Social Responsibility in Saudi Family Firms

Subject: Entrepreneurship
Pages: 6
Words: 1870
Reading time:
8 min
Study level: PhD

Introduction

Family firms are basically perceived as being less socially responsible because of their incentive to guard family wealth. However, although family firms might engage in various positive social initiatives, they will not probably get involved in activities that have negative consequences. According to Alderson (2011), family firms tend to refrain from corporate social responsibilities initiatives because they usually support the views of owners as being more interested in a positive reputation.

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According to Alderson (2011), family businesses are significantly philanthropic and they give to the local community, educational institutions, religious charities, and international relief efforts. It is believed that family firms give a larger percentage of profits than nonfamily businesses. These businesses also get a lot of support from the local communities. This is why these companies are closely related and linked to their communities. Due to the small sizes of these businesses, their customer and employees are from the local people. The founders of family businesses emphasized that the firms should be involved in the local community as a way to pay the community back for supporting their businesses over years. Alderson (2011) further argues that “giving reinforces family values and that charitable giving is a way for nonactive family members to be involved with the family and the business and to understand the relationship between business profit and giving” (Alderson, 2011, 27). Family businesses in their corporate social responsibilities tend to concentrate on issues such as education, poverty and entrepreneurship. Family firms mostly focus on issues related to the firm’s business in their CSR. This increases awareness of the business among its customers and community. This is because the firm is associated with a family giving and it supports a worthy purpose.

Aims and objectives

The overarching research aims of the proposed study are to examine the current attitudes, trends and applications of social responsibility and environmental responsibility in Saudi family firms. Pursuant to these aims, the following objectives will be used to guide the study:

  1. To explore the meaning and characteristics of family firms.
  2. To explore the social responsibility of family firms in a global context.
  3. To explore the application of social responsibility by family firms in Saudi Arabia.
  4. To explore the major CSR activities carried out by family firms in Saudi Arabia.

Rationale/ significance of the study

The rationale of conducting this study is to understand the extent to which family firms in Saudi Arabia participate in corporate social responsibility. This information is crucial to a number of parties:

The family firms themselves

The study will help these family firms understand the role they play in the community in terms of social responsibility. It will also put clearly the kind of activities that different companies carry out in their CSR initiatives and compare them with theirs.

The government

The government of Saudi Arabia will also understand the role that family firms play in the betterment of the communities around them. Based on the information gathered, the government may also identify the firms that it can work within reaching out to society.

The general public

The study will provide information to the general public about their relationship with these family firms. They will also understand the value of the activities that the firms carry out in the community.

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Literature Review

Family Firms Characteristics

Chua, Chrisman, & Sharma (1999) define a family business as a business that is controlled and managed by one family’s members or a number of families together. Their main aim is to ensure the sustainability of the business across generations. Mostly, the visions of the business accommodate both personal accomplishments and goals meant to better the future generations of their owners.

According to Poutziouris, Smyrnios, Klein & International Family Enterprise Research Academy (2006), Family enterprises, irrespective of the scale of operation, legal forms, industrial activity and the level of social-political and market development have been the backbone of corporate life in many parts of the world. They play a big role in social-economic development. Many researchers have found that many family businesses lag behind in building managerial capabilities as they move on towards internationalization. It is also believed that family firms are less likely to employ managers from outside to manage their internationalization process and manning major activities. They select a suitable family member to take the lead. It is also generally believed that members of the owner’s family have a special incentive to propel the company towards embracing innovation since the success of the company means their success and increased earnings. According to Casillas, Acedo & Moreno (2007), family businesses attempt to keep control of the organization within the family circle.

The firms also have a strong business culture. Though the culture is inward-looking and resistant to change, it still appears strong since there is a sense of ownership by almost all members of the firm. They would all wish to succeed and the company succeeds (Poza, 2009). The culture may also be harmful to the progress of the company since decision-making is mostly constrained by the firm’s history and tradition. Since the cultural characteristics of family businesses are the same throughout the world, it becomes easier for them to form strategic alliances.

Social Responsibility in family firms (global context)

Miller & Miller (2006) indicate that socially responsible behavior is necessary and desirable in family firms to protect the family business and assets. It is, however, commonly held that family firms do not usually act in a socially responsible manner. However, research shows otherwise, that family firms are more socially responsible than non-family firms on a number of dimensions. This is likely to be due to internalized family concern, true need and a wish to protect family values and reputation.

Family firms may behave in more or less socially responsible manners because of a number of reasons. Whether a family firm behaves in either way depends on the particularistic sets of goals and values a family holds. Thus, a family, which believes that outsiders and competitors must be crushed to protect family wealth will seek competitive advantage by such unfair means as ‘political rent seeking’ at the general expense of society. By so doing, the particular family firm behaves in a less socially acceptable manner (Chrisman et al, 2006)

On the other hand, a family that believes in the family image, reputation, and the need to invest in moral capital will use more conventional means of competing with outsiders, thus, behaving in a more socially acceptable manner. They are inclined to be engaged in positive social initiatives than non-family firms are. These findings serve to support the proposition that family firms are more concerned with building a positive image and reputation (Dyer & Whetten, 2006).

These also imply that family controls engender personalism, which in return enables particularistic non-economic motivations to dominate the business agenda. Kapten (2008) offers an alternative explanation to this trend that family firms are largely personally sensitive to societal sanctions on the part of the owners. He goes on to say that the sensitivity may be as a result of three factors: the tighter bonds between owners and management in these firms, much of a family wealth tied to the business and the ability of a family to liquidate their investment in the firm.

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Social responsibility by family firms in Saudi Arabia

Most Saudis prefer family business because they believe it is easier to trust family members than outsiders. An estimated 90% of companies in Saudi are family-owned (KMU Forschung Austria, 2008). These firms are often labeled as unprofessional, and constantly subject to succession squabbles. Al-Rajhi, one of the owners of a chain of family businesses says that family firms can be more socially responsible with a longer-term vision than non-family firms. This, he says, is because the firms do not have to show constant improvement in their quarterly returns because the businesses are solid and consistent (Poza, 2009).

Family firms are built on the teaching by ‘the prophet’ that one should start by helping their immediate family before reaching to outsiders. Many family firms in the country now participate in charity work such as paying welfare tax and community work as required by the fourth pillar of Islam (Schwartz, 2005).

Family firms are criticized for a number of reasons. Some argue that while the first generation builds the business, the second and subsequent generations are likely to squander the money and engage in less socially acceptable behavior. Besides, most family firms find it difficult to accept professional outsiders, which often results in a firm being split at the management level in accordance with the specific interests of the founder’s children and relatives (Wood, 2005).

The concept of social responsibility in these firms depends on the global determinants. Some firms behave in socially acceptable ways, and some do not, depending on family attitude and beliefs (Zellweger et al, 2010).

Major CSR activities are carried out by family firms in Saudi Arabia

One of the major CSR activities carried out by family-owned businesses is the training services for the physically challenged children in the kingdom. Although this initiative is adopted by most companies with the support of the government, family firms are also part of it. The firm’s aid in providing facilities and another form of specialized assistance is needed by these people.

The other activity is the creation of job opportunities. Family firms are currently hiring some people from outside the owning family to help in the daily operation of the firms. Although they can hardly entrust the management of the firms to outsiders, they always need the assistance of other people. The creation of job opportunities also helps in improving the standard of living of the people in the kingdom.

Mostly, CSR activities in the kingdom are meant to serve the more unfortunate in society. The activities are mostly restricted on the basis of religion. The family firms also adopt the same culture as other firms (Carlock, 2010).

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The firms also participate in medical support programs that help the local people access health services with ease. There are also computer literacy and education drives that aim at equipping the locals with quality education and computer technology. They also take part in anti-obesity and anti-smoking campaigns that is embraced by most firms in the kingdom.

Methodology

The research methodology to be used by the proposed study will employ both qualitative and quantitative techniques. The qualitative segments of the research methodology will include the following:

  1. Semi-structured interviews with the top managers of Saudi family firms with regards to corporate social responsibility.
  2. Semi-structured interviews with the top managers of Saudi family firms to identify the major CSR activities carried out by Saudi family firms.
  3. Semi-structured interviews with dedicated CSR staff members or managers assigned these responsibilities with regard to family firms’ CSR activities in a global context.

Data collection for the proposed study will involve both primary and secondary data. Primary data will be collected from semi-structured interviews that will be conducted face to face or telephonically with the interviewees at their preference and convenience. Secondary data will be collected from any literature about Saudi firms’ CSR. The target population will be some senior managers of Saudi family firms, customers and staff who have been involved in CSR activities.

Reference List

Alderson, K.J. (2011). Understanding the Family Business. London: Business Expert Press.

Carlock, R. S & Ward, J. L., 2010. When Family Businesses Are Best: The Parallel Planning Process for Family Harmony and Business Success. Hampshire: Palgrave Macmillan.

Casillas, J. C., Acedo, F. J & Moreno, A. M., 2007. International entrepreneurship in family businesses. Northampton: Edward Elgar Publishing.

Chrisman, J. J., Steier, L. P., & Chua, J. H., 2006. Personalism, Particularism and the Competitive Behaviours and Advantages of Family Firms: An Introduction. Entrepreneurship Theory and Practice, 30(6), 719-729.

Chua, J. H., Chrisman, J. J., & Sharma, P., 1999. Defining the family business by behavior. Entrepreneurship: Theory & Practice, 23(4), 19-39.

Dyer, G., & Whetten, D., 2006. Family Firms and Social Responsibility: Preliminary Evidence from the S&P 500. Entrepreneurship Theory and Practice, 30(6), 785-802.

Kapten, M., 2008. The effectiveness of business codes: A critical examination of existing studies and the development of an integrated research model. Journal of Business Ethics, 77(2), 111-127.

KMU Forschung Austria., 2008. Overview of Family Business Relevant Issues. Australia: Austrian Institute for SME Research.

Miller, B. I., & Miller, D., 2006. Why do Some Family Business Outcompete? Governance, Long-term Orientations, and Sustainable Capability. Entrepreneurship Theory and Practice, 30(6), 731-746.

Poutziouris, P., Smyrnios, K., Klein, S & International Family Enterprise Research Academy., 2006. Handbook of research on the family business. Northampton: Edward Elgar Publishing.

Poza, E., 2009. Family Business. Business and Economics, 4(6), 391.

Poza, E., 2009. Family Business. London: Cengage Learning.

Schwartz, M., 2005. Universal Moral Values for Corporate Codes of Ethics. Journal of Business Ethics, 59(1-2), 27-44.

Wood, D., 2005. Global Business Citizenship and Voluntary Codes of Ethical Conduct. Journal of Business Ethics, 59(1-2), 55-67.

Zellweger, T., Kimberly, A., & Kellermanns, F., 2010. Journal of Family Business Strategy, 1(1), 54-63.