Rarely do women pursue me in the way they did recently in São Paulo airport. Heading home after an intensive week in Brazil, my luggage was too tightly packed to fit a large transparent bag, in which were embedded 12 multi-coloured miniature flip-flops. This mini-footwear display turned out to be a female magnet – several women stopped me to ask where I had got them. I explained that they were a gift from a local company, a container for a set of documents I had requested about their thinking around corporate responsibility and sustainability.
My admirers seemed fascinated when I told them the company that had given the bag to me, less so when I mentioned what the contents were. My reactions, however, were precisely the opposite. The crucial role that family-owned firms play in all economies, particularly in emerging market and developing countries, had largely passed me by for several decades. Yes, I knew that companies like SC Johnson could take an early lead in the environmental area because they were family-owned. And, nearly a decade after SustainAbility began working with Ford, it is still striking to me how its CEO Bill Ford's family links have helped give him the mandate to advance a sustainable mobility agenda internally—even if that agenda is only now gaining traction as soaring fuel prices dent the company’s sport utility vehicle business.
For perfectly understandable reasons, activists and the corporate social responsibility (CSR) “industry” have tended to focus on publicly listed companies. Partly this has been because such businesses have had the scale to create globally visible problems, but in part, too, campaigners have discovered that corporate brands and reputations could be leveraged against those who owned them. In the past, few large family-owned firms controlled brands that were vulnerable to activist and media attack, with exceptions including companies like the confectionary company Mars and the packaging manufacturer Tetrapak. Now, as globalisation increasingly sucks in – and is driven by – emerging economy players, we must work out how to peel the lid back on these businesses.
Family-run enterprises include the sort of companies we increasingly encounter in countries like Brazil and India. In the case of my seductive baggage, made by the flip-flop brand Havaianas, the ultimate owner is Camargo Corrêa, which straddles a diverse array of businesses ranging from cement and construction through environmental engineering to the manufacture of footwear. Here, much of the drive to engage the wider corporate responsibility and sustainability agendas comes from the family shareholders, whose father founded the firm. In India, the Tatas – already in the fifth generation – and the Birlas both run giant family-owned conglomerates that bring a strong sense of values and ethics to the business.
China may not have major family-owned businesses of the scale of the Camargos, Tatas or Birlas, given the predominance of state-owned enterprises (SOEs), or former SOEs that have been privatised. Even so, smaller family-owned Chinese businesses, both in China and the Chinese diaspora internationally, are a major force. One estimate is that private Chinese companies, many family-owned and many located outside mainland China, are the world’s fourth economic power after North America, Japan and Europe.
Whether in China or the rest of the world, it is clear that Chinese family-owned businesses present similar opportunities and challenges to advocates of corporate responsibility and sustainable development as those in other countries. The opportunity lies in the fact that the owners can imbue the business with a sense of purpose and values that includes, but goes beyond, making a profit—something difficult to achieve in a large listed company with dispersed ownership, no matter how good the corporate mission statement may be.
Two inspired Chinese entrepreneurs, who are doing just this, are Zhong Kaimin of egg-producer Deqingyuan, and Zhang Yue of Broad Air Conditioning. Broad Air was founded in 1988, producing absorption air conditioners which operate without using electricity. This technology was critical to realizing Zhang Yue’s belief that environmental considerations should be core to the company’s R&D and sales activities.
However, this was a belief that would be put to the challenge in the late 1990s, after a decade of successful trading. The crisis came as changes in energy supplies and government policies meant electricity was markedly cheaper, resulting in a loss of market share for Broad Air’s product to less expensive and easier to use electric air conditioners. The easy way out for Broad Air would have involved switching to the manufacture of electric models. But true to his vision, Zhang Yue redesigned his non-electric air conditioner to be cheaper, even lower on energy consumption and easier to maintain. Growing success, both in China and internationally, has been the result.
In the case of Deqingyuan, Zhong Kaimin’s challenge came at the very outset. The company set out to produce and market a high-quality egg for the Chinese market – a challenging business environment indeed, considering both the series of food safety and health issues in the country and the fragmented nature of the industry, where prices are under pressure from huge numbers of small producers. But Zhong Kaimin bet – correctly, as it turned out – that his high-quality eggs would mesh with the growing health-consciousness of Chinese consumers, who would be willing to pay a price premium if Deqingyuan could build a brand associated with quality and health.
Despite the successes and environmental credentials of Broad Air and Deqingyuan, real challenges remain. Family businesses are not known for the types of systematic governance, transparency and accountability to stakeholders that are increasingly expected of listed companies internationally, although Deqingyuan, for example, has made clear steps in this direction. One of SustainAbility’s coming tasks will be to look at best (and worst) practice in the family-owned firm sector, to get a better sense of how such businesses can be helped to address the sustainability challenge.
John Elkington is founder and non-executive director at SustainAbility (www.sustainability.com) and founding Partner at Volans Ventures (www.volans.com). He thanks Jodie Thorpe, manager of SustainAbility’s Emerging Economies Program, (www.sustainability.com/emerging-economies) for her help in preparing this article.
Homepage photo by zinlee