution control,” says study coauthor Luis Gomez- Mejia, a management professor at Texas A&M University. “They tend to go beyond the legal requirements, and go the extra mile in reducing contamination problems.”
Gomez-Mejia explains that “the family, unlike a hired executive, is guided by utilities or gains other than just the financial gains,” such as the family’s image, reputation, and prestige in the community. “If a firm has a lot of facilities in one particular area, then that becomes even more important, because the family becomes much more visible in the local area.” This is not to say that families own the moral high ground—although to Berrone, who grew up in his family’s catering business in Argentina, “it does seem like there’s something more in family firms. It’s very hard to capture, but you can actually feel it.” He thinks of it as fear of who gets stuck with the blame. When “the face of the firm is the face of the family,” responsibility accrues personally.
The same incentives could apply to any company. “It really is a matter of making sure that people know who’s responsible, that people can see the face, for whatever the actions or decisions are,” says Gomez-Mejia. “The more anonymous it becomes, the more they can hide.”
Pascual Berrone, Cristina Cruz, Luis R. Gomez-Mejia, et al., “Socioemotional Wealth and Corporate Responses to Institutional Pressures: Do Family-Controlled Firms Pollute Less?” Administrative Science Quarterly, 55, 2010.
Read more stories by Jessica Ruvinsky.