Part 3 of Family Firms' Sustainability and Governance in a Global Context: From Legacy to Leadership
- Olga Murolo
- 1 day ago
- 5 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 3: From Legacy to Leadership: Rethinking Governance for Sustainable Family Firms
The final part focuses on the broader implications and the questions they should now ask about their governance and sustainability journeys.
Key findings:
Sustainability does not travel on autopilot: ESG engagement requires strong governance, local adaptation, and a dynamic balance between tradition and innovation.
Governance maturity defines transferability: Firms with more independent, diverse, and transparent boards are better equipped to sustain ESG commitments globally.
From legacy to leadership: Family firms can turn long-term vision into global influence by aligning their governance evolution with sustainability ambitions.
The study confirms that governance maturity acts as the hinge between heritage and adaptation. As an example, Italian family firms display a broad spectrum of governance quality, captured through the Corporate Governance Index (CG Index), which integrates dimensions such as independence, diversity, leadership structure, and CEO duality. Only a minority of firms achieve high scores, suggesting that the quality of governance, and not merely ownership, determines how effectively values translate into sustainable strategies1.
Firms with more independent and diversified boards demonstrate stronger accountability and transparency, reinforcing the monitoring and advisory functions2. Similarly, separating the roles of CEO and Chair enhances oversight and aligns with the positive governance-performance link3.
Yet, the persistence of small, insider-dominated boards indicates that many family enterprises remain anchored to relational trust and concentrated decision-making – features consistent with the Socio-Emotional Wealth logic of protecting reputation and control4. This duality – resilience through legacy, vulnerability through closure – lies at the heart of the governance paradox.
The findings on ESG engagement reveal that sustainability, for family firms, is not an exportable template but a relational practice. ESG initiatives thrive where stakeholder visibility and reputational proximity are strongest while fading with increasing cultural and institutional distance. This pattern mirrors the liability of foreignness5 and the liability of outsidership6: legitimacy, unlike capital, cannot be transferred; it must be earned anew in every context.
However, distance is not destiny. Where host-country governance is more open – as indicated by stronger Voice & Accountability – ESG activity increases. Democratic and participatory environments encourage Italian family firms to replicate their responsible behaviours abroad, aligning external pressures with internal ethics7.
This suggests that ESG travels with governance: mature boards serve as translators between institutional systems, helping firms adapt their legacy-driven sustainability models to different cultural and regulatory realities.
Implications for family firms
These insights carry profound implications for family enterprises aiming to evolve from local champions into global stewards. First, considerations regarding board composition must move from a formal requirement to a strategic priority. Diversity – in gender, expertise, and nationality – is not only an ethical benchmark but a source of cognitive variety essential for navigating ESG complexity8. Second, role separation and independence are critical to avoid insularity and ensure that sustainability strategies are both ambitious and credible.
At the same time, the question for many family enterprises is not whether to relinquish control, but how to balance it: are legacy family members sitting on the board genuinely equipped – and willing – to make tough, forward-looking decisions? Preserving family influence does not require diminishing control but rather complementing it with the skills that may be missing among legacy members, ensuring stronger oversight, higher-quality decision-making, and ultimately greater long-term resilience.
Family firms may ask themselves:
Does our governance structure truly reflect the complexity of the challenges we face?
Are ESG decisions monitored by independent, informed directors with the power to question tradition?
How can we transform our local stakeholder trust into a global legitimacy asset?
Are our ESG strategies truly embedded in our operational footprint abroad, or do they remain a headquarters narrative?
Do our board’s competencies reflect the global and cross-cultural dimensions of sustainability?
Have we built the internal systems and reporting mechanisms to learn from, rather than merely comply with, evolving sustainability regulations?
The CG Index developed by SDA Bocconi offers a tangible framework for reflection: a mirror of governance maturity and a roadmap for transformation.
For policymakers and advisors, the message is clear: ESG in family firms cannot be mandated, it must be enabled. Supporting these companies means fostering ecosystems that reduce institutional distance and reward credible sustainability reporting. Incentives for cross-border ESG collaboration, knowledge-sharing, and capacity-building can help family firms replicate their home-grown best practices abroad9.
At the same time, the growing regulatory environment – notably the EU Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS) – will soon turn soft expectations into hard obligations, yet everything remains in motion as the proposed “Omnibus” amendments continue to reshape the framework and its practical implementation. For family firms, governance adaptation is not just a competitive choice but a matter of continuity: the most effective way to protect legacy is to evolve it.
As this research demonstrates, family firms’ sustainability journeys are far from automatic, but they are uniquely positioned to lead. Their strength lies in continuity, but their future depends on adaptation. In an era where governance is both a compass and a contract, legacy becomes leadership only when it learns to evolve9.
Download the full paper below
Endnotes
1 Minichilli, A., Brogi, M., & Calabrò, A. (2016). Governance practices and outcomes in family-controlled firms: A review of research and future directions. Journal of Family Business Strategy, 7(4), 285–306.
2 Fama, E. F., & Jensen, M. C. (1983). Separation of ownership and control. Journal of Law and Economics, 26(2), 301–325.
3 Rechner, P. L., & Dalton, D. R. (1991). CEO duality and organizational performance: A longitudinal analysis.Strategic Management Journal, 12(2), 155–160.
4 Gómez-Mejía, L. R., Cruz, C., Berrone, P., & Larraza-Kintana, M. (2010). Socioemotional wealth and corporate responses to institutional pressures. Administrative Science Quarterly, 55(1), 82–113.
5 Zaheer, S. (1995). Overcoming the liability of foreignness. Academy of Management Journal, 38(2), 341–363.
6 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.
7 Ioannou, I., & Serafeim, G. (2012). What drives corporate social performance? The role of nation-level institutions. Journal of International Business Studies, 43(9), 834–864.
8 De Massis, A., Frattini, F., Majocchi, A., & Piscitello, L. (2018). Family firms in the global economy. Global Strategy Journal, 8(1), 5–21.
9 While the study provides robust empirical evidence, it also acknowledges key limitations.The analysis captures a decade-long snapshot but not the full temporal evolution of ESG strategies. Disclosure asymmetries between countries may have led to underreporting of foreign initiatives, while sectoral heterogeneity and subsidiary autonomy introduce unobserved variance. Future research could deepen these insights by exploring: Longitudinal patterns of governance transformation and ESG learning; Industry-specific dynamics that moderate sustainability transfer; The impact of new EU regulations on reporting quality and comparability; The role of digital tools and third-party verification in closing the implementation gap between intent and action.
