Investigating the Effectiveness of Endogenous and Exogenous Drivers of the Sustainability (Re)Orientation of Family SMEs in Slovenia: Qualitative Content Analysis Approach

Abstract

Large proportions of small and medium-sized enterprises (SMEs) are family controlled and play an important role not only in the development of many national economies, but also have great potential to reduce negative effects of human activities on the natural environment and society. This important role of family SMEs has been recognized by the European Union (EU) which has integrated them in its legislative frameworks. The main question addressed in our research is whether family SMEs integrate sustainability concerns into their strategic and operative decisions as required by the EU legislative frameworks. We designed our research with the purpose to broaden our understanding of sustainability (re)orientation of family SMEs and fill the gap in the existing literature on family businesses’ sustainability. We applied a qualitative case study research method where sustainability (re)orientation of 26 family SMEs was explored. The qualitative content analysis was used in the process of analysing data. Theoretically and empirically based cognitions on endogenous and exogenous drivers of the family businesses’ sustainability (re)orientation were applied in interpretation of the research results. Our findings show the low level of sustainability (re)orientation of most of the investigated Slovenian family SMEs. The exogenous drivers have stronger effect on sustainability (re)orientation of family SMEs than endogenous drivers.

1. Introduction

The EU economy is based on 25 million small and medium-sized enterprises (SMEs), employing around 100 million people and accounting for more than half of Europe’s GDP. SMEs play a key role in creating added value in all sectors of the economy [1]. Although SMEs employ few people and do not have large revenues, their collective impact is enormous. It is therefore right that, like everyone else (companies, organisations, and individuals), SMEs should be required to consider social and environmental factors when making choices in order to provide value for all stakeholders in addition to shareholders and to redirect themselves from rapid to sustainable development [2].

The EU also recognises the potential of SMEs and is slowly but steadily integrating them into its legislative frameworks on corporate social responsibility and sustainable management. The first EU legislative act adopted with the aim of establishing sustainable corporate governance and directly binding SMEs is Directive EU 2022/2464 of the European Parliament and of the Council of 14 December 2022 amending Regulation (EU) No 537/2014, Directive 2004/109/EC, Directive 2006/43/EC and Directive 2013/34/EU, as regards corporate sustainability reporting (hereinafter referred to as the Corporate Sustainability Directive—CSRD) [3]. This Directive repealed the previous one, which only covered large companies with more than 500 employees. The Commission’s prediction that it would broaden the scope of those subject to corporate sustainability reporting has therefore come true.

The CSRD entered into force on 5 January 2023, which modernises and strengthens the rules concerning the social and environmental information that companies have to report [4]. Member states have to bring into force the laws, regulations and administrative provisions necessary to comply with CSRD by 6 July 2024. It introduces mandatory and uniform sustainability reporting standards in the EU. Additionally, it enhances sustainability-oriented corporate governance practices in member states [5]. The objective of the CSRD is to improve the quality of non-financial reporting by introducing mandatory and uniform reporting standards based on double materiality, ultimately encouraging more sustainable business practices, and increasing transparency on the environmental impacts of companies [6]. SMEs that are not public companies are not directly required to report under the CSRD, but they may still need to disclose sustainability information indirectly. In addition to the CSRD’s obligations, the paper will also present the recently adopted Directive of the European Parliament and of the Council on Corporate Sustainability Due Diligence and amending Directive (EU) 2019/1937 (hereinafter CSDDD) [7]. The Corporate Sustainability Due Diligence Directive (CSDDD) mandates that in-scope companies manage the environmental and social impacts of their operations throughout their entire value chain [8]. This encompasses their own operations, subsidiaries, and value chains both within and outside of Europe [9]. Compliance professionals will be tasked with overseeing these impacts across the entire value chain, which includes direct and indirect suppliers, internal operations, products, and services. Although small and medium-sized enterprises (SMEs) are not directly covered by the EU CSDDD, they are indirectly affected. SMEs must meet these standards as suppliers to larger, in-scope businesses. This Directive is part of a broader trend towards strengthening ESG (Environmental, Social, and Governance) aspects in corporate governance, driven by increasing demands from consumers, investors, and governments for improved risk management in areas like environmental impact, social responsibility, and governance practices.

We focus our research on those SMEs which are family controlled. Family businesses are an important factor of economic development in many national economies [10] and a large proportion of them fit in the size class of micro, small or medium-sized enterprises [11,12], where listed companies represent only a small portion [11]. They present between 60% to 98% of all businesses across the world [12] and between 55% and 90% of all businesses in the European Union countries [13] contributing 60% of all employment [14]. Therefore, family SMEs have substantial impact on the global economy and their potential contribution to sustainable development is not negligible.

Several research studies have explored how family ownership and management influences environmental and social performance [15,16,17], and sustainability of family businesses [18,19,20]. Research stresses both the bright and the dark sides of these form of enterprise when dealing with the challenges of sustainable development [19,20] and different concepts (e.g., socioemotional wealth perspective) and theories (e.g., agency, stakeholder, institutional theory) have been applied when addressing the potential of family businesses “to behave in economically, socially, and environmentally responsible ways in a manner that benefits all stakeholders and the community at large” [19] (p. 26).

However, the review of research studies on family businesses’ decisions and behaviour in terms of sustainability and environmentally friendly performance shows inconsistencies and sometimes even contradictory research results [11,21,22,23,24,25]. For example, research on the relationships between socioemotional wealth and environmental performance shows that family firms have a better environmental performance than non-family firms which is due the family owners’ consideration to preserve socioemotional wealth [15]. On the other hand, the research of Dekker and Hasso [11] shows that family firms have lower environmental performance focus than non-family firms, thus contradicting the research findings of [15]. Many of the research studies relied on data from large public family businesses [15,20,26] and less attention was given to privately held family businesses, mostly being SMEs. Public family businesses present a small minority of all family businesses and have a different ownership, governance and management structure than privately held ones [11]. Therefore, we still need a greater understanding of the complex relationship between family ownership and management and the sustainability level of family SMEs for the advancement of family business and sustainability theories and practice [12,16,21,24,27].

The purpose of this qualitative study is to improve our understanding of sustainability (re)orientation of family SMEs and fill the gap in the existing literature on family businesses’ sustainability. In this research, the sustainability orientation is defined in line with Roxas and Coetzer’s [28] (p. 464) definition of environmental sustainability orientation as the overall proactive strategic stance of family SMEs towards the incorporation of sustainability concerns into their strategic and operative decisions and activities. Such a stance and the actual family business’s behaviour is determined to a large extent by the unique organizational context and characteristics of this form of enterprise [19,20,22].

In order to contribute to the theory on family businesses’ sustainability, we addressed the following research question: how well are family SMEs prepared to address sustainability issues in accordance with the new EU legal framework by (re)orienting towards sustainability and integrating sustainability concerns into their strategic and operative decisions? Family owners and managers’ awareness and consideration of the sustainability challenges should be incorporated in the strategic and operative decisions in order to make a shift from business as usual to a sustainable business [11,15,28]. As SMEs have not been obliged to be socially responsible and sustainability reporting until recently, we explored the family businesses sustainability (re)orientation by analysing statements on vision, mission, goals, objectives, strategies or strategic development directions, and published information on the specifics of the firm’s functioning.

Due to the exploratory nature of our research, we applied a qualitative case study research method where the qualitative content analysis was used in the process of analysing data. Content analysis is often applied in the research on environmental and sustainability reporting [10,29] and we find it as an adequate approach for addressing the research question. Even though we applied a multiple case study approach, we are aware that our research findings cannot be generalized to the family businesses population [30] but are context-specific which is often the case in qualitative research [31]. We focus our research on one country as several research findings show that institutional context can impact the relationship between family businesses’ ownership and management, and sustainability [10,16]. The research was conducted in Slovenia, where family businesses present 83% of all companies, being mostly SMEs [32]. We are convinced that our findings provide the basis for encouraging academics to conduct cross-countries comparisons and examine whether our research results can be statistically generalized.

In order to achieve a broader understanding of the complex relationships between family control over business and sustainability, our theoretical framework is based on the socioemotional wealth (SEW) perspective which is often applied as a theoretical approach in exploring the specifics of family businesses’ behaviour and decision making [33,34]. SEW as the main theoretical approach in family business research has been applied in studies on sustainability-related topics such as environmental and social performance [11,15,16,20], environmental commitment and greenwashing [26], and sustainability [19]. We build our research on the institutional and stakeholder theories investigating the role of government regulations and stakeholders’ pressures on shaping companies’ sustainability initiatives [22,28,35]. We also draw from studies that explore drivers of the firm’s (re)orientation towards sustainability at the organizational and individual level [19,22,28,33,36].

Our research findings show the low level of sustainability (re)orientation of most of the investigated Slovenian family SMEs which might experience considerable problems in complying with the provisions of the new EU legal framework. The exogenous drivers have stronger effect on sustainability (re)orientation of family business than endogenous drivers of sustainability (re)orientation.

2. Literature Review

2.1. Legal Framework on Sustainable Corporate Governance (with a Focus on SMEs)

2.1.1. Corporate Sustainability Reporting Directive

Making corporate sustainability mandatory in companies is part of the broader legislation on transitioning to a sustainable economy and society. In addition to Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability-related disclosures in the financial services sector (SFDR) and Taxonomy Regulation, two additional important legal acts were adopted to foster integration of sustainability matters within the scope of corporate governance.

We start with the presentation of the first one, the CSRD, which replaced its predecessor, Directive 2014/95/EU (Non-financial Reporting Directive, or NFRD), which recommended that companies analyse the environmental and social aspects (particularly employee matters) of their business performance. This was meant to clarify companies’ development, implementation, and position in addition to financial information in annual and consolidated reports [5]. Since the NFRD was targeted only at large companies and large groups meeting the criteria for public interest entities, it will not be discussed in detail in this paper, as our focus is primarily on family SMEs. The EU has expanded sustainability reporting with the CSRD, similar to initiatives in other countries like Australia, Chile, and Hong Kong, introducing a legal framework principally dedicated to environmental issues [37].

Compared to the NFRD, the new rules bind many more companies. Beyond the existing large companies (which no longer need to be public interest entities), SMEs with transferable securities traded on a regulated market (public companies, excluding micro-enterprises) will also need to report. In Slovenia, few family businesses meet these criteria, as SMEs are predominantly privately (family) owned. However, it is important to acknowledge the formal requirements, so we will briefly outline the CSRD’s sustainability reporting requirements. It is worth noting that family businesses (and other companies not subject to the CSRD) can choose to report voluntarily. Although SMEs that are not public companies are not directly required to report under the CSRD, they may still need to disclose sustainability information indirectly if they are part of the value chains of companies that are subject to the CSRD.

The CSRD has established unified reporting standards, adopted by the Commission with expert support from the European Financial Reporting Advisory Group (EFRAG) through delegated acts. These standards must adhere to the principle of double materiality and include all relevant information. The goal is to enhance comparability among companies and facilitate business decisions regarding sustainable development impacts. Mandatory common standards will enable thorough reviews (assuring the reliability of sustainability information) and the digitization of reporting (via a digital taxonomy of the EU’s sustainability reporting standards). The introduction of common standards aims to elevate the status of nonfinancial information to be on par with financial information (point 32 of the introductory section of the CSRD).

The CSRD also implements simplified reporting standards for SMEs (Article 1, 8-29c of CSRD). These standards will serve as a benchmark for the reporting level of SMEs that are not directly required to report under CSRD provisions but need to disclose sustainability information as suppliers or customers in value chains (point 22 of the Introduction to CSRD). To ensure the provision of high-quality and necessary information, the sustainability report will be part of the management report and can no longer be published as a separate document. Once the CSRD takes effect, the diversity policy, previously included in the governance statement, can be presented within the sustainability report (Article 1(5) of CSRD) [38].

Despite the positive effects of implementing CSR and sustainable development, both the NFRD and the CSRD only directly require companies to report on CSR and sustainable development. Only the Commission’s latest legislative proposal on sustainable corporate governance represents an important dividing line in the implementation of CSR and sustainability issues in companies’ practice [39].

2.1.2. Corporate Sustainability Due Diligence Directive

The Commission has adopted a proposal for a Directive on due diligence of companies in sustainability matters in 2022 [8]. The Commission’s final proposal departed significantly from the original proposal, notably abandoning the ambition of introducing sustainable corporate governance and “settling” for a corporate due diligence duty on sustainability.

The CSDDD introduces due diligence obligations for companies on the adverse impacts on human rights and the environment caused by their operations or those of their subsidiaries or partners in the value chain. Large companies must adopt and implement a climate plan to ensure that their business model and strategy are consistent with limiting global warming to 1.5 °C in line with the Paris Climate Agreement, transitioning to a sustainable economy, etc.

The set of companies that will have to comply with the provisions of the CSDDD is set out in more detail in the final text of the Directive. Of the original two groups of companies as envisaged in Article 2 of the proposal, only the first group of companies remains (companies established in the EU, with the difference that the threshold of the average number of employees has been increased from the proposed 500 to 1000, they must have a net worldwide turnover above EUR 450 million instead of the proposed EUR 150 million in the last financial year for which the annual financial statements have been or should have been adopted) (point a of Article 2(1) of the Directive). The Directive will also have to be applied by undertakings which do not meet the criteria set out in the previous point but which are the ultimate parent undertaking of a corporate group which, on a consolidated basis, reaches these thresholds (employing on average more than 1000 employees and having a net worldwide turnover exceeding EUR 450 million in the last financial year) (point b of Article 2(1) of the Directive).

Furthermore, the scope of taxable persons extends to companies with a franchise or licence business model, i.e., companies that have entered—or are the ultimate parent company of a group that has entered—franchise or licence agreements (which provide for a common identity and business concept) in the EU (see more detail in Article 2(1)(c) of the Directive). Similarly, the set of undertakings established outside the EU has been extended (see in detail point a of paragraph 2 of the Directive).

Companies covered by the CSDDD will be liable for damages resulting from adverse impacts on the environment or human rights caused by their activities, those of their subsidiaries or those of their direct or indirect business partners in the value chain. The Commission’s proposal had a comprehensive definition of value chains. Still, following a political compromise between the European Parliament and the Council, the final text of the Directive dropped the definition of established business relationships. The definition of the term ‘chain of activities’ should not include the activities of a company’s downstream business partners related to the services of the company (point 26 of the introduction to the Directive). This way, the CSDDD narrows the scope of the Business Partners Directive to direct and indirect upstream business partners while only direct downstream business partners are included [40].

2.1.3. Scope of the CSDDD for SMEs

CSDDD defines ‘SME’ as a micro, small or medium-sized undertaking, irrespective of its legal form, that is not part of a large group, as those terms are defined according to Directive 2013/34/EU (Article 3(i) of the Directive).

Although the scope of this Directive does not cover SMEs directly, they might be affected by its provisions as contractors or subcontractors to the companies included. The following are the provisions of the CSDDD that are directly relevant to SMEs.

Companies must take appropriate measures to comply with their obligations to prevent and mitigate adverse impacts. About their duty of care in partner companies, they will need to seek contractual assurances of compliance from the direct business partner and, where appropriate, a plan of preventive measures, including obtaining appropriate contractual assurances from its partners to the extent that their activities are part of the company’s chains of activities. Contractual assurances should be designed to ensure an appropriate sharing of responsibilities between the company and its business partners. Appropriate compliance verification measures should accompany contractual assurances. However, an undertaking should only be obliged to request contractual assurances, as obtaining them may depend on the circumstances. In contracts with SMEs, contractual assurances should be fair, reasonable, and non-discriminatory (Article 10(5) CSDDD). Companies will be required to provide SMEs with appropriate and proportionate financial assistance in direct financing, low-interest loans, guarantees for further fundraising or assistance in securing funding. Assistance to SMEs will not be a matter of course; it will be provided only to companies that need it in view of their own resources, skills, and constraints. In the first instance, the assistance will be targeted at companies at risk of bankruptcy due to compliance with the requirements of the parent company’s code of conduct or preventive action plan (point 46 of the introduction).

Where the company will require contractual guarantees from SMEs that are indirect business partners, it will need to assess whether other measures are necessary in addition to these. If the SME requires the company to reimburse costs or if there is an agreement, the SME should be able to verify the results with other companies (point 56 of the introduction).

As contractual guarantees represent an additional financial and administrative burden for SMEs, member states, with the support of the Commission, will need to set up and operate, individually or jointly, dedicated user-friendly websites, portals, or platforms to provide information and support to businesses, and member states could also provide financial support to SMEs to help them build their capacity. Such support could also be made available to upstream operators in third countries and adapted and scaled up where necessary (point 69 of the introduction).

2.2. Drivers of the Family Businesses’ (Re)Orientation towards Sustainability

Given the potential of sustainability practices in family businesses to alleviate the negative impact of their functioning on the natural environment, society and economy, scholars have devoted significant efforts to broaden the understanding of drivers of reconfiguring family businesses’ strategic orientation as a response to calls for sustainable development [19,22,28,33,36]. A family business’s sustainability orientation is the manifestation of “the firm’s awareness, engagement and commitment to issues, activities and programs” [28] (p. 464) related to sustainable development.

A large body of research has explored the endogenous drivers among which the preservation of the socioemotional wealth (SEW) in family businesses and its impact on their (re)orientation towards sustainability attract considerable attention of family businesses’ scholars [11,15,20]. Besides the SEW preservation, this line of research focuses on exploring the strong position of a family in ownership and management [20,23,26,27], the controlling family owners and managers values, beliefs and attitude [15,28], transgenerational continuity and long-term orientation [12,41], and knowledge of sustainability [19,28] and their impact on the family businesses’ (re)orientation towards sustainability.

Several research studies are based on the institutional and stakeholder theories when investigating exogenous drivers of the family businesses’ sustainability such as the impact of national and international regulations, cognitive and normative dimensions of institutional environment [15,28,42], and stakeholders’ pressure [35,36].

In the following two sections (Section 2.3 and Section 2.4), we study the complexity of the family businesses’ concern about the sustainability challenges by systematically examining the group of endogenous drivers and the group of exogenous drives of the family businesses’ (re)orientation towards sustainability.

2.3. Endogenous Drivers

2.3.1. The Protection of SEW

Companies differently respond to sustainability concerns. Variation in responses is likely the function of who controls the company and how the controlling stakeholder values economic as well non-economic gains [15]. A large body of research shows that family owners and managers are concerned not only with economic returns but express a strong preference for several so-called non-economic factors or utilities [15,33,36] deriving from non-financial aspects of the firm. These non-economic utilities are labelled as “socioemotional wealth” (SEW) or “affective endowments” [15,34] and include the desire of the family to exercise authority, enjoyment of family influence, keeping the clan membership within the firm, appointment of trusted family members to important jobs, preservation of a strong family identity, and continuing the family dynasty [34].

Family owners and managers are typically motivated to preserve their SEW [11,33,34] and therefore “gains or losses in SEW represent the pivotal frame of reference that family-controlled firms use to make major strategic choices and policy decisions” [33] (p. 259). In this context, the SEW can help us to broaden our understanding of the family businesses’ distinctive behaviour [15,34], also the attitude of family businesses towards environmental and sustainability issues [11,15,20]. The SEW preservation perspective suggests that because family owners and managers care about the image, positive reputation and legitimacy of their companies [26,43], family businesses are less likely to do harm and behave irresponsibly [19,42]. If the name of the firm is associated with the family name, this reduces the likelihood of the firm engaging in behaviour and activities which are not in line with the principles and goals of sustainable development [19,42]. The importance of family image and consequently the firm’s image may be increased when the family wishes to keep the firm for future generations [33] and the family name becomes “a living symbol of multigenerational achievement” [19] (p. 29).

2.3.2. Ownership and Management Composition

Research studies show that the composition of ownership and management can make differences in family businesses’ responses to sustainability challenges. The family’s reputation is strongly associated to that of the family business especially in the case of absolute (100%) family ownership. In such a case, the firm’s environmental social performance increases due to the family’s desire to preserve a good family image and transfer a well-reputed and long-term oriented business to the next family generations [15,17,20,27]. However, there is also a dark side of the absolute family ownership. When the family possess the absolute decision-making power, family owners might decide to keep financial resources within the family [20], thereby reducing investments for improving the firm’s environmental social performance [26].

A combination of family and non-family owners can decrease the importance of family values in decision making and weaken the relationship between the family’s reputation and the firm’s reputation, and as a consequence, can cause a short-term orientation and a desire for short-term gains [19]. Such a situation can lead to decreased willingness to invest funds in environmentally friendly activities [20] and in the (re)orientation towards sustainability.

Scholars report on both the bright and dark sides of family involvement in management and its impact on environmental social performance and sustainability [19,20,27]. Strong presence of a family in management strengthens “the close emotional and reputational association that family employees have with the business” [20] (p. 33) and leads to higher sensitivity regarding the firm’s reputation. The emotional and reputational incentives and the possession of decision-making power increase the family managers’ readiness to improve the family firm’s environmental social performance [19,20,27]. However, strong presence of a family in management might also have a dark side due to the potential presence of asymmetric family altruism and opportunistic behaviour of family members. Family managers might thrive with strong pressure and high expectations from other family members to achieve good financial results or to develop policies that bring benefits mainly to family stakeholders at the expenses of other stakeholders’ interests [23]. Conflicts among family members might arise because of their competing interests regarding the functioning of the firm and resource allocation [19,20] and might lead to the restriction of resources required for improving the firm’s environmental social performance [19] and sustainability. Le Breton-Miller and Miller [19] call attention to the possibility of narrow-mindedness when a management team only consists of family members. Family managers might not be aware of emerging sustainability trends and therefore do not see the need to invest in environmental and sustainability activities.

While the research findings of Graafland [23] show that a firm owned by a family and managed by the combination of family and non-family employees has a better environmental performance than a family firm managed only by family members, some other studies [19,20,42] show that the presence of non-family members in the management team might negatively impact the family firm’s environmentally friendly functioning and sustainability (re)orientation due to the non-family managers’ self-serving behaviour that works against long-term sustainability initiatives.

2.3.3. Values, Beliefs and Attitudes of Family Owner-Managers

Family firms have more personalized control that differs from the institutionalized control in non-family firms [11,27]; that is especially evident in family SMEs where owner-managers have “direct and full control of the strategic, tactical and operational activities of the firm” [28] (p. 465). The family owner-managers’ beliefs and values influence their attitudes regarding environmental and sustainability challenges [27]. Such attitudes are viewed as “one’s overall stance to ignore or respond” [28] (p. 463) to environmental and sustainability issues and determine the way and the extent of the firm’s intention to pursue (re)orientation towards sustainability [11,26,27,28].

Research studies show that both a family and institutional environment have an important impact on the development of individual family members’ attitudes towards environmental and sustainability challenges. As in the great majority of family SMEs, the decision-making power is held within the family, and positive attitudes of the controlling family can lead to strategic (re)orientation towards sustainability [27]. If the institutional environment is perceived by owner-managers as one with increasing environmental awareness [11] which supports and enhances environmental and sustainability practices [28], there is higher probability that they will develop positive attitudes towards the natural environment and sustainability. Especially in the case of strong social embeddedness of family businesses in communities, where social values and norms present in their communities crucially impact the family businesses’ owner-managers’ attitudes towards sustainability [11].

2.3.4. Transgenerational Continuity and Long-Term Orientation

In non-family firms, the separation of ownership and control, short managerial tenures, and focus on short-term financial results do not encourage managers to invest in those activities that would bring results beyond their tenure. Contrary to non-family firms, family firms have longer-time horizons due to their focus on transgenerational continuity and family owners invest in developing the firm for long-run benefits of the family and future generations [12,15,19,41]. Therefore, family firms are more likely than non-family ones to invest “patiently for benefits that would only be accrued by future generations” [12] (p. 5).

The research findings of Delmas and Gergaud [41] show that those owners who intend to transfer the family business to the next family generation are more likely “to invest in the long-term sustainability of their business for the benefit of the next generation” [41] (p. 231) than family business owners without such intent. Family businesses with transgenerational intent are more innovative and adopt more advanced sustainability practices due to their desire to preserve the firm for the future generation. Successors from the owning family, who have an emotional bond with the family firm and are well trained and prepared for their position in the firm, have been recognized as having an important role in deciding and adapting sustainability practices [12,19,41].

2.3.5. Knowledge of Sustainability

Knowledge of sustainability issues is an important element of the firm’s (re)orientation towards sustainability and a precondition “for the identification, adoption or implementation of measures in response to those issues” [28] (p. 473). Formal education does not only equip family businesses’ owner-managers merely with cognitive skills but also enhances their understanding and sensitivity regarding environmental, social and sustainability challenges [19]. The adoption of new knowledge of sustainability, co-creation of knowledge and development of sustainability solutions are enhanced when decision makers are involved in the market and industry of professional associations. It is expected that controlling families “whose members are actively involved in their local and professional communities, are better positioned to lead and diffuse sustainable development initiatives” [12] (p. 11) as they remain connected with evolving knowledge of sustainability issues and practices [12,19].

2.4. Exogenous Drivers

2.4.1. Stakeholders Pressure

Stakeholders can exert pressure on firms to adopt proactive environmental and sustainability practices. Family businesses are likely to “exhibit an innate motivation to satisfy the demands of external stakeholders” [36] (p. 682) and develop patient strategies that would bring long-run benefits to several stakeholders due to their long-term horizon and their concern about legitimacy and reputation of both a family and a firm [36].

Research studies suggest that the relationship between stakeholder pressure and the firm’s sustainability (re)orientation vary by the type of stakeholders and by the size of a firm [23,35]. Diverse divisions of stakeholders into specific groups exist in the literature, such as a division between internal (i.e., employees and investors) and external stakeholders (i.e., consumers, community members, and the environment) [16] or among primary stakeholders having a direct economic stake in the firm (i.e., value chain stakeholders such as household customers, commercial buyers, suppliers; internal stakeholder such as employees) and secondary stakeholders who are not directly involved in the firm’s economic transactions. Among secondary stakeholders especially are societal stakeholders and environmental regulators who are acknowledged as having increased importance [35]. Societal stakeholders are public interest groups such as environmental and community organizations which are capable of mobilizing public opinion regarding a particular firm and can apply indirect ways of influencing the behaviour of a firm (e.g., public protests, strikes). Environmental regulators within the government create environmental requirements and assess whether a firm comply with these requirements [35].

Value chain stakeholders respond positively to the firm’s environmental and sustainability practices by purchasing the firm’s product or by renewing the selling agreements. In the case of disagreement with the firm’s sustainability attitude and practices, value chain stakeholders may file suit against the firm, cancel agreements, stop deliveries or engage in public boycotts [35]. As family businesses are recognized for creating long-term relationships with suppliers and customers, they are less likely to jeopardize this kind of social capital by irresponsible behaviour [36]. Many small firms have customers and employees from the local community. They are more likely to respond to the stakeholders’ pressure, because their response affects their reputation, degree of legitimacy and approval from local stakeholders [35].

The research results of Graafland [23] show a significant positive direct effect of firm size on the firm’s environmental performance. The results can be explained by greater visibility of large firms as they attract more attention of non-governmental organizations (NGOs) and media and are under more pressure from clients and other stakeholders than small firms. Namely, these stakeholders are “inclined to ascribe more environmental responsibility to large firms than small firms, because a large firm has more means and is more powerful than a small firm” [23] (p. 7). According to Graafland [23], this size effect applies to family as well non-family businesses.

2.4.2. The Impact of Institutional Environment and Local Communities

Several research studies address the impact of the pressures from institutional environments on the environmental and sustainability (re)orientation of family businesses, some of them pointing to the role of a particular element (i.e., regulatory, normative and cognitive) of the institutional environment [15,28,42]. The regulatory dimension primarily refers to the government and regulatory bodies’ requests for firms to comply with various laws demanding particular types of functioning and behaviour from the firms. Owner-managers respond and adapt to regulatory pressures based on their assessment of such regulations (e.g., in respect to natural environment and sustainability) as opportunities or threats. The normative dimension refers “to social norms, values, beliefs and assumptions that are socially shared” [28] (p. 462) and defines the socially acceptable behaviour of firms. The cognitive dimension refers to “the axiomatic beliefs of owner–managers about expected standards of behaviour … which are typically learned through social learning processes within a community or society” [28] (p. 465).

The strategy of a firm is influenced by the dominant owners’ preferences [15] and attitudes [28] which impact the degree to which a firm responds positively to the pressures regarding environmental and sustainability issues from the institutional environment. In the case of family control, such a strategy reflects “the desire to project a positive public image or meet the family’s affective needs” [15] (p. 103) and to achieve legitimacy from the regulatory, normative and cognitive dimensions of the institutional environment [28], even if that presents a potential threat to the firm’s financial well-being [15].

Research findings show that “the more deeply a firm is embedded in its community, the more likely it is to respond to normative institutional pressures” [15] (p. 90). The effect of local roots is especially strong in family SMEs [11,17,28,42] as there is less distinction among family, firm and society at the local level, and the family is an important part of the social network within the local community. When environmental and sustainability concerns are part of the norms and values within the local community (i.e., normative expectations), family owner-managers are more likely to consider these values and norms in business decisions as both the family and the firm gain support and legitimacy [11,15,17,28]. When sustainability issues are perceived within the community or society as being highly relevant and a part of a firm’s normal functioning (i.e., cognitive dimension), family SMEs are likely to develop a positive strategic stance towards sustainability [28].

3. Empirical Research

3.1. Institutional Context of Slovenia

Slovenia is one of the former socialist countries where social, political and economic changes at the early 1990s enabled the transition to the market economy and created the conditions for the revival of entrepreneurship and development of family businesses in Slovenia. Namely, the tradition of family businesses during the socialist period was preserved in the field of crafts, which was the only permitted form of private ownership. Similar to most other countries, we do not dispose of information on the number or share of family businesses in Slovenia as official data on family businesses are not collected. Several estimations were made regarding the importance of family businesses for the economic development of Slovenia; a more recent estimation is in the study by Antončič and co-authors [32]. One of the earliest research projects on family businesses in Slovenia [44] showed that between 41% and 52% of all SMEs are family ones, with the majority being under the control of the first family generation. The research conducted 10 years later [32] indicate that 83% of all businesses in Slovenia are family ones which is similar to some other European countries [45]. They are mainly micro and small businesses with less than 50 employees (95% of family businesses fit into this size class). In total, 58% of family businesses are controlled by the first generation, and 37% by the second. Only 5% of companies are under the control of the third or one of the later generations [32]. These latest research findings show that many family businesses have already realized the transition to the next family generation.

An important contextual factor is the time period during which the study was conducted. The data accessible via firms’ webpages were collect from the beginning of August 2023 until the end of November 2023. As environmental and sustainability regulations might have contextual impact on our research results, we present the regulations in Slovenia considering the time frame of collecting data for our research and indicating the most recent regulations and regulations that are going to come into force in the near future.

The study was conducted based on the current legislation in Slovenia, specifically the Companies Act (ZGD-1), which implemented the NFRD requirements with an amendment in 2017. In line with the NFRD, the ZGD-1 does not set any mandatory sustainability reporting requirements for SMEs.

Within the broader institutional framework, Slovenia has several governmental (e.g., The Public Agency of the Republic of Slovenia for the Promotion of Entrepreneurship, Innovation and Internationalisation—SPIRIT Slovenia) and non-governmental organisations (e.g., Institute for the Development of Social Responsibility—IRDO) working to encourage companies to act sustainably. In 2020, SPIRIT Slovenia enabled companies to join the Sustainable Business Strategic Transformation Academy programme, which it co-financed at 50%. As our study shows, the sample of companies includes one company participating in this programme. At the international level, Slovenia is ranked 9th out of 165 countries in the 2030 Agenda for the Sustainable Development Goals Report 2021 [46]. However, according to the 2024 report, it fell two places, ranking 11th out of 166 countries [47], which is still encouraging.

The recent report on the realization of Slovenian development strategy 2030 shows (for the year 2022) that Slovenian companies are still much more indifferent to the impact of climate change on their functioning than companies from most other EU countries, and they do not recognize the sustainable development as the strategic development opportunity. Only a small proportion of Slovenian companies have been intensively using advanced sustainable technologies, innovating sustainable products or introducing sustainable business models [48] (pp. 42–43).

3.2. Research Method

Our research is case-oriented research and exploratory in nature. The main advantage of the case study method is the in-depth investigation of the researched phenomenon within a real-life context [49,50], thereby generating in-depth relevant knowledge [30,51]. The case study method has been often applied in the study of family businesses [51]. We applied a multiple case study approach due to its replication logic [49] (p. 99) and because the theory developed from several case studies is “considered more robust because the arguments are more deeply grounded in varied empirical evidence” [51] (p. 18). Multiple cases allow not only within-case analysis but as well as cross-case analysis [49,51]. No general agreement on the ideal number of cases exists in the literature [30,49]. Suggestions range from four to five cases while several authors [30,33] point out that the number of cases depends on the study aims and research question and should improve our understanding of relationships among research constructs. As our research is exploratory (i.e., aims at building theory) and not explanatory (i.e., aims at testing theory and statistical generalization), we decided to initially select 30 cases of family businesses to study variations in family businesses’ responses to sustainability challenges and improve our understanding and knowledge about family businesses’ sustainability orientation.

3.3. Sampling and Data Collection

In Slovenia, like in numerous other countries [41], publicly available data on family businesses do not exist. We applied purposeful criterion sampling where cases that meet some pre-specified criteria were selected [49,51]. We selected family businesses which are well known, successful and respected in the local and national environment, as well as some being internationally recognized, and for these reasons were presented through narratives in the publications titled Family Business Slovenia. The first publication was released in 2014. In order to gain relevant insight into a particular family business, we concentrate our study on family businesses that were included in the publications issued in 2019, 2020 and 2021; the latter was the last one published for the time of our research. Family owners and managers of selected family businesses consider their firms as a family one. Such self-identification is excluded from the criteria of family ownership and family management that is often applied in the family business’ definitions and research [11,52,53,54]. The inclusion criteria was the size of a firm defined by the number of employees: micro (0 to 9 employees), small (10 to 49 employees) and medium-sized family businesses (50 to 249 employees) were selected.

In line with our exploratory approach, we did not apply family generation, industry or geographical restrictions to the sample, thereby allowing us to analyse variations in sustainability engagement across family generations, regions and sectors [55].

In each selected publication, ten family businesses were presented, totalling 30 family businesses. We excluded large firms (three firms) and one firm which was recently sold to an international company. The remaining 26 family businesses were explored. More than half are small firms, and the rest are medium-sized (nine firms) and micro (three firms). More than half of the family businesses are in ownership of the first (i.e., founding) family generation and four firms are owned by the second generation. Members of the first and second family generations jointly own four family businesses. Two family businesses are in the ownership of the third and one in the ownership of the eighth family generation. The structure of family businesses regarding the family generation in management shows a different picture than the structure regarding the owning generation, indicating that the majority of family businesses in the sample are in the period of transition to the next generation. This situation reflects the specifics of the Slovenian former socialist economy as the majority of family businesses were established in the early nineteens of the past century and it is also in agreement with several authors [54,56] that the transfer of leadership and the transfer of ownership do not occur simultaneously. Namely, in ten family businesses, both the first and the second family generation members occupy managerial positions. In nine family businesses, the second-generation family members are in management and in only three family businesses, the founding generation solely occupies managerial positions. A management team consisting of members of the second and third family generation is present in one firm and the eight-generation family members have managerial responsibilities in one firm.

The family businesses in the sample are located in ten out of the total twelve regions in Slovenia. Eight of the family businesses are from the Osrednja-slovenska region which is ranked first regarding the number of enterprises per 1000 inhabitants and seven from the Gorenjska region which is ranked as fourth on the same scale [57]. Family businesses with manufacturing as the main activity prevail in the sample (12 firms); other main activities are wholesale and retail trade (six firms), service activities (five firms) and agriculture (three firms).

Multiple sources of evidence were used in order to develop an in-depth understanding of cases and the phenomenon under investigation. We examined narrative texts published in the publications Family Business Slovenia to collect data on the ownership and management structure, history of the firm, main activity, the role of the family in the firm, and its plans for the future. We collected data from the firms’ webpages, the database of Slovenian exporters [58] and the database of financial and contact data of Slovenian companies [59] as well as checking the validity of some basic information of the firms (e.g., owners, managers, family generation in charge, industry), since the firms might have undergone some changes in the period after the publication was released. At the time of the research (data were collected in period August–November 2023), Slovenia had no official regulations on sustainability reporting for SMEs. Therefore, statements on vision, mission, goals, values, strategies or strategic orientation, and on specifics of the firm’s functioning published on the firms’ webpages and in publications of Family Business Slovenia [60,61,62] were used as the form of voluntary sustainability and environmental reporting [10]. In our opinion, these statements are the most comprehensive means of disclosing information about sustainability and environmental proactive orientation in the case of non-existing sustainability or environmental reports as they mirror the controlling family’s values, beliefs and attitudes regarding environmental and sustainability challenges [15,28]. They also demonstrate the incorporation of environmental and sustainability concerns into the firm’s culture, decision making, strategic orientation and business [15,28]. The number of studies that employ other sources in addition to or other than sustainability and environmental reports is increasing [29]. We did not use interviews even though this data collection technique is often applied in case studies [49,51] as responses might be seriously biased due to the interviewee’s tendency “to present a socially desirable image of themselves or their firms” [33] (p. 265). We created a case study database which is a useful means of organizing and storing data collected from multiple sources [51].

3.4. Data Analysis

The collected data were systematically analysed. As a method of data analysis, we applied content analysis, which is recognized as one of the most appropriate methods in environmental and sustainability reporting and disclosure research [10,26,29]. The method is also applied in diverse areas of family business research [63]. We used qualitative content analysis, which is “a method for systematically describing the meaning of qualitative data” [64] (p. 170). It is a suitable method in research studies where collected data requires some degree of interpretation. Segments of the collected data are assigned to categories of the coding frame [31,50,51]. The coding frame present “the hearth of the method” [31] (p. 59) and is a way of structuring and reducing the collected data [49,50,51]. The main categories of a coding frame presents the specific aspect(s) from which the data are explored and are specified with the research question [31], while subcategories specify “what is said about the aspects” [31] (p. 60) in the collected material.

In building our coding frame (

Table 1. Coding frame of the sustainability (re)orientation of a family business.

No. of Category	Category Name and Its Definition	No. of Subcat.	Subcategory
C1	Vision Describe what a firm would like to become.	C1.1	Reference to sustainability/sustainable development
		C1.2	Reference to preserving (natural) environment
		C1.3	Reference to a position in market(s) and/or industry
		C1.4	Reference to the characteristics of products
		C1.5	Miscellaneous
C2	Mission Defines the purpose and reason why a firm exists.	C2.1	Reference to sustainability/sustainable development
		C2.2	Reference to preserving (natural) environment
		C2.3	Reference to the characteristics of products
		C2.4	Reference to the customers’ needs
C3	Goals The result of planned activities, can be quantified or open-ended statement with no quantification.	C3.1	Reference to sustainability/sustainable development
		C3.2	Reference to a position in market(s) and/or industry
		C3.3	Miscellaneous
C4	Values Consider what should be and what is desirable.	C4.1	Reference to sustainability/sustainable development
		C4.2	Reference to preserving (natural) environment
		C4.3	Reference to responsibility
		C4.4	Miscellaneous
C5	Strategies or strategic directions State how a company is going to achieve its vision, mission and goals.	C5.1	Reference to sustainability/sustainable development
		C5.2	Reference to preserving (natural) environment
		C5.3	References to (expansion to) new markets
C6	Specific of functioning Activities, processes, behaviour.	C6.1	Reference to sustainability/sustainable development
		C6.2	Reference to preserving (natural) environment
		C6.3	Reference to the characteristics of products
		C6.4	Reference to competitive strengths
		C6.5	Miscellaneous

), we combine concept-driven and data-driven strategies which is often the case in exploratory research [31]. It is concept-driven as we draw upon the existing theories and research on sustainability, sustainable development and strategic management and it was mainly applied during specifying categories of the coding frame. As the main categories, we defined vision, mission, goals, values, strategies or strategic orientation, and specifics of the firm’s functioning. As there are variations of definitions of vision, mission, goals, values, and strategies that might be applied in the participating firms, we considered a broad definition for each of the main categories based on the management literature [65,66]. These broad definitions are presented in our coding frame (Table 1). However, we did not analyse whether the firms’ statements complied with our definitions. The data-driven strategy known as subsumption [31] was applied where subcategories were created based on collected data on categories from the firms’ webpages. We included miscellaneous subcategories when needed as such subcategories are of great importance for two reasons [31] (p. 93): (1) they serve as containers for all unanticipated but relevant information for our research which does not fit in any other subcategories and (2) for placing information that was mentioned only once in the text.

Our coding frame is of medium complexity; such coding frames “consists of number of categories. But does not reach down beyond one level of subcategories” [31] (p. 66). When building our coding frame, we keep in mind the requirements that must be met that are as follows [31] (p. 71): unidimensionality (i.e., each category of our coding frame captures only one aspect of our material), mutual exclusiveness (i.e., subcategories within one category mutually exclude each other), exhaustiveness (i.e., each unit of coding in our material is assigned to at least one subcategory) and saturation (i.e., the coding frequency for all categories and subcategories are one or higher). Before starting the pilot phase, we divided our material into segments (i.e., so-called segmentation) and in this way specify which parts of our material were coded. As a unit of analysis, which is often synonymous with the unit of sampling [31,51], we specified a case of a family business. Units of coding, that are by definition those parts of the units of analysis that can be assigned to a category in the coding frame, were specified by using a titled statement as a formal criterion (e.g., mission statement). Units of coding are statements on vision, mission, goals, values, strategies or strategic orientation, and on the specifics of the firm’s functioning. Context units should help us “to understand the meaning of a given unit of coding” [31] (p. 133). As such, we specify units in texts presenting family businesses published in the publication Family Business Slovenia [64,65] and in additional data collected for checking the validity of data in publications. Our pilot phase consists of three phases as it is often suggested for qualitative content analysis [31]: the trial coding, a consistency check and adjustment of the coding frame. Within the trial coding, both authors of the paper tried out the coding frame on a part of the collected data. The results of both rounds were used for checking for consistency and minor adjustments were made in the coding frame.

The final coding frame was checked for reliability and validity [31]. Reliability was assessed by comparison of results of using the coding frame on the same units of analysis by both authors. Both coding frames were consistent [31] and the final coding frame was assessed as reliable (i.e., inter-coder reliability). Regarding validity, we were only concerned with the face and content validity as suggested by Schreier [31]. We used the result of our pilot coding and started with checking our miscellaneous subcategories; as there were not many segments assigned to these categories, this indicated high face validity [31]. We also checked how many segments were distributed across categories; as there were no subcategories to which the majority of segments would be assigned, this indicated high face validity [31]. We assessed content validity of our concept-driven categories. It is suggested that the content validity is assessed by expert evaluation [31]. A colleague of both authors, who is familiar with the underlying concepts of our research, was asked to check our coding frame. In the colleague’s opinion, our coding frame fairly represents these concepts and therefore our coding frame was considered to be sufficiently valid [31]. The final coding frame with assigned numbers of categories is presented in Table 1.

The final coding frame was applied in the main coding in which both authors of the paper coded all relevant collected data independently of each other. Each unit of coding was assigned to one of the (sub)categories of the coding frame. No units were double coded which we believe was the result of good preparatory work and discussions during and after the trial coding.

4. Results

Research results are presented by combining a quantitative and qualitative style which is often carried out in qualitative content analysis [31,52]. Mainly when focusing on categories, the literature [31] suggests including absolute frequencies to show how often our categories and subcategories were coded in our material.

4.1. Results of the Final Coding of the Family Businesses’ Sustainability (Re)Orientation

The data matrix was created for the overview of the results of the final coding (

Table 2. The results of the final coding.

Unit of Analysis (A Family Business)	C1 Vision	C2 Mission	C3 Goals	C4 Values	C5 Strategies or Strategic Directions	C6 Specifics of Functioning
U1	C1.1	C2.1	C3.2		C5.1
U2					C5.3	C6.4
U3						C6.2
U4		C2.4	C3.2
U5	C1.3		C3.2		C5.2
U6	C1.3	C2.4
U7			C3.2			C6.3
U8	C1.1			C4.3		C6.1
U9	C1.3	C2.2			C5.3	C6.2
U10	C1.4
U11			C3.2
U12			C3.2	C4.2		C6.2
U13				C4.1		C6.2
U14	C1.2	C2.3				C6.4
U15	C1.4	C2.3
U16	C1.1					C6.1
U17						C6.4
U18	C1.5			C4.2
U19	C1.2		C3.3			C6.2
U20						C6.3
U21	C1.3	C2.4		C4.2
U22	C1.3			C4.2		C6.2
U23	C1.1			C4.4	C5.1	C6.1
U24	C1.3			C4.3		C6.4
U25	C1.1	C2.2	C3.1		C5.1	C6.2
U26						C6.4
Family businesses with published statement (number)	16	8	8	8	6	17
Family businesses with reference to sustainability and protection of natural environment, responsibility (number)	7	3	1	7	4	10

) where each line of the matrix corresponds to one unit of analysis (i.e., 26 cases of family businesses under study) and the columns correspond to the categories of our coding frame. We use numbers assigned to categories and subcategories in our coding frame (see Table 1). Family businesses as units of analysis were numbered as well based on the sequence of their presentation in the publications Family Business Slovenia starting with the year 2019 (U1-U8), followed by 2020 (U9-U18) and 2021 (U19-U26). Each cell contains the final code where the shaded cells indicate categories with reference to sustainability/sustainable development, to preserving natural environment or responsibility; such statements show a certain level of awareness of sustainability as the major strategic orientation is presented as being either responsible (in general), taking care of the (natural) environment or addressing sustainability/sustainable development. Empty cells indicate categories that were not evident in family businesses and therefore were not coded. The results in Table 2 are presented in more detail in the next two subsections.

4.2. References to Responsibility, Preserving (Natural) Environment and Sustainability/Sustainable Development in the Analysed Statements

We first present in detail the results for each category that are statements on vision, mission, goals, values, strategies or strategic orientation, and the specifics of the firm’s functioning.

A vision statement was evident in more than half of the family businesses (16 firms) of which less than half (seven firms) indicated a certain level of sustainability orientation. Statements explicitly referring to sustainability/sustainable development were evident in five family businesses; for illustration purposes we present parts of some statements: “We want to provide our customers with knowledge of products, trends and legislation, as well as with our services, … in accordance with hygiene standards and with sustainable solutions and the environment in mind.” (U1), “… we have been building good relationships …. These are the foundations for a respectful attitude towards the environment, our partners, customers, suppliers, employees and all those living with us… We live the way that leads to creativity and ensuring sustainable development” (U8). In family business U25, the vision statement was even titled as “sustainability vision statement” stating “… We do what is right: for customers, for the environment, for society, for people, and for the economy.”

A mission statement was present in less family businesses than a vision statement (only in eight businesses) of which only one referred explicitly to sustainability/sustainable development. Family business U1 developed the following mission statement: “Our mission is to establish and maintain high hygiene standards …, while simultaneously thinking about sustainable development and the environment.” Two family businesses referred to the preservation of environment: “Our mission is to protect farmers’ crops with precise, targeted application of phytopharmaceuticals, … and minimize side effects on the environment.” (U9), “We believe that change is a challenge, to which we respond by designing innovative, simple, safe, user- and environmentally friendly solutions…” (U25). Other mission statements emphasise the characteristics of products (two family businesses) or customers’ needs (three family businesses).

Statement of goals was present in eight family businesses, but only one of them referred explicitly to sustainability/sustainable development, that was family business U25 which stated six goals among which are “… Provide adequate onboarding of our product-users to handle the machines in a way to ensure environment protection. … Control the consumption of energy sources, materials and waste with the help of the informational system. … the control of the supplier and cooperants is based on the application of sustainability performance assessment.” Other family businesses referred to a position in the market(s) and/or industry (6 of them), and one was coded as miscellaneous.

Statement of values were present in eight family businesses, the majority of which indicated a certain level of sustainability orientation. Only one of them (U13) stated values that explicitly referred to sustainability/sustainable development stating “Customer satisfaction. Employee satisfaction. Innovation and excellence. Product quality and safety. Environmental protection. Sustainable Development.” Four family businesses stated values in terms of environment protection, for example “Caring for the environment is one of our core values “ (U12), “We respect nature and the gifts it brings” (U21), “Our value is business excellence, based on an open view of the future, aspiration for the technological progress set at a high organisational level, order and cleanliness, environmental protection, as well as self-initiative and self-control” (U22). The family business U18 stated that values it promoted were “family, environment, nature, honesty, work”. Two family businesses stated responsibility as one of their values: “technology, aesthetics, speed, innovation, responsibility and professionalism” (U8) and “… integrity, responsibility and honesty” (U24).

Only six family businesses published statements on strategy or strategic directions. Two of them referred explicitly to sustainability/sustainable development. The family businesses U1 emphasized suppliers by stating “… We choose suppliers with whom we try to achieve sustainable solutions in the area of hygiene and cleanliness for our business partners” while the family business U23 emphasized “sustainable business strategic transformation” of a company which was co-financed from the national fund of Republic Slovenia and European Fund for Regional Development. The family business U5 stated “Concern for a green future” as one of its strategic directions while family businesses U2 and U9 emphasized expansion to new markets as their major strategic direction.

We were also looking on the family businesses’ webpages and in the publications Family Business Slovenia for any information about their activities and specifics of functioning that would indicate implementation of sustainability ideas. For 17 family businesses (65%) we found such information and 10 of them (38% of all firms in the sample) present their sustainability (three companies) or environmental (seven companies) activities or specifics of their functioning. The family business U8 published under the news their slogan “Our machines are red, our future is green” and its commitment to sustainable development, protection of the environment and activities in this respect. One of their latest activities was covering the roofs of almost all of their buildings with solar panels and they launched a 1.2 megawatt photovoltaic solar power plant, which will cover around 40 percent of the firm’s needs. The family business U16 emphasizes its policy of paying workers fairly. The family business U23 emphasizes the characteristic of their products which are sustainable, made of environmentally friendly materials and enable consumers to save energy. The firm’s roofs are covered with solar panels which produce all the electricity needed. Other family businesses emphasize the installation of environmentally friendly production equipment (U9, U25), reduction and responsible disposal of all types of hazardous and non-hazardous waste (U9), installation of a solar power plant (U9, U25), and environmentally friendly production or provision of services (U3, U12, U13, U19, U22, U25). The family business U22 emphasizes its responsibility towards the social and natural environment and has developed an Environmental Management Policy and Environmental Protection Programme.

4.3. Family Businesses with a Higher Level of Sustainability Awareness and Orientation

When the units of analysis (i.e., family businesses) are in the forefront of our observation, the research results show that four family businesses show a higher level of sustainability awareness and orientation. As a family business with higher level of sustainability awareness and orientation, we indicate those family businesses having at least three categories that refer to the preservation of (natural) environment and/or sustainability. There were four such family businesses: U1 (categories C1, C2, C5), U8 (categories C1, C4, C6), U23 (categories C1, C5, C6) and U25 (categories C1, C2, C3, C5, C6). All four family businesses have a vision statement that refers to sustainability, while the presence of other categories varies. Their vision of a sustainable business is developed further in their mission statement (U1, U25), goals (U25), values (U8), and, what is especially important, in their strategies and activities (all four businesses). Their sustainability orientation is not only declarative but is implemented as well. In

Table 3. Data on family businesses with higher levels of sustainability awareness and orientation.

	U1	U8	U23	U25
Family name in in the name of a company	no	no	no	no
Ownership (generation, number of family owners, % of family ownership)	first and second generation (father, two sons), 100%	first generation (founder), 100%	first generation (husband and wife), 100%	first generation (founder), 100%
Management (generation, number of family managers)	second generation (two sons)	first generation (founder’s wife)	first and second generation (husband, wife, and both children)	first and second generation (founder—father, daughter)
Size	small	medium-sized	medium-sized	medium-sized
Main activity and markets	wholesale and retail trade; market: Slovenia	manufacturing; markets: Slovenia, other countries	manufacturing; markets: Slovenia, other countries	manufacturing; markets: Slovenia, other countries
The year of establishment	1990	1989	1995	1992

and in the text that follows, we present those characteristics of these four family businesses that can help us to assess the effectiveness of endogenous and exogenous drivers of the family SMEs’ sustainability (re)orientation (this is done in the Discussion chapter).

The data in Table 3 show that none of the businesses bear the family name. With the exception of one firm, they are in the ownership of the first generation. The management is in the hands of the first, second or both first and the second generation. The ownership and management composition indicate the transition to the next family generation in firms U1, U23 and U25. Three of them are medium-sized companies and one is small. Manufacturing is the main activity in three of the firms which are active in the Slovenian market and abroad. The one firm which is active in wholesale and retail trade is present with its products only in the Slovenian market. They were established between 1989 and 1995.

The owners of the family business U1 (i.e., father and both sons) emphasize that “they are a family company with a family mindset, something which is still, as they stress, highly valued” [60] (p. 8). Both sons were involved in the family business early in their life. The firm is a wholesaler of sanitary paper, professional cleaning agents and cleaning tools. It sells cleaning machines and sanitary supplies, consumables for the catering industry and paper products. The firm’s culture is characterized by open communication, good relationships among employees who feel as though they are part of a big family which has been developed through years of a strong sense of belonging [64]. As the Slovenian market is very demanding, the owners have never really thought about expanding abroad. The company responds to the growing demand for organic cleaning agents as several of their customers have adopted certain standards on using organic cleaning agents without chemicals. The owners emphasize that they are “socially responsible and consider all the requests for donations they receive throughout the year, before deciding collectively on which to support … they are always happy to help, especially when there are children or local associations involved.” [60] (p. 13). The younger son is already thinking about the future generation and handing over the leadership to his children when the right time comes.

According to the family owner (i.e., husband) and manager (i.e., wife), the values of their family business U8 are “hidden in their name: technology, aesthetics, speed, innovation, responsibility and professionalism.” [60] (p. 62). Both emphasize that “the employees are their family and work is their way of life” [60] (p. 62). The firm manufactures mulchers and other agricultural machinery under its own brand, and components for the automotive and electrical industries. Agricultural machinery is sold to four continents. The owner emphasizes that as “a local company, we also have responsibility to the environment we live in.” [60] (p. 67). Their son, who sees the firm as an extended family, has been gradually involving himself in certain activities and projects within the firm.

The family business U23 is “a leading manufacturer of roller shutters and venetian blinds with their own production facilities in Slovenia” [62] (p. 38). The majority of their clients are manufacturers of windows and approximately 20% are direct consumers; products are sold in Slovenia and abroad. The family members emphasize that the preservation of the environment and a wish for a better tomorrow is guiding the development of their firm. The founders (i.e., husband and wife) emphasize that sustainability, social responsibility and support for the local environment are the heart of their firm. Work ethics and high quality are guiding principles in doing business and the family members are proud “to make products that are good in every way: good for the environment, good for people and which help to save energy” [62] (p. 42). Son and daughter of the founders have lived with the firm from their early childhood as the company and the home were in the same building.

The family business U25 is an innovative manufacturer of high-quality forestry equipment and is well known around the world. The brand is protected in almost 40 countries and the firm has 22 active patents [62]. The founder who is a top manager emphasizes that the support of the family was crucial for the firm’s success. Many distributors of their products are family businesses as well. The firm designed a new sustainable business strategy which considered rapid technological development and global climate changes. The firm was one of the first that completed the Academy of Sustainable Business Strategy Transformation of the Slovenian SPIRIT agency in the year 2020 and the agency co-funds implementation of sustainability into strategic and operative processes in the firm. The founder emphasizes that both employees and clients demand sustainability; therefore, the main goal is the protection of the environment, society, and economy. According to the founder “safety, sustainability and ergonomic machinery design are important advantages for development in international markets.” [62] (p. 60). The founder’s daughter is active in the family business and responsible for supply, digitalization and sustainability projects. Family life was closely intertwined with the company, and the daughter was part of the company from a very early age, and the family house was also close to the production facilities.

We also took a closer look of family businesses that according to the data collected and analysed (Table 2) do not pay any attention to environmental and/or sustainability challenges. There were ten such businesses: U2, U4, U6, U7, U10, U11, U15, U17, U20, and U26. Some basic data on these companies are presented in

Table 4. Data on family businesses with no attention to environmental and/or sustainability challenges.

	Family Name in the Name of a Company	Ownership (Generation, % of Family Ownership)	Management (Generation)	Size	Main Activity	The Year of Establishment
U2	no	first and second, 100%	second	small	manufacturing	1993
U4	yes	third, 100%	third	small	manufacturing	1992
U6	no	second, 100%	second	small	manufacturing	1995
U7	yes	first, 100%	first	small	wholesale and retail trade	1993
U10	no	first, 100%	first	micro	service activities	2009
U11	no	third, 100%	third	small	wholesale and retail trade	1960
U15	no	first and second, 100%	first and second	small	agriculture	1991
U17	no	first, 100%	first and second	micro	agriculture	2007
U20	yes	first, 100%	first and second	small	manufacturing	1982
U26	yes	Second, 100%	second	medium-sized	wholesale and retail trade	1988

.

Data in Table 4 show that the family name is present in the firm’s name in four companies. The family generation that owns the company range from the first (four firms), first and second (two firms), second (two firms) to third (two firms). In all cases, the family is the only owner. The structure of management is also very similar. The majority of firms are small (seven firms), two of them are micro and one medium-sized firm. The main activities are manufacturing (four firms), wholesale and retail trade (three firms), agriculture (two firms) and service activities (one firm). The eldest family business was established in 1960, and the youngest two in 2007 and 2009.

5. Discussion

5.1. Sustainability Awareness and Readiness of Investigated Family SMEs to Comply with the New EU Legal Framework

The results of our qualitative content analysis indicate the low level of sustainability awareness and orientation of most of the investigated Slovenian family SMEs. Therefore, these family businesses might in the future experience considerable problems in complying with the provisions of the new EU legal framework. Ten family businesses out of a total of twenty-six firms under study do not address neither sustainability nor preservation of (natural) environment in the evident vision, mission, goals, values, and strategies statements or specifics of their functioning. Only four family businesses were identified as those that have a good understanding of the growing needs to cope with sustainability issues and have developed adequate vision, mission, goals, values, and strategies/strategic directions and realize certain activities in this respect. Even though the modest presence of statements on vision, mission, goals, values and strategies/strategic directions might be the result of the size of the family SMEs, the exploration of the evident statements and specifics of the family businesses’ functioning indicate that the sustainability is neglected in strategic and operative considerations and decisions in most of the investigated family businesses. Even when sustainability is considered, it is often “reduced” to environmental sustainability without addressing other principles of sustainability (i.e., economic prosperity and social equity) [67].

5.2. The Effectiveness of Endogenous and Exogenous Drivers of Family Businesses’ Sustainability (Re)Orientation

What insights does our research reveal on the effectiveness of endogenous and exogenous drivers of family businesses’ sustainability (re)orientation? The response of a family business to sustainability issues is to a great extent the function of those who control the firm. All 26 family businesses are in absolute family ownership, and family members hold leading management positions. According to the literature, we would expect that such strong ownership and management [17,20,27] positively motivates family business owners and managers to respond to sustainability issues, as such attitudes impact the image and reputation of both a family and a family business. The study of Berrone et al. [15] on the sample of American family companies shows a more substantial impact of family ownership on environmental performance at higher levels of family ownership as the family is more concerned about environmental issues and has a stronger motive to introduce environment-friendly policies than non-family owners. However, our research results indicate that a high level (i.e., absolute) of family ownership impacts the family owners-managers’ positive attitude towards sustainability only in a minority of investigated family businesses. The explanation of our research results might lay in the study of Graafland [23] on the role of family management in the relationship between family business ownership and environmental performance. The survey conducted in twelve European countries (Austria, Denmark, Finland, France, Germany, Hungary, Italy, The Netherlands, Poland, Spain, Sweden, UK) shows that a family-owned company which is managed by family members has worse environmental performance than a family-owned company that is managed by the combination of family and non-family members. When the family business is fully managed by family members, the family interests and benefits may receive more attention than other stakeholders’ interests, which prevents investments in protecting the environment. So, the strong presence of family members in the management of the family SMEs in our sample may be an additional explanation for the low level of sustainability orientation. Based on the research results, Graafland [23] concludes that the non-linear moderating influence of family management suggests that the protection of SEW might not always positively influence environmental performance.

Similarly, our research results might indicate that the protection of SEW may not play a decisive role in (re)orientation towards sustainability as suggested in the literature [11,15,20] and may indicate asymmetric family altruism and family members’ opportunistic behaviour [23]. This cognition on the weaker role of SEW protection, as theoretically discussed, may explain our research results regarding the presence of the family name in the name of the firm and its effects on the sustainability (re)orientation of our investigated family businesses. Namely, the proponents of the SEW approach [34,42] and several other authors [11,19] suggest that in addition to image and positive reputation, the family name in the name of the firm, might increase the likelihood of sustainability orientation of family businesses [34,42]. Our research results show that the family name in the firm’s name is not a common practice in our sample of family businesses. On one hand, this might provide an additional explanation for the low level of sustainability awareness among family owner-managers. However, on the other hand, this may as well provide evidence that the association of the firm’s name with the family name has no effects on the sustainability orientation of family SMEs because none of the four family businesses with a high level of sustainability awareness and orientation have the family name in the name of the firm.

Since the beliefs and values of the family owners-managers impact their attitude regarding sustainability issues [27] and the institutional environment has a vital role in the development of beliefs, values, and attitudes of the family owners-managers [28], the low level of sustainability orientation of the investigated family businesses can be attributed to the characteristics of cognitive and normative dimensions of the institutional environment. The research findings of Roxas and Coetzer [28] on the sample of small firms show a strong impact of the cognitive and normative dimensions of the institutional environment on the development of a positive attitude of owner-managers towards the natural environment while the effect of the regulatory dimension is lower. If environmental and sustainability concerns are modestly present in the norms and values of the local community and society, and family owners-managers do not perceive the institutional environment as being supportive of their family businesses’ (re)orientation towards sustainability [11,15,28], then family businesses’ owners-managers are not going to develop sustainability awareness and commitment. Consequently, they will not develop and formulate a sustainability vision, mission, goals, and strategies; instead, they will keep financial resources to fulfil other (business and/or family) needs rather than invest in sustainability solutions. Besides already mentioned characteristics of the normative and cognitive dimensions of the institutional environment that may be present in Slovenia and do not support sustainability (re)orientation of family SMEs, the low level of sustainability awareness and orientation in our sample family businesses might be attributed to the regulatory dimension of the institutional environment as well. Existing (lat. de lege lata) Slovenian and EU legislative framework on SMEs which was explained in the study had no mandatory requirements and their sustainability reports were based on a soft law basis. This lack of mandatory sustainability reporting may be one of the reasons for the lack of incentive for family businesses to be more active in this area. New legislation in the future (lat. de lege ferenda), spearheaded by the CSRD and CSDDD, will undoubtedly change the attitude of family businesses towards these issues.

Our research results do not enable us to directly explore whether the narrow-mindedness of family decision makers [19] and lack of knowledge on sustainability challenges and sustainability practices [12,28] are present in the investigated family businesses. However, strong family ownership and management prevail in our firms and since simple organizational and managerial structures are usually present in smaller firms (at least in micro and small ones), and strategic and operative decisions regarding natural environment preservation and sustainability are made solely by the family members and depend on their knowledge base. Especially for the ten family businesses without any environmental and sustainability strategic and operative solutions, the potential explanation might therefore lay in the family decision makers’ narrow mindedness and lack of knowledge on sustainability issues and sustainability practices.

Family owner-managers of all four family businesses with high levels of sustainability awareness emphasized high expectations of their clients regarding sustainability and the prevention of adverse effects on the natural environment [60,62]. Such pressure from stakeholders might be one of the reasons for the much higher level of sustainability awareness and commitment of these four family businesses compared to other investigated family businesses. These results are similar to the study of Darnall et al. [35] conducted in Canada, France, Germany, Hungary, Japan, Norway, and the USA, which show that smaller firms regard value-chain, internal, and regulatory stakeholder pressures as quite threatening and therefore respond more dynamical than large firms. As the three family businesses are active not only in the Slovenian market but also abroad, their higher level of sustainability orientation is likely attributed to the more advanced instructional environments regarding the sustainability of their target markets abroad.

The size of the investigated family businesses might also offer an additional explanation for our research findings as some authors [23,35] suggest that pressure from clients is stronger in larger firms, which also attract more attention from non-governmental organizations. Namely, three of four family businesses with higher levels of sustainability awareness are medium-sized firms, while among ten family businesses without any reference to sustainability that prevail small ones (seven firms), two are micro firms, and only one is medium. However, we would expect small family businesses to be more proactive in terms of sustainability because small firms usually have more clients from the local community and are more responsive to their concerns, as the firm’s success depends on the degree of legitimacy and approval from local clients [35]. Our research findings do not provide support for such effects of local clients on the sustainability (re)orientation of small family businesses, which might be attributed to the already discussed characteristics of cognitive and normative dimensions of the institutional environment of the investigated family SMEs.

All four firms with high levels of sustainability orientation are still owned by the members of the first generation (in one firm together with the members of the second generation), while the members of the second generation (except one firm) already occupy the managerial positions. Such situations in investigated family SMEs indicate the first generation’s intention to transfer the family business to the next generation. According to the literature [12,41], family owner-managers who intend to transfer the family business to the next generation are more likely to invest in long-term sustainability solutions. The intention of transgenerational continuity in our investigated family businesses (in three out of four) might explain higher sustainability awareness that resulted in sound sustainability strategic directions and/or activities. Similar findings were found in the study of Delmas and Gergaud [41] on 281 wineries in the USA, showing that the ties to the future generation, measured as the winery owner’s intention to transfer the winery to the next generation, are associated with the adoption of the sustainable certification. Their study indicates that family ownership solely does not provide an explanation for the family businesses’ attitude towards sustainability. It is the intergenerational intent that makes family businesses more likely than non-family ones to achieve business sustainability [41]. The sustainability orientation of these four family businesses might as well be attributed to the successors who already occupy management positions. Namely, well-trained successors who possess knowledge of environmental and sustainability challenges significantly contribute to strategic decisions on the family business’s sustainability (re)orientation [35].

6. Conclusions

As a strong presence of family members in ownership and management might resulted in narrow mindedness of key decision makers, educating and training about sustainability challenges is of great importance. Owners-managers need to be constantly connected with the evolving knowledge about sustainability and learn about good sustainability practices. The educational system should provide up-to-date knowledge on sustainability issues thereby preparing successors for coping with the environmental and sustainability challenges; training in this respect for family and non-family employees should be offered by the SMEs’ supporting institutions.

Owner-managers of family SMEs should integrate sustainability concerns into organizational culture and decision-making processes at strategic, tactical, and operative levels. Owner-managers’ awareness and commitment to sustainability should manifest in the family business’s vision, mission, goals, strategies, and everyday functioning, as well as in the interactions with internal and external stakeholders. The positive attitudes of owner-managers towards the natural environment and sustainability should be “transferred” to potential successors before they enter the business. In business families, values of sustainability acquired in early life at home have an essential influence on the behaviour and attitude of family members as potential future owners and managers. As emphasized by Le Breton-Miller and Miller [19], parenting and values developed during upbringing have lasting effects on shaping individuals to become responsible citizens. The cognitive and normative dimensions of the institutional environment have important roles in encouraging family SMEs’ owners-managers to adopt and implement sustainability practices in their businesses, engagement of government (e.g., by sustainability policies and programs), and professional, trade, and industry associations. Their efforts should be oriented towards raising owner-managers’ awareness of the required sustainability (re)orientation by providing information on sustainability challenges and good sustainability practices, thereby influencing changes in values, beliefs, and attitudes of owner-managers towards sustainability. Professional, trade, and industry associations (e.g., chamber of commerce) might also serve as a “tool” for sharing knowledge among family SMEs while at the same time influencing the community and society culture toward sustainability.

One of the factors that will influence the future sustainability strategy of SMEs is the new legislative framework. Although indirectly (as partners in the value or activities chains), SMEs must also comply with sustainability reporting and due diligence requirements in environmental and human rights matters. In the context of the research question posed in the introduction on how well Slovenian SMEs are prepared for the challenges of the new sustainability legislation, the survey data suggest that they have a lot of work ahead of them to adapt their operations to the new requirements. They will be exposed to several organisational and financial challenges, although the provisions of the CSDDD already require companies to come to the aid of business partners who are SMEs. Contractual guarantees of compliance with the code of conduct, which companies must obtain from business partners, must be fair, reasonable and non-discriminatory in the case of SMEs (Article 10 (5) CSDDD). Companies will have to provide SMEs with adequate and proportionate financial assistance in direct financing, low-interest loans, guarantees for the further acquisition of funds or assistance in securing financing (more details in Section 2.1.3.). Nevertheless, the member states should also be appealed to, just as with companies’ green and digital transition, to help the latter transition to sustainable management (through education, free advice from legal and accounting experts, etc.). In this way, SMEs will acquire the necessary knowledge to fulfil the new legal obligations and thus be more effective in dealing with environmental and social challenges.

In the future, it will therefore be necessary to regularly monitor the impact of the new legislation on the business of SMEs, as well as all the other obliged companies, and, where required, to adapt their obligations to the competing demands of the wider global (and not only EU) economic environment. We agree that the fundamental objective of new legislation aimed at sustainable development should be to create sustainable value [68] (p. 211) as a new concept in company law and corporate governance. It is essential to go beyond national frameworks and work towards a globally binding agreement at the UN, WTO, etc. level; otherwise, partially addressing sustainable development will only lead to more significant divisions and social injustice.

Even though several studies [19,42] emphasize the positive effect of the family name in the name of a family business on the family business’s behaviour and functioning, our research findings show that the family name has no effects on the family business’s (re)orientation towards sustainability. As most of the cited research studies were conducted in countries with the tradition of market economy and family businesses, future research should address the role of the family name in the specific context of former socialist countries. Since in these countries the majority of family businesses are still under the control of the first family generation or in transition to the second, future research should also address how the owning families value the family name nowadays and whether choosing a firm name is more a matter of gaining market attention and less a matter of family pride.

Our research findings point to more substantial effects of exogenous factors than endogenous factors on family SMEs’ sustainability (re)orientation. Future research should be orientated towards exploring the impact of the national context on the level of family businesses’ awareness and orientation towards sustainability by comparing family businesses from different countries. More research should be carried out regarding the “real” effects of the often theoretically based endogenous factors (e.g., the protection of SEW, the composition of management, and the role of non-family members in management) and provide evidence of their impact on the sustainability (re)orientation of family businesses.

We are aware that the findings of our exploratory research, in which we applied a multiple case study approach, cannot generalized to the family business population since the aim of exploratory research is to build theory and not to create knowledge that could be generalized to a larger population with statistical methods. Even though we cannot statistically generalize research results from our exploratory case study, we encourage scholars to explore whether our research findings can be statistically generalized to the population of family SMEs.

Like other studies, our research work has some limitations, which can, however, show directions for future research. First, our sample includes family SMEs from Slovenia. Further research in other countries should be conducted to increase the evidence on drivers of the family businesses’ sustainability (re)orientation. Cross-country comparative studies would make it possible to evaluate whether our research findings may reflect the particularities of Slovenia. Second, we collected data from statements on vision, mission, goals, objectives, strategies, or strategic development directions and specifics of the firm’s functioning from the websites of family SMEs included in the sample. As information on sustainability activities might be published in newspapers and other media, these different sources of information on sustainability activities should be considered in future research. The study of these alternative sources of information could be helpful especially in the case of SMEs as their webpages often provide less information than those of large enterprises.