Part 2 of Family Firms' Sustainability and Governance in a Global Context
- Olga Murolo
- 6 days ago
- 6 min read
by Olga Murolo and Michael Reed, The Sustainability Board institute
Introduction
While family-owned businesses are naturally strong on sustainability because of their long-term, legacy-driven mindset, these strengths often weaken abroad. This three-part paper of The Sustainability Board’s Institute for Sustainable Family Business argues that more independent, internationally experienced governance is key to maintaining their values globally. Readers should explore it for a clear, research-based explanation of this paradox and practical guidance on how family firms can preserve their identity and sustainability leadership as they expand internationally.
Part 2: ESG Beyond Borders: What the Numbers Reveal About Italian Family Firms Abroad
Building on the conceptual discussion from the first article, this second part presents new empirical evidence on how Italian family firms integrate ESG principles across borders. Italy offers a particularly compelling context: with one of the highest concentrations of family-controlled companies in Europe, it represents both a rich laboratory for observing governance dynamics and a useful regional lens through which broader global patterns can be interpreted. The analysis offers fresh insights into how legacy, governance, and geography interact when family-controlled companies expand their global footprint, offering lessons that resonate well beyond the Italian case.
Key findings:
What does an Italian family board look like: Italian family firms tend to display relatively small Boards, with less than 5 members, and moderate variability across firms; plus, outside directors represent less than 30% of board members, confirming that insider-dominated governance persists in family controlled-businesses. Lasty, these firms sow a significant heterogeneity in terms of good governance practices, with only 5% achieving highest governance scores.
ESG goes home first: Italian family firms show a persistent home-country bias, favouring domestic ESG engagement due to socio-emotional wealth preservation and reputational proximity.
Distance dampens sustainability, but institutional openness revives it: ESG commitments travel best where both trust and accountability can take root.
Where family firms "put down roots", they become accountable to local stakeholders, employees, and regulators: sustainability shifts from a reputational narrative to a daily operational reality.
The investigation(1) was guided by three core research questions: Do Italian family firms display a substantive home-country bias in their ESG engagement? How do cross-national distances affect the transfer and adaptation of ESG strategies abroad? How does the type of foreign subsidiary influence the likelihood and depth of ESG implementation?
Together, these questions explore how legacy and governance travel, or fail to travel, when family firms internationalise their sustainability efforts.
A Portrait of Governance in Italian Family Firms
Before delving into the patterns of ESG engagement, it is important to first understand the governance landscape of the firms that drive these strategies. The sample analysed in this research offers a revealing cross-section of the governance practices and organizational maturity that shape the Italian family business landscape. Boards remain relatively small – an average of 4.8 members – and display moderate variability across firms. This size configuration is broadly consistent with the notion that compact boards promote agility and cohesion, though larger structures occasionally emerge to accommodate broader expertise or stakeholder representation.
Board independence, while advancing, remains limited: outside directors represent on average 27.8% of board members, confirming that insider-dominated governance persists as a defining trait. This configuration aligns with prior studies highlighting the tension between concentrated family control and independent oversight (2,3)
To capture these multidimensional features, a Corporate Governance Index (CG Index) was constructed by SDA Bocconi, integrating five pillars: formal board presence, diversity, leadership structure, independence, and CEO duality. The index reveals significant heterogeneity, with most firms positioned in intermediate tiers and only 5% achieving the highest governance scores. Higher values are systematically associated with role separation, greater independence, and above-median diversity, confirming the positive relationship between these attributes and governance quality.
Sectorally, the sample is dominated by manufacturing firms (≈50%), followed by services (≈30%), with remaining segments dispersed across retail, finance, construction, and energy – mirroring the structural backbone of Italy’s family enterprise system. Their foreign direct investments (FDIs) span both mature and emerging markets, including Brazil, Germany, Argentina, Switzerland, China, and the UAE, confirming a dual international orientation that combines stability and growth.
These descriptive insights portray a heterogeneous governance landscape – traditional in ownership yet gradually evolving in composition and oversight. They set the stage for understanding how varying degrees of board independence, diversity, and international exposure condition the way Italian family firms engage with sustainability and ESG commitments at home and abroad.
When sustainability stays home
The analysis revealed that Italian family firms tend to concentrate their ESG initiatives domestically. Statistical models show that ESG actions within Italy are more than ten times more likely than in any foreign region, signalling a pronounced territorial anchoring. This pattern reflects a form ofhome-country biasconsistent with the logic ofSocio-Emotional Wealth, the desire to safeguard family reputation, maintain trusted relationships, and preserve local legitimacy(6,7).
In other words, sustainability begins where visibility is greatest. When operating abroad, family firms face the “Liability of foreignness”(8): relational capital and reputational trust cannot simply be transplanted. This dynamic is further compounded by the “Liability of Outsidership”(9), the difficulty of accessing and integrating into foreign business networks where trust and legitimacy must be earned anew. ESG activity thus becomes thinner as the firm moves away from its home base, constrained by unfamiliar norms and weaker stakeholder proximity. The evidence suggests that sustainability, for these firms, remains deeply rooted in place.
The weight of distance
The study also examined how cultural and institutional distance shape the ability of Italian family firms to replicate their ESG engagement abroad. The data show that the larger the distance between Italy and the host country, the lower the likelihood of meaningful ESG activity.
Cultural distance – measured through Hofstede’s indices – was negatively and significantly associated with ESG engagement (β ≈ –0.012 / –0.014 ***), as was institutional distance based on the World Governance Indicators (β ≈ –0.003 ***). These patterns highlight the friction that arises when firms attempt to transpose home-grown sustainability practices into settings governed by different social norms and institutional logics.
Interestingly, one institutional factor proved to work in the opposite direction. The Voice & Accountability index, which captures the degree of democratic participation and stakeholder openness in the host country, showed a positive and significant effect (β ≈ 0.025 / 0.032 ***). In contexts that value transparency and dialogue, Italian family firms appear more comfortable aligning their ESG standards with local expectations. Where governance systems resonate with their ethical orientation, distance becomes less of a barrier.
The analysis paints a nuanced picture: distance dampens sustainability, but institutional openness revives it. ESG commitments travel best where both trust and accountability can take root.
Where roots take hold: the depth of foreign presence
Beyond geography, the nature of the foreign investment emerged as a decisive factor. The research found that family firms with manufacturing subsidiaries – those with tangible, long-term operations – were significantly more likely to engage in substantive, SDG-aligned ESG actions. This finding held even after controlling for firm size, leverage, profitability, and governance features. In contrast, firms with only commercial subsidiaries tended to exhibit lighter, more symbolic ESG activity. The difference reflects an embeddedness effect: where family firms “put down roots”, they become accountable to local stakeholders, employees, and regulators. Sustainability shifts from a reputational narrative to a daily operational reality.
This evidence underscores that the transmission of ESG practices depends not only on governance or intent but also on the depth of presence. Physical and relational embeddedness abroad compensates for cultural distance, turning sustainability from a statement into a structure.
Reading the patterns
Taken together, the findings reveal a coherent logic. Italian family firms are deeply committed to sustainability – but that commitment is unevenly distributed. It is strongest where home identity and stakeholder familiarity prevail, weaker where institutional distance widens, and most resilient where the firm becomes operationally embedded abroad.
These dynamics bridge perspectives from socio-emotional wealth theory, institutional analysis, and international business studies: legacy fuels the intention, context shapes the opportunity, and embeddedness determines the outcome.
In essence, sustainability in family firms travels with their roots, not merely with their capital.
Download the full paper below
Endnotes
(1) Drawing on an extensive dataset of 2,769 Italian family-controlled firms observed over nearly a decade, this research used advanced text analysis and econometric modelling to uncover where and how sustainability commitments take shape. By combining natural language processing (NLP) models (BERT and RoBERTa) with manual validation, more than 43,000 ESG-related actions were identified, mapped to the UN SDGs, and geolocated across countries. These data were then matched with firm-level governance indicators and measures of cultural and institutional distance.
(2) Fama, E. F., & Jensen, M. C. (1983).Separation of ownership and control.Journal of Law and Economics, 26(2), 301–325.
(3) Adams, R. B., & Ferreira, D. (2007).A theory of friendly boards.Journal of Finance, 62(1), 217–250.
(4) Terjesen, S., Sealy, R., & Singh, V. (2009).Women directors on corporate boards: A review and research agenda. Corporate Governance: An International Review, 17(3), 320–337.
(5) Adams, R. B., & Ferreira, D. (2009).Women in the boardroom and their impact on governance and performance. Journal of Financial Economics, 94(2), 291–309.
(6) Gómez-Mejía, L. R., Cruz, C., Berrone, P., & Larraza-Kintana, M. (2010).Socioemotional wealth and corporate responses to institutional pressures: Do family-controlled firms pollute less?Administrative Science Quarterly, 55(1), 82–113.
(7) Berrone, P., Cruz, C., & Gómez-Mejía, L. R. (2012).Socioemotional wealth and proactive stakeholder engagement: Why family-controlled firms care more about their stakeholders.Entrepreneurship Theory and Practice, 36(6), 1153–1173.
(8) Zaheer, S. (1995).Overcoming the liability of foreignness.Academy of Management Journal, 38(2), 341–363.
(9) Johanson, J., & Vahlne, J. E. (2009). The Uppsala internationalization process model revisited: From liability of foreignness to liability of outsidership. Journal of International Business Studies, 40(9), 1411–1431.