Family ownership can imbue a firm with a sense of purpose and values its rivals may lack. John Elkington, turning to China’s emerging entrepreneurs, says it’s time to consider best practice in this much-overlooked sector.

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

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Landslides and mudslides in the Beichuan region added to the high death toll in May’s earthquake. Now, writes Taige Li, familiar warnings are being heard. Will historic errors be repeated?

The most shocking of the many tragedies of the Sichuan earthquake on May 12, 2008, was that of the town of Qushan, the county seat of Beichuan.

The quake left the town virtually flattened. Official statistics put the dead and missing at 13,000 – out of a population of only 40,000. The town is no longer habitable, and a memorial is to be built on its ruins.

Beichuan, the only Qiang-nationality autonomous county in China -- and under the jurisdiction of Mianyang municipality -- suffered not just from the tremors themselves but also from the landslides and mudslides triggered by the quake. If these geological-disaster risks had been considered when the county seat was located here or as it expanded, the destruction may not have been so total. 

Beichuan before the earthquake

Beichuan lies in the north-west of the Sichuan basin, and has a history stretching back 14 centuries. However, the county’s administrative centre was moved to Qushan just over 50 years ago, in 1952. Why this was done is unclear, but one theory is that Qushan’s better outside links meant quicker reinforcements could arrive when bandits were at large.

The move, as the future would prove, was a mistake. Qushan lies in a narrow valley between steep mountains, and landslides are common in the area. Even without earthquakes, it is a dangerous place to live.

In an article published in 1992, Zhang Defan of Mianyang’s water management authorities pointed out that Qushan’s steep mountainsides, location on a fault line and complex geological conditions caused repeated landslides and mudslides. When the county seat was relocated, Qushan was home to only 500 people. Of course, the problems continued after the relocation.

In the 1980s, experts pointed out the risks of the location -- on the Longmenshan fault and between mountains. The locals started to worry that one day those mountains would bury them.

According to Caijing magazine, in the late 1980s the county authorities once suggested moving the administrative centre again – to the town of Leigu, which lies on flatter ground and indeed saw fewer deaths and less damage in the May earthquake. But funding for the relocation was not forthcoming and the experts could not decide if the move was necessary or not. The plans did not go ahead.

In his report, based on results of a survey of the area, Zhang Defan said that “the surrounding mountains are stable, and there is no chance of a collapse destroying the town.”

So the idea of moving the county seat was gradually forgotten, and the town continued to grow. But land was scarce. Qushan is surrounded by mountains and water, and there was only about a square kilometre of land available for building. A new part of the town was founded across the Jian River at Maoba. But Maoba itself lies at the bottom of a mountainside and is, again, a dangerous location. Despite this, plans for rapid expansion of the town were approved. By the end of 2005, it covered 1.6 square kilometres and had provincial approval for plans to expand to 4.1 square kilometres by 2020.

But the risks were not entirely forgotten. Materials from Beichuan’s Land Bureau show concerns about potential landslides and a number of reports were made to the provincial government. In 2004, work was carried out on the mountainside at Wangjiayan in the old town. In 2005, Wangjiayan was listed as a provincial-level project, winning funding of 1.52 million yuan (more than US$220,000). And in July 2006, work on columns to stabilise the slope, retaining walls and drainage was completed.   

But when hit by such a huge earthquake, the value of these works was limited. Beichuan was buried. 

As one survivor, who lost more than ten relatives in the quake, said: “If the mountainside hadn’t collapsed, not so many would have died.” Wang Zifa, head of the China Earthquake Administration’s Institute of Engineering Mechanics (IEM), said in an interview with Science and Technology Daily that half of the losses in Beichuan were due to the landslides.

Two thirds of China’s land is mountains and hills. Add in rain that tends to fall heavily over a small area, and landslides become a more frequent problem than earthquakes.

The mistakes made in Beichuan should not be repeated – but the existing situation is worrying. The locations of many towns and villages have not been well chosen.

In recent years the Chinese government has spent several billions of yuan on preventing landslides in and around the Three Gorges Dam, the world’s largest. But in many areas, funding is inadequate, if not severely lacking.

And to add to these existing dangers, new risks still are being taken. In some mountain areas, the geological conditions are ignored and towns are built on already unstable hillsides – raising the risk of disaster.

The tragedies that occurred in Wulong and Tengchong in recent years are cases in point.

On May 1, 2001, a landslide destroyed a residential building in Wulong county in Chongqing municipality, killing 79 people. Part of the hillside had been removed to build a road, and private developers had excavated further in order to make room for the building.

On July 19, 2007, a mudslide near a hydroelectric plant in Tengchong county in Yunnan province buried barracks housing construction workers, killing 29 people. The China Institute of Geo-Environment Monitoring (CIGEM) blamed “engineering work”.

The destruction of Beichuan has sounded another warning. As Xu Qiang, deputy head of Chengdu University of Technology’s geohazard prevention laboratory, said in an interview with Caijing, landslide risk management and control must be made an integral part of urban planning and construction in mountainous areas.

Taige Li is a Beijing-based journalist. He obtained a master’s degree in engineering from Sichuan University in 1997 and was a Knight Science Journalism Fellow at the Massachusetts Institute of Technology (MIT) in 2003-04.

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