Sustainability addresses environmental and socioeconomic issues affecting this and future generations [1
]. It understands the world as a complex interaction between economic, social, environmental and political systems. Management of the environment has been viewed as a determinant of business success [3
]. Family business researchers must take environmental issues into consideration as they are increasingly important, especially since the development of theories such as functionality, ecology and development, which incorporate the lens of sustainability [10
Although an ethical or normative view of the world urges us to embrace a holistic view of what a good society should be [11
], global concerns have been raised about environmental issues. While economic sustainability has been defined as maintenance of capital [13
], environmental sustainability seeks to improve human welfare and social sustainability by protecting the sources of raw materials used for human needs and limiting dumping of human wastes in order to prevent harm to human beings [14
]. The European Commission has adopted an ambitious new Circular Economy (CE) Package to help European businesses and consumers to make the transition to a stronger and more CE where resources are used in a more sustainable way. With this plan to make Europe’s economy cleaner and more competitive, the Commission is delivering ambitious measures to cut resource use, reduce waste and boost sustainable production and consumption. Since adopting the CE Package the Commission has observed an increased uptake by corporations to adopt resource efficiency, eco-innovation and/or CE strategies and practices.
Focusing on family business and sustainability, the literature has increased in recent years [15
], with family business researchers studying sustainability and environmental issues in depth. Stafford et al. [10
] proposed one of the first business models to apply the idea of sustainability to family businesses, grounding the latter’s sustainability in systems theory by analyzing the interactions between business and family as two subsystems. Analysis cannot, however, be limited to internal links between the family and the company. Family business studies have gradually highlighted the importance of analyzing the relationships between companies and their stakeholders, defined by Freeman [17
] as groups or individuals who can affect or be affected by achievement of a corporations’ purpose. Since the community is a major stakeholder and one permanently related to the firm, we must analyze the characteristics of this relationship.
Despite these studies, researchers highlight the scarcity of research on sustainability, noting that few studies of sustainability consider factors other than financial performance. One exception is the study by De Geus [18
], which included eco-emotional factors such as desire to survive and withstanding changes inherent in the environment.
Among attempts to achieve environmental sustainability, the CE has been promoted by the Ellen MacArthur Foundation (EMF) as a way for companies to respond to contemporary environmental challenges. The foundation was established to champion a notion of CE to oppose the dominant economic paradigm of “Linear Economy.” According to Leader and Rashid [19
], CE is “an industrial economy that is restorative or regenerative by intention and design.” Although CE is an important paradigm, little research analyzes the position of family business relative to sustainability and CE. We undertake this study to fill this gap. Our research goal is thus to determine the situation of family businesses relative to environmental sustainability by analyzing how their unique characteristics could affect implementation of CE using the Socio-Emotional wealth approach (SEW). Specifically, our research questions are:
RQ1. What reasons could lead a family business to evolve to the CE model?
RQ2. What factors inherent in the family, aid implementation of the CE model?
RQ3. How is the family business, Mercadona, transitioning to CE in practice?
Our main contribution is to advance traditional sustainable models of family business by studying the behavior of family and business facing the CE. We also aim to identify what factors derived from family character could speed transition to this economic model. This is the first model applied to the family business that introduces the concept of environmental sustainability through CE. We also seek to introduce the new paradigm to family business decision makers. This knowledge will help to build collective awareness of sustainability matters in the family business and thus to promote a new business model based on CE.
3. Model of Transition to Circular Economy for Family Business
3.1. Building the Model
We ground the theoretical model in Dubin’s theory-building model, based on the functionalist paradigm, to build the model through deduction. Performing the literature review and operating with selected variables, we build a theory by incremental extension of previous models [52
Following Dubin’s methodology, we performed a review of literature in databases and journals to understand phenomena and concept development and to identify previous models and key aspects of our study.
The next stage in the process is to find the most significant studies related to the subject under investigation. To obtain them certain engines and search chains are used. The selected search engines have been: ProQuest, Science Direct, Scopus, Web of Science and Google Scholar. However, for the search chain, in the first place, keywords related to the main concepts or variables of the research topic were chosen. After a first search, other keywords were added by analyzing individual documents identified in an initial list. These keywords were Family Businesses, Sustainability, Socio-emotional wealth, Circular Economy. We did not include a specific search period because we wanted to know the background of the topic.
On the other hand, to generate the search strings that were used in the different databases, Boolean operators (AND, OR and AND NOT) were used to generate complex searches, that is, to link “the keywords.” Finally, after an exhaustive review process, 51 articles were selected on the subject, included in indexed journals and which served as the basis for the bibliographic analysis.
We then developed construct analysis and the iterations between these constructs. This procedure established three main constructs: Community, Family and Business. We highlight the interactions between these three constructs, attempting to build our theory according to the five steps established by Dubin [53
]: determination of the units of a theory to study the relation between the family business and CE; laws of the interactions between units; boundaries of the theory; system states; and establishment of propositions. Following this method, we developed an initial theory—a set of propositions that aim to explain the position of the family business facing CE.
3.2. Dimensions of the Model: Community, Family and Business
According to Dubin [53
], construct analysis aims to establish the main dimensions of the domain. This analysis enables organization of isolated findings in an explanatory network context. The theoretical literature review showed what units must be considered part of the theory. Community, family and business are the three base constructs of our theory. We selected these dimensions from Olson et al. [54
] and Stafford et al. [10
], where authors argue that the sustainability of family firms is caused by the balance between Family and Business. In the further step in the study of sustainability in the family business, Danes et al. [36
] trace the evolution of previous models, adding the community as yet another subset. These authors affirm that sustainability in the context of family business occurs in the community context, where the business interacts with the community through exchange of resources.
, defined as a dynamic system that is continuously created and recreated. Community offers resources, institutions, cultural values, attitudes, beliefs and practices that can be tapped to achieve the objectives [55
]. Long-lived family firms gain from ongoing engagement with the local community because these connections enhance their SEW. Community is the affected by the negative externalities of business and the lack of resources and increased level of resource consumption facing society and the manufacturing industry [19
is the owner of the company and wishes to preserve SEW by acting with social responsibility, as this behavior will generate social recognition, improving both economic and non-economic performance derived from adopting more environmentally respectful practices [48
is the productive, economic and financial unit. Family and business interact each with other and, simultaneously, with the community. Family and business respond both in regular patterns and separately to disruptions [57
]. The SEW will act as trigger of the change of the family business to CE model. Olson et al. [57
] stress that family and business respond both in regular patterns and separately to disruptions. Their responses to CE demands are influenced by SEW that includes the nature of the family, whose goal is to reduce negative environmental outputs, not only to improve relationships with the stakeholder but also to guarantee the firm’s survival.
3.3. Interactions between Dimensions: Community and Family Business
The community enacts different standards and legal regulations on environment, which the family business recognizes (outputs of the model). Ward [58
] stresses that long-term sustainability is conditioned by the firm’s ability to respond to change. When a disruption occurs, new patterns are needed to maintain the firm’s market position [57
]. Environmental sustainability thus involves facing disruptions and making decisions in response to those previously emitted by the community. Regulatory changes create disruption, affecting family business strategy.
3.4. Family and Business: Influence of SEW on Business Transition to CE
The transformation to CE is thus unavoidable and the only issue is the time line of this change. From a SEW perspective, family firms may be considered as close to their communities, due to the personal ties between family members and other community members [44
]. SEW of family business mediates that influence on the speed of transition to CE. Based on SEW, this response could be speeded by three features of family business that act as triggers. Firstly, Family prominence
will lead the family to answer to disruptions of the community, seeking community recognition, caring for its reputation and preserving social capital [38
]. Secondly, Family continuity
plays a role because factors of environmental and social responsibility become disruptions when the company and/or family recognize the need to ensure the company’s long-term sustainability, preserving the dynasty in the business [46
]. Thirdly, Family enrichment
, which includes family enrichment and business enhancement through the entrepreneurial opportunities that the community provides for the company.
3.5. System States/Boundaries
The three system states proposed are: Families with a high degree of SEW. In this state, the model will be highly operative, driving the family’s efficient adoption of CE principles. In the second state, a moderate degree of SEW, family influence is lower than in the previous model and the system operates moderately effectively. Finally, the third system state involves a low degree of SEW. In this case, the values of the units of support provide low effectiveness for the behavior of the whole model.
Boundaries. A theoretical model is bounded when the values limiting the units composing the models are known. The main boundary of the model is generated by the definition of family business. This theory has been developed specifically for family-owned companies. The parameters that establish the model’s boundaries are adopted from the definition of family business by the European Group of Family Companies: firms in which the family controls ownership of the company, with influence in decisions and participation in its management.
In a theoretical model like the one we construct here, a proposition is an assertion about the model in operation [53
]. Propositions are based on the explanatory and predictive capacity incorporated into the theoretical framework generated during theory development [60
]. The indicators must first be converted into empirical data and then transformed into hypotheses. The hypotheses are then tested through research, linking the theory to the real world. Dubin [53
] observed that propositions do not imply empirical accuracy but will be accurate if logically derived from the theoretical framework. The Figure 1
shows the model proposed.
The family business literature has been associating the term sustainability with viability. In recent years, it has become clear that sustainability has several dimensions and that achieving sustainability, understood as long-term survival of the company, must take into account the elements that make up the system in which these elements operate. The community is an especially relevant stakeholder in the family business because it receives the business’s sales and provides the income necessary for the company’s survival. Thus, when family businesses seek to preserve their SEW, they pay special attention to the community.
The SEW framework highlights that one of the main objectives of family businesses is the search for continuity over time; the family will take the decisions required to achieve continuity. Business success and family balance are equally important to sustainability of the company. The family is conscious of the problem of resources exhaustion, from which the current linear model of production suffers, because it receives the disruptions produced by the community. The family will thus take the necessary steps to transition to a more environmentally sustainable model, such as CE, seeking preservation of the family’s SEW. This is the response to our first research question.
The family organizes and manages resources, responding to disruptions emitted by the community and decides the paths through which these resources will be transferred to the environment, making the decisions necessary to preserve the environment and essential resources for life. In our theory, these disruptions act as input for the family. Subsequently, SEW acts an accelerator, pressing the business to transition to a new production model, according to the model shows in Figure 3
. So, we can answer our research question, the family values considered through SEW act as trigger to implement CE. On the other hand, the business perceives two inputs—the disruption produced by the community, including regulations and legal imperatives, business opportunities and financing; on the other, the family’s pressure to make decisions in order to modify the production system by adding more environmentally sustainable features, such as reduction of negative externalities. Through preservation and care of natural resources, CE introduces the idea of resource-conservative manufacturing, leading to sustainable production [35
]. Resources are objects, personal characteristics, conditions, or energy that are valuable in themselves because they contribute to achievement of worthy goals [69
]. Resources are scarce. In the analyses of sustainability, resource exchange should not be limited to family and company but must include exchanges with the community. In this context, dynamic interaction occurs between the business model, product design, production chain management and customers, treating each as an integral part of the manufacturer [19
]. The case of study of Mercadona exemplify this matter, designing a system of relationships between suppliers and company that facilities the CE to each member of SCM. Company structures and their interactions currently condition the business model, whereas the interactions between energy flows, stocks and resources are noteworthy elements in CE processes [30
The family’s desire to preserve SEW, aims to shape the business to fit the needs of the family [44
]. The family will thus push the business along three possible paths: The first follows the influence generated by the family’s prominence, seeking socio-emotional or socio-ecological goals such as recognition and maintenance of reputation. Mercadona is positioned as leader in reputation in several ranks. Secondly, according to the long-term orientation of family business and the desire for transgenerational continuity, the family will press the business to change to this new scenario, which is positive for both the community and the family business. Thus, Mercadona director stated the transgenerational intention to be a family company. Thirdly, family enrichment, seeking happiness and harmony inside the family, will push the business to increase the speed of transition to a new production model such as CE. Since these three paths of influence are specifically derived from the family nature of the company, we can answer our own research question by saying that the family business will lead the transition to a new business model aligned with the CE and that this behavior will be different from that of non-family companies due to the uniqueness of the SEW of this kind of company.
Further, as to the process that occurs in the theory, we observe interactions between business and community. First, community publishes disruptions—whether normative or non-normative—that affect the business, acting as a trigger of change. The response of the business will be a gradual transition to a more environmentally sustainable model, such as CE. Thus, the company will establish a new framework of relationships with the community that will be beneficial for both subsystems. The community also provides entrepreneurial opportunities and financial support, seeking to develop and drive the CE production model.
Thanks to this transition, the company will be more sustainable in the long term, guaranteeing transgenerational continuity. Furthermore, family businesses will manufacture new products for the community, following Cradle to Cradle principles. They will help to preserve resources by employing technological nutrients. The model of Mercadona pays special attention to maintain the useful life of the resources. Ultimately, the negative externalities created by the company will diminish. The transition to the new model will gradually be completed when the business’s production follows CE principles. The Figure 3
shows all these aspect in an integrative view.
The case of study of Mercadona allows us to test the proposed model establishing several contributions, firstly the environmental sustainability as a key to continuity of the family, providing a model of production that guarantees this continuity based on the CE. Further innovative aspects of our model include analysis of the interactions among the three basic units formulated by the theory: family, business and community. The case of Mercadona explains the processes that occur within the model, which begin when the community manages the norms and regulations designed to preserve the environment, acting as a disruptor to change the business model and analyze the responses of the family and the business separately.
Our model contributes a second advance over previous studies of the sustainability of family business by adding relevance of the transition to the CE. The model analyzes not only the three subsystems but also the interactions, influences and effects between them, supported by the Mercadona case of study, answering to the third research question of this work. In addition to being useful for practitioners, explaining realities and proposing ideas for real-world practice, the final theory is novel and relevant to the study of family businesses. The case of Mercadona illustrates sustainable practices regarding the Circular Economy, which are applicable to many similar family businesses.
Our third contribution involves the practical application of SEW theory to the CE model. In recent years, the SEW approach has been applied intensely to study the family company. In fact, this theoretical framework justifies the specific behavior of the family business in its relations with the community and the environment. Such analyses have rarely used sustainability of the family business, although its characteristics give it a large explanatory capacity for sustainability. Through the SEW approach, our theory explains how the family acts in the face of disruptions produced by the community. The three dimensions of the SEW approach accurately reflect family behavior in pursuit of sustainability. Therefore, our study is one of the first to apply the scale provided by Debicki et al. [47
], which includes family prominence, family continuity and family enrichment that are the three main factors that cause transition to CE model, a unique feature derived from the family character of these companies. These three dimensions, as we have showed, were present in the case of Mercadona.
From a practical point of view, Mercadona is a good example for others family companies that are worried about the sustainability. Our study contributes by proposing a new model of production that is more environmentally sustainable, taking into consideration constraints such as new legislation and new technical processes in the environment of circularity by managing resources in a conservative way [65
]. The goal of the company’s production department will be to reduce negative externalities. Previously, traditional business models were designed to operate within systems of Linear Economy. This new system includes dynamic interactions between business models, product design, management and supply chain customers. Care of resources includes the idea of multiple lifecycles of products and energy conservation [69
]. The model adds value for waste prevention and environmental protection, considering these aspects as integral elements of company strategy. We thus find a dynamic system that involves a process of sharing resources with the community, viewing resources not as waste but as technological nutrients for the community. This process will ensure environmental sustainability of the family business. The case of Mercadona promotes especially the cooperation between suppliers as a key factor to perform CE being a model that need to be taken into consideration by other family business.
Secondly, the model proposes new design of industrial processes, in which resource transactions assume a new dimension, production shifts from linear to circular and business goals incorporate environmental issues. Some of these elements are related to the family, others to the company and still others to both. Environmental sustainability is achieved through the interaction of these subsystems and the new processes. Besides, the design and incorporation of reverse logistics into SCM will allow the family company to close the cycle of resources, improving its environmental sustainability.