Are family businesses more ethical?

Robots built by ABB at a factory in Shanghai. Photo: ABB. 

Robots built by ABB at a factory in Shanghai. Photo: ABB. 

Are family businesses more ethical than others? Research suggest they might be. A recent study, entitled Staying power: how do family businesses create lasting success? co-written by EY and Kennesaw State University, found that 85% of the family businesses surveyed have a code of ethics, compared with only 57% of the world’s largest companies overall.

Whether that finding can be generalised is unclear, however, especially when it is compared with the list of the world’s most ethical companies compiled annually by the US Ethisphere Institute. This year there were 132 companies on the list, but only 20 were family owned, either directly, like Ford, or indirectly, like ABB, whose biggest shareholder is the Swedish-based Investor owned by the Wallenberg family.

Of course, the big question here is what counts as ethics. Why, for example, are 99 of the 132 companies on the Ethisphere list from the US? Are the ethics of companies in the rest of the world so much worse than in the US? Or is that a function of the way they measure companies? Thirty-five percent of the ethics score for that list comes from a firm’s Ethics and Compliance programme, which is closely tied to the American government’s Federal Sentencing Guidelines for compliance and ethics programmes. Worthy, no doubt, but ethics is often bigger (and fuzzier) than that.

For example, you might argue that long-termism - a quality often associated with family businesses - is itself ethical as it promotes economic stability at the expense of potentially risky growth. You could plausibly argue that environmental issues should trump all others. (Interestingly, 77% of family business respondents in the EY study agreed that it was important to improve the environment.) Or you might say that engaging in philanthropic activities is ethical. Or a refusal to offshore production, if that would cost jobs.

Ethics is a slippery concept, and impossible to benchmark. It is probably one of those things that you know when you see it - and repeatedly people think they see it in family businesses. Maybe the best way to tell if family businesses are ethical is to look at them one by one.