The Role of Governance in Achieving Sustainability in Family-Owned Business: Do Responsible Innovation and Entrepreneurial Culture Matter?

Abstract

Research on family business sustainability has seen a surge over the last decade. Despite this, very little research has been performed to investigate the impact of governance on family business sustainability. Building on this gap, this paper empirically examines the impacts from organizational governance and responsible innovation on the sustainability of family-owned businesses. It also evaluates entrepreneurial culture’s contribution as a moderator of the nexus of organizational governance, responsible innovation, and business sustainability in Saudi Arabia. A sample of 396 responses were collected from 87 family enterprises; respondents were generally principal managers and/or main business owners. The relationships in the conceptual model were tested with structural equation modelling using SmartPLS. The results show that organizational governance and responsible innovation positively and statistically significantly impact business sustainability among family-owned businesses in Saudi Arabia. Furthermore, entrepreneurial culture significantly and positively moderates the organizational governance, responsible innovation and business sustainability of family-owned businesses in Saudi Arabia. The results guide regulators in regulation formulation related to the achievement of business sustainability through good governance and effective entrepreneurial culture. Government and regulatory authorities must therefore encourage family-owned businesses in their predominantly economic functions in society, while also engaging in sustainability-oriented policy making and programs.

1. Introduction

Family businesses are an economic pillar of not only developing economies, but also of most developed economies, where they play a key role. According to Memili et al. [1] and Ferasso et al. [2], they remain the predominant organizational category globally, and often significantly contribute to countries’ economies. Their operations and activities are therefore of interest to scholars and practitioners, and even to governments. Despite the growing importance of these businesses, sustainability activities or practices remain a challenge for management, as they relate to other stakeholders and the environment, especially in developing economies [3]. Although the basic goal of a business is to earn profits, businesses that are socially and environmentally conscious (i.e., triple bottom line) evaluate their operational impact in terms of environment and society, in addition to their profits [4,5]. A sustainable business makes money while safeguarding the environment and demonstrating social responsibility to the community [6,7].

A family firm can involve significant complexity, with frequent blurring of lines between familial roles, managerial roles and ownership [8]. The central interest of family businesses, and that which differentiates them from others, is the protection of their socio-emotional wealth (SEW), such as through family unity, continuity, control and identity. Berrone et al. [9] (p. 87) stated that “…the value of socio-emotional wealth to the family is more intrinsic, its preservation becomes an end in itself, and it is anchored at a deep psychological level among family owners whose identity is inextricably tied to the organization”. This singular objective regulates family businesses in all their activities with both internal and external stakeholders, which also includes business sustainability.

Business sustainability in family-owned businesses is sometimes affected by succession problems, especially between the first generation (founders) and the second generation. Succession planning in general, and management succession planning in particular, influence the continuity of the family business from one generation to the next [10]. Tan et al. [11] stated that tension and conflicts usually destroy family businesses. It is therefore necessary to establish clear guidelines and policies regarding family members’ involvement, their career progression and remuneration, etc. According to Bjuggren and Sund [12] and Paço et al. [13], despite the obvious necessity of proper succession planning to safeguard the continuity of the business, few entrepreneurs and small businesses take any steps to carry out succession planning. Sustainability practice depends on ethical factors, as well as being oriented toward the long term [14]. This latter feature tends to be associated with family businesses, as their owners prioritize business identity and continuity, but Broccardo et al. [8] reported the difficulty inherent in a comprehensive assessment of factors linked to sustainable development practices among family firms, because of heterogeneous sample selection and the different methods adopted.

Business sustainability refers to an organization’s undertaking of business activities in such a manner as to have no adverse impacts on the environment and society, which ensures business sustainability [15]. Previous studies have suggested that family business governance, a system that includes rules, regulations, practices, and mechanisms for structuring, directing and controlling the organization, commits the organization to maintaining balance among the interests of all its stakeholders [16,17,18,19]. Additionally, responsible innovations carried out in the public interest, and which are socially beneficial, encourage business sustainability [20,21,22,23]. Entrepreneurial culture has also been identified by previous studies [24,25] as a factor that influences business sustainability. Westman et al. [19] opined that family businesses, which are in some cases small- and medium-sized enterprises (SMEs), play a significant role in sustainability issues including supporting innovation, responding to new opportunities, and exercising control over a significant proportion of resource consumption and environmental degradation. They should therefore also be mobilized, not only in sustainability governance, but also in sustainability initiatives.

This paper builds on some of these previous studies. Family business sustainability has been discussed among researchers using individual factors or variables and in different settings. Broccardo et al. [8] revealed that it was not possible to comprehensively delineate the features of family businesses that determine their commitment to sustainable development, due to the different methods adopted and the heterogeneity of samples. This confirms the lack of consensus and the existence of conflicting results in most studies, especially in developing economies, which prompts this study’s comprehensive investigation of factors influencing family business engagement in sustainability. The human, social, and environmental consequences of unsustainable business practices are one reason for the growing significance of sustainable development in the global setting are maybe exacerbated by the corporate misconduct shown by the recent financial crisis [26]. These practices can also facilitate the continuity of a family firm across generations [27]. Despite the significant contributions to social, environmental and economic issues, not many studies have empirically provided sufficient information on the determinants of sustainability practices in family businesses [28], especially in the context of developing economies. Hence, this is another reason for this study.

This study simultaneously focuses on three key factors that not only contribute to business performance, but are also likely to influence family business sustainability. Specifically, this paper aims to analyze the impact of governance and responsible innovation upon business sustainability, and to examine entrepreneurial culture’s role as a mediator of the connection linking governance and responsible innovation with business sustainability. The impact of these factors on business sustainability has generally been tested and conceptualized within developed countries, such as the UK, the US and Japan, therefore potentially limiting the generalizability of results in applications in developing nations, including Saudi Arabia, due to these economies’ distinct characteristics.

The motivation for selecting Saudi Arabia for this study relates to several factors. Firstly, the country has a large number of family-owned businesses that play a significant role in job and wealth creation, which are controlled by one or limited numbers of families and have been sustained for several generations [29]. Family-owned businesses are progressive, but many are likely to face problems in performance, and even threats to their future survival, because of a lack of attention to social welfare and environmental protection alongside economic outcomes [30]. Second, comprehensive testing of innovation and governance principles developed in the West is increasingly needed for emerging economies [31] and in different settings, e.g., in Saudi Arabia’s distinctive legal context and economy.

Furthermore, besides its series of updated business governance reforms, Saudi Arabia’s Vision 2030 [32] is not only intended to diversify its economy and bring in foreign investment, but is also involved in the implementation of specific UN development goals. These include goals 6—Clean water and sanitation; 7—Affordable and clean energy; and 12—Responsible consumption and production, among others [33,34]. These developments are of research interest as they may have a limited indirect influence on family business governance practices, and consequently on sustainability activities in the country. Finally, each country has its own contextual realities and unique characteristics that warrant separate studies to gain insights into country-specific settings [35].

Consequently, this research aims to contribute to the literature on family businesses and sustainability.

First, this is one of the few studies to simultaneously use three key factors to analyze governance and responsible innovation influences on business sustainability. It concurrently examines the role of entrepreneurial culture in mediating the association of governance and responsible innovation with business sustainability in an emerging economy, whilst also providing empirical results indicating how the implementation of good governance, appropriate innovation policies, and the right business culture enhance family business sustainability.

Second, the contextual realities of each country need to be considered to gain specific insights [36] that may require separate studies. This paper addresses this limitation in the literature and develops family sustainability research through its focus on the distinctive characteristics of a developing economy, in which a premium is placed on informal relationships and sometimes on non-economic considerations.

Third, this research adopts important theories (socio-emotional wealth, stewardship and stakeholder theories) for the context of Saudi Arabia. This contribution helps bridge a gap in the family business literature, and further broadens theoretical insight into the link between good governance, innovation, and business culture in family business sustainability in an emerging economy. Furthermore, this study adopts structural equation modeling (SEM) and smart partial least squares (SmartPLS) to confirm modeling quality for measurements and structural modeling [37]. This model makes the constructs visible and simplifies the study process to allow measurement of the association of indicators and variables for hypothesis testing [38].

Finally, our empirical results carry important practical and research implications for other emerging economies that share similar business and cultural features, to which we will return in later sections.

The current paper uses the following structure: Section 2 (Literature Review) sheds light on past studies on the role of governance, responsible innovation, and entrepreneurial culture in business sustainability. Section 3 (Research Methods) covers how the data for the study were collected and the empirical method adopted. Empirical results and discussion form the next Section 4, while Section 5 contains the conclusion, implications, limitations and suggestions for further studies.

2. Literature Review

2.1. Theoretical Framework and Hypotheses Development

Several theories in the business literature explain the relationship linking family-owned business, governance and sustainability. This study specifically emphasizes the socio-emotional wealth (SEW), stewardship and stakeholder theories for the review of published work on family businesses and in developing hypotheses, as well as in analyzing findings explaining associations between family business and sustainability. SEW theory has attracted the greatest usage in family business in descriptions of these associations. SEW forms the most significant characteristic of family-run businesses, distinguishing them from other organizational structures [39]. Berrone et al. [9] (p. 87) reported that “…the value of socio-emotional wealth to the family is more intrinsic, its preservation becomes an end in itself, and it is anchored at a deep psychological level among family owners whose identity is inextricably tied to the organization”. The decisions of family businesses are aimed at the preservation of their SEW, even at the level of strategic policies related to dividends, capital structures and business social responsibilities [40].

Among family-owned businesses’ characteristics is dynastic succession, through which a firm’s links to the family are renewed by passing on the firm to a younger generation. The feature of being trans-generationally sustainable forms one of SEW’s main aspects [41]. In addition to strategic family influence and control, sustainability is also the core of family businesses, but this time among family and immediate members. Sustainability is therefore not a new concept to family businesses [42]. Sustainable activities involve development that meets the requirements of the current generation, while not compromising the ability to satisfy later generations’ needs. Thus, this can be linked to the way in which family businesses operate [42]. The willingness to hand down their business to younger generations indicates both longer-term planning horizons and continuity, and also tradition and innovation [43].

According to Astrachan [44], if a firm operates based on aims related to society, the environment and economic considerations, it may be able to generate value in the longer term. Therefore, family firms have long-term motivations [45], suggesting they may tend to pursue strategies that lead to long-term success, through identifying shared goals and finding balance between the requirements of various stakeholders [46]. Berrone et al. [39] and other studies adopting SEW theory have confirmed that family-owned firms are better attuned to sustainability practices in comparison with similar non-family firms, based on both the trans-generational outlook and links to local communities.

Two other theories that relate to family-owned business governance are the stakeholder and stewardship theories. Stakeholder theory concerns stakeholders, which, besides shareholders, include customers, staff, the local community, distribution agents and suppliers. Their interests must be considered as part of sustainability practices. Freeman et al. [47] defined stakeholders as individuals or groups capable of affecting or being impacted by the firm meeting its goals. Meanwhile, stewardship theory points to the inherent trustworthiness and effectiveness of agents/managers in handling the resources they are given responsibility for, eliminating the need to monitor them [48]. In a family business, the managers, who are the stewards, and the stakeholders, who are mainly the owners of the business, share a common interest. There is no real separation of ownership from control and its attendant agency problems (conflict of interests), but this problem takes another form, e.g., expropriating minority shareholders [49], who are also considered as controlling (family) shareholders versus non-controlling shareholders [50]. However, the pursuit of profits and maintenance of family values by family-owned businesses could breach other principles [51]. Therefore, the state often puts in place various regulatory tools, such as environmental protection, company formation, and corporate boards, etc., to monitor and control the activities of these organizations. For Saudi Arabia, among other key instruments are the Saudi stock exchange (Tadawul) and the Saudi corporate governance code.

The central interest of family-owned businesses is the protection of their socio-emotional wealth. This singular objective not only influences behavior, but also regulates family businesses in all their activities with stakeholder groups inside and outside the firm, and consequently determines the governance structure, innovation programs and entrepreneurial culture, which subsequently influence their business sustainability practices.

2.2. Hypothesis Development

This study adopts the definition of sustainability given by Sharma and Henriques [52] as the firm seeking economic prosperity within the context of its surrounding environment. The family firm or family-owned business must pursue sustainability practices which have a direct link to both the continuance of the firm and significant stakeholder relationships, including with individuals and groups in the communities around the firm. According to Kuckertz and Wagner [42] (p. 529), “Sustainability practices are organizational endeavors and managerial approaches that help achieve success in the long run”.

Sustainability practices relate to ethics, and in this instance encompass business governance (e.g., business social responsibility initiatives, ethical standards, and developing an innovative environment which is beneficial) and environmental protection (e.g., resource conservation [42]). According to Sardianou et al. [53], the adoption of sustainability practices as a strategic action is expected to be driven initially by the various goals of firm owners and stakeholders. Mahmood et al. [54] and Correa-Garcia et al. [55] identified the effectiveness of good governance in business sustainability. Previous studies [56,57] have also confirmed the impact of responsible innovation on business sustainability. Prior research has also considered the influence of entrepreneurial culture on business sustainability [24,25]. This study therefore draws on the above branches of research and relevant insights from family business-related theories within a Saudi Arabian setting to determine which variables may affect family business sustainability. Specifically, this study focuses on three key factors: governance, responsible innovation and entrepreneurial culture.

2.3. Governance and Business Sustainability

According to Berent-Braun and Uhlaner [58], a business-owning family that shares a focus on preserving and growing wealth as a family is defined as an enterprising family, and such organizations are more likely to initiate policies and structures that will ensure business sustainability. The development of effective family governance systems provides advantages for the business-owning family as well as the family firm. This varies by family and firm, and governance approaches can be more formally or informally structured, decided on various bases and differing over time. Based on this, it is clear that structures for governance must be specific to the needs of the business family firm, but with a focus on business continuity and sustainability. Suess [59] identified several factors that may affect effective family governance. One of the governance mechanisms for family businesses is the family council. The members exercise delegated authority from the family assembly (a forum consisting of existing and future stockholders of a family firm [60], to make decisions as family representatives [50]. The council serves as an intermediary between the family assembly and the board of directors [61], and also as a legitimate forum for business-related family conflict resolution [60]). However, Villalonga et al. [50] argued that the council’s relationship with the board of directors is to ensure the alignment of interests of the shareholders and family, with a particular focus on the family’s socio-emotional wealth.

Generally, the governance of a business comprises the set of regulations, practices, mechanisms, and defined relationships with stakeholders that are used to direct and control the business’s function [62]. Governance keeps balance among different stakeholder interests—for example, senior management, shareholders, customers, suppliers, investors, financers, communities, and government [63]. Specifically, Saudi Arabian governance regulations state that this governance aims “…to facilitate the decision making process and add transparency and credibility to it with the objective of protecting the rights of shareholders and Stakeholders and achieving fairness, competitiveness and transparency on the exchange and the business environment” [64] (p. 7). According to Astrachan and Botero [65] (p. 5), family business governance is “…the making, monitoring, and adjudicating of rules for family members’ internal and external interactions and is exercised through a variety of decision-making bodies such as family assemblies or family councils”.

Business sustainability requires that the interests of all stakeholders must be protected while business functions are being carried out, i.e., to focus on marketing functions to generate profits. When governance is effectively implemented and a balance is maintained in terms of the organization’s own interests and the interests of stakeholders, business sustainability can be achieved [66].

Previous studies have established a link between good governance and business sustainability [19,67,68,69]. Mahmood et al. [54] and Hussain et al. [68] examined the effectiveness of good governance in business sustainability. Their findings imply that governance encourages businesses to plan their activities in a way that avoids any adverse environmental and social impacts. The authors therefore conclude that strong environmental and social governance contributes to business sustainability. In similar studies conducted by Setyahadi and Narsa [67] and Correa-Garcia et al. [55], using Indonesian and Latin American business group samples, respectively, the findings reveal that implementing good governance leads to business sustainability. A study by Westman et al. [19] on SMEs confirmed that good governance assists in achieving business sustainability.

Furthermore, Peng and Zhang [18] highlighted that businesses which implement good governance rules and regulations in their business dealings with stakeholders and in their handling of business documents can win the trust of their stakeholders and build effective relationships with them. These sound relationships contribute to business sustainability. From a theoretical perspective, numerous family businesses were set up to fulfill aims which relate to the family, e.g., keeping the family unified, providing jobs for the family, and continuity [70], which thereby preserves SEW. Therefore, sustainability activities may have special significance for family firms, as they can help in building reputational standing in communities, making connections to stakeholders and the external environment [71], and ensure continuity of the family business across generations [27]. Using both theory and empirical findings on family governance and business sustainability, this research firstly hypothesizes that:

H1. 

Governance has a positive relationship with business sustainability.

2.4. Responsible Innovation and Business Sustainability

Pacifico Silva et al. [22] examined the role of responsible innovation in business sustainability, and stated that firms must innovate their processes responsibly in order to be sustainable. Brand and Blok [56] stated that responsible innovation means applying inventiveness or creating opportunities for initiatives such as technological, mechanical, and scientific changes that are in the public interest and useful for society. Silva et al. [72] presented the view that firms have specific responsibilities towards stakeholders, society, and the environment while performing their business activities. They argue that businesses which are conscious of these responsibilities while engaging in responsible innovation in different business departments (such as inventory, production, sales, and risk management) can improve social and environmental performance along with profitability, which will impact positively on their business sustainability.

In addition, Lehoux et al. [73] and Bronson [74] investigated the impact of responsible innovation on business sustainability, and their results show a positive contribution. They conclude that the adoption of responsible innovation assures environmental protection and social welfare for the public, which provides a basis for business sustainability. Furthermore, Tian and Tian [57] confirmed that responsible innovation is important to business sustainability with data collected in China. Their study revealed that innovation in business processes is crucial for market success, because consumers demand improved products and services, and businesses that maintain innovation while taking stakeholders’ interests into account not only outperform their competitors, but also establish sustainable performance. Similarly, Long et al. [75] examined the relationship between responsible innovation and business sustainability. Their study found that firms that employ responsible innovation carry out ecologically friendly practices, such as the transition to renewable energy, responsible production, water management, waste management, and ecologically friendly marketing, which foster business sustainability.

On the other hand, Carney [76] argued that family businesses may suppress sustainability activities to maintain the status quo (traditions centering on the family and cross-generational legacies) and always protect their socio-emotional wealth. Family businesses might avoid implementing sustainability practices because to do so frequently demands some risk-taking and innovative action [77]. Some other studies also show that some family firms are less innovative than non-family firms [70,78]. According to Block [78], family businesses frequently show lower innovation levels in terms of investing in research and development. They may consider new practices as a deviation from and breach of the family’s traditions and historical story: “the general impression is that family owners are risk-averse and prefer proven strategies and activities to new pursuits”, as stated by Lumpkin and Brigham (cited in [14] p. 6), as long as their SEW is preserved. Despite the conflicting empirical findings and theory-based perspectives on responsible innovation and business sustainability, the second hypothesis is:

H2. 

A positive relationship links responsible innovation with business sustainability.

2.5. Role of Entrepreneurial Culture between Governance and Business Sustainability

Empirical evidence on the links joining entrepreneurial culture, governance, and business sustainability is inconsistent, particularly across studies and countries. Manning et al. [79], using a sample of Dutch firms that produced sustainability reports for the period 2012–2016, investigated the relationship between entrepreneurial culture, governance, and business sustainability. Their study posited that entrepreneurial cultural values that are close to employees’ interests can facilitate governance and business sustainability. Hamad et al. [24] confirmed that if entrepreneurs apply a motivating, supportive, and ethical culture, organizational personnel adhere to governance-defined regulations and principles, and perform governance activities. Thus, good governance is effectively implemented. This effective application enhances social welfare, safeguards the integrity of the environment, and reduces risks, while gaining competitive advantages and improving business operations. Hence, entrepreneurs improve the contribution of governance to business sustainability.

Furthermore, Bae et al. [25] and Agovino et al. [80] examined the association between entrepreneurial culture, governance, and business sustainability. They find that when there is a supportive and moral entrepreneurial culture, entrepreneurs are better able to comprehend and apply good governance. According to Crifo et al. [81], a supportive entrepreneurial culture inspires people to achieve financial growth, social and environmental performance, and corporate sustainability.

Finally, Achim et al. [82] considered the nexus between entrepreneurial culture, governance, and business sustainability. Their results show that with a suitable entrepreneurial culture and entrepreneurs following good governance principles (transparency, responsibility, accountability, independence, equality, fairness, and protection of stakeholders’ interests), businesses can gain the trust of stakeholders, foster consistency and improvement in business processes, and consequently achieve business sustainability. Based on empirical results, the third hypothesis is stated as follows:

H3. 

Entrepreneurial culture plays a moderating role between governance and business sustainability.

2.6. Role of Entrepreneurial Culture in Responsible Innovation and Business Sustainability

Hadj’s empirical study [83] indicated that a supportive entrepreneurial culture encourages employee creativity, improves the work environment, promotes innovative energy patterns and production processes, and adopts superior quality infrastructure. Kuleto et al. [84] and Rivard and Lehoux [85] confirmed that a supportive entrepreneurial culture and responsible innovation improve the quality of the work environment. This keeps employees healthy and active, as well as motivating them to remain with the organization in the future, contributing to environmental sustainability. Therefore, entrepreneurial culture improves the link between responsible innovation and business sustainability. Koirala et al. [86] also performed an integrated study of entrepreneurial culture, responsible innovation, and business sustainability. They discovered that if entrepreneurial culture is ethical and innovation-oriented, entrepreneurs may be conscious of social welfare and ready to respond to changes in market trends, customers, and public requirements, and improve their social and environmental performance, and such a culture will contribute to high business sustainability. Furthermore, Orobia et al. [87] used data collected from 390 entrepreneurs in the Mbarara district of Uganda, this time utilizing principal factor analysis and inferential analysis, and investigated the nexus between entrepreneurial culture, responsible innovation, and business sustainability. Their study found that entrepreneurial culture improves both responsible innovation and business sustainability, as well as improving the association between them. Based on empirical results on the association between entrepreneurial culture, responsible innovation and business sustainability (Figure 1), the final hypothesis is that:

H4. 

Entrepreneurial culture positively moderates the link between responsible innovation and business sustainability.

3. Research Methodology

3.1. Data Collection and Sample

While Internet-based surveys allow the researcher to reach large numbers of participants for data collection, and also avoid interview bias [88], online approaches were not employed here due to the sporadic interruptions in Internet provision in some parts of Saudi Arabia, and instead, surveys were manually distributed and collected. The instrument used to collect and record data for this study was a survey questionnaire (closed questions, 5-point Likert scale). The questionnaire attempted to address family business sustainability, governance, responsible innovation and entrepreneurial culture. In total, 87 family businesses were selected based on purposive sampling, while the selection of respondents was performed through simple random sampling. The sample was selected from different geographical locations of the country with heterogenous activities, over a period of six months (June to November 2022). Among the respondents were principal managers of businesses, generally being a main owner in family businesses. From 620 questionnaires handed out, 396 were returned, representing a response rate of approximately 64%. After excluding forms with missing or invalid responses, 372 responses (60%) were used in empirical analysis. The survey questionnaire was administered to managerial level 4 or 5 employees (C.E.Os, top-level and middle-level managers who were key decision makers in their organization).

Table 1. Characteristics of sample respondents.

Characteristic	Response	No.	Percentage
Age	20–30	78	20.97
	31–40	172	46.23
	41 and above	122	32.80
Education level	Matric.	36	9.68
	Graduation	154	41.40
	Masters	182	48.92
Gender	Male	212	56.90
	Female	160	43.10
Experience (years)	0–5	43	11.56
	6–10	211	56.72
	11 and above	118	31.72

presents the demographic features of the respondents.

3.2. Variables and Measurement

This study identified three sets of variables: dependent, independent and moderating, to investigate the impact of organizational governance (GOV) and responsible innovation (RI) on business sustainability (BS) and the moderating role of entrepreneurial culture (EC). These variables were measured with specific indicators used in previous studies (See

Table A1. Questionnaire and indicators for variables.

Items	Questions	S.D.A.	D.A.	N.	A.	S.A.
Governance
GOV1	“The top manager has shared values/beliefs with employees.”
GOV2	“Employees and the top manager share business-related information with one another.”
GOV3	“Employees and the top manager feel free to share their ideas, feelings, hopes, or problems that may not directly relate to business.”
GOV4	“Employees and the top manager share some of their personal information.”
Responsible Innovation
RI1	“Our company produces new products/services that demonstrate a willingness to add value to customers’ well-being.”
RI2	“On average, each year, we introduce new products/services that meet the social welfare needs of our customers.”
RI3	“Industry experts would say that we are more prolific when launching products that aim to implement resource conservation and environmental protection.”
RI4	“Our new product offerings offer solutions for a better future.”
RI5	“Our company has introduced new products/services that capture the responsible side of innovation.”
RI6	“Our company is good at introducing responsible solutions to a meaningful problem.”
Entrepreneurial Culture
EC1	“My firm generally favors low-risk projects (with normal and certain rates of return).”
EC2	“In general, we believe that owing to the nature of the environment, it is best to achieve the firm’s objectives in its marketplace through cautious and incremental behavior.”
EC3	“In dealing with its competitors in the marketplace, my firm typically responds to actions which competitors initiate.”
EC4	“In dealing with its competitors in the marketplace, my firm is very seldom the first to introduce new products/services, administrative techniques and operating technologies.”
EC5	“In dealing with its competitors in the marketplace, my firm typically seeks to avoid competitive clashes, preferring a ‘live-and-let-live’ posture.”
EC6	“In the past five years, my firm has not marketed any new lines of products or services.”
EC7	“In the past five years, product or service line changes have mostly been minor.”
Business Sustainability
BS1	“I know what waste we generate in all parts of our company.”
BS2	“I dispose of all waste in an environmentally sensitive manner.”
BS3	“I routinely look for less environmentally damaging materials and processes.”
BS4	“I operate a recycling policy covering all parts of our business.”
BS5	“I routinely review and update our plans to reduce and recycle waste.”

in Appendix A: Study Questionnaire).

3.3. Dependent Variable

Business sustainability formed the study’s dependent variable. Sustainability is context-specific and varies between economic or social settings, and the practices are peculiar to the context [89]. Following previous studies, sustainability was measured through five items or attributes from Orobia et al. [87], with participants rating the five statements using a 5-point Likert scale (5 = strongly agree; 1 = strongly disagree). These attributes were used to record practices that promote the achievement of sustainability for business and society more generally within the context of this study.

3.4. Independent Variables

Business governance (GOV) was the first independent variable. Structures for taking decisions, including family assemblies/councils, seriously influence decision making in terms of internal and external interactions, and especially regarding the implementation of novel practices, including sustainability practices [90]. Business governance was measured using four attributes from Tuan [91], with participants rating four statements using the same 5-point Likert scale described earlier. These items attempted to identify how senior management share values/beliefs, some of which may not fully or directly relate to the business bottom line (e.g., revenue, profit) but to other social and sustainability issues.

The second independent variable is responsible innovation (RI). Respondents were asked to rate six attributes of innovation from Adamako and Tran [92], also using the 5-point Likert scale. The attributes sought to measure a business or company’s inclination to offer new products for a better future, or to launch products which seek to implement the preservation of resources or to protect the environment, among others.

3.5. Moderator Variable

To measure the moderator variable ‘entrepreneurial culture’ (EC) [93], participants rated seven attributes of entrepreneurial culture using the 5-point Likert scale as above. The attributes identified how businesses encourage creativity and projects that are carried out in the public interest and are socially beneficial [20].

3.6. Empirical Model (Method)

Smart Partial Least Square (SmartPLS)

To test the hypotheses, this study used PLS (partial least squares, Smart PLS version 3.0) in testing the value and robustness of statistical analysis, utilizing SmartPLS software. This model has been used in many studies [94,95,96]. Specifically, this study adopted the procedures used by Sander and Lee-teh [97]. The procedure involved, first, the collection of data, in this instance through manual distribution of the survey questionnaire. The collected answers were coded and prepared for evaluation with the PLS model. The validation and reliability of the model were established with the SmartPLS tool. The model has a measurement model (describing the variables with their indicators) and a structural model (describing the relationship between independent and dependent variable).

The SmartPLS technique was designed for use in PLS-SEM statistical analyses. The structural model describes the relationship between independent and dependent variables, allowing for testing of hypotheses and also explaining causative mechanisms [38].

SEM allows for variable measurement through indicators [94], thus creating the model’s pathways. One of the major advantages of SEM is the ability to perform visible examinations of constructs and the simplification of study processes, allowing the researcher to measure relationships linking the indicator and variables for hypothesis testing [38]. SmartPLS also effectively deals with large and small datasets, and provides significant results even in the case of a complex framework [98]. It deals with models of measurements and structure. The measurement model examines how far data are reliable and valid, while the structural model examines associations between variables. The study used two predictors: governance (GOV) and responsible innovation (RI). In addition, entrepreneurial culture (EC) was considered a moderating variable and business sustainability (BS) was considered a predictive variable.

3.7. Empirical Results and Discussion

3.7.1. Application of SmartPLS

The process of validating and testing for path model reliability (e.g., SmartPLS) in this study occurred in two main stages. The first step was to confirm measurement model quality, before measuring quality for the structural model [37].

3.7.2. Measurement Model

Table 2. Convergent validity and construct reliability measurement.

Construct	Item	Loading	Alpha	CR	AVE	R-SQUARE
Business Sustainability	BS1	0.792	0.907	0.931	0.729	0.242
	BS2	0.875
	BS3	0.845
	BS4	0.879
	BS5	0.875
Entrepreneurial Culture	EC1	0.848	0.912	0.931	0.663	0.271
	EC2	0.585
	EC3	0.854
	EC4	0.859
	EC5	0.864
	EC6	0.861
	EC7	0.790
Governance	GOV1	0.977	0.970	0.978	0.919	0.295
	GOV2	0.884
	GOV3	0.984
	GOV4	0.985
Responsible Innovation	RI1	0.820	0.891	0.916	0.645	0.211
	RI2	0.831
	RI3	0.772
	RI4	0.820
	RI5	0.800
	RI6	0.775

, which relates to convergent validity, presents the findings for indicator and construct reliability. The results show that the values are statistically acceptable. Specifically, the table results show the content validity and were examined using factor loadings. The standard criterion of factor loadings is a value of over 0.50 [99], and the findings are higher than the minimum value, therefore showing valid content validity. In addition, the results show convergence validity, which relates to average variance extracted (AVE). An acceptable result is 0.5 or higher, i.e., a minimum of 50% of indicators (items) explaining a construct [100]. The results show that all variables’ AVE fulfilled the requirements.

Table 2 also shows the results for construct reliability measured with composite reliability (CR) and Cronbach’s alpha. Acceptable results for these tests should range from 0 to 1 for composite reliability (CR) and 0.7 or greater for Cronbach’s alpha [99,101]. The results for the two tests are all above 0.9. The construct reliability of the model is also completely fulfilled.

3.8. Discriminant Validity Results

Fornell–Larcker (the first value should be more than the other values in the same column), cross-loading (values exposing an association with the variable exceed those exposing associations with different variables), and heterotrait–monotrait (values should be lower than 0.90) tests were used to examine the discriminant results. The findings are depicted in

Table 3. Fornell–Larcker.

	BS	EC	GOV	RI
BS	0.854
EC	0.410	0.814
GOV	0.365	0.424	0.958
RI	0.419	0.437	0.465	0.803

,

Table 4. Cross-loadings.

	BS	EC	GOV	RI
BS1	0.792	0.377	0.326	0.386
BS2	0.875	0.315	0.290	0.338
BS3	0.845	0.353	0.321	0.348
BS4	0.879	0.364	0.319	0.380
BS5	0.875	0.331	0.293	0.325
EC1	0.329	0.848	0.344	0.314
EC2	0.245	0.585	0.189	0.241
EC3	0.318	0.854	0.357	0.376
EC4	0.299	0.859	0.369	0.391
EC5	0.352	0.864	0.373	0.404
EC6	0.399	0.861	0.397	0.396
EC7	0.361	0.790	0.349	0.342
GOV1	0.333	0.418	0.977	0.457
GOV2	0.343	0.395	0.884	0.433
GOV3	0.363	0.403	0.984	0.445
GOV4	0.357	0.409	0.985	0.449
RI1	0.281	0.347	0.327	0.820
RI2	0.284	0.350	0.316	0.831
RI3	0.409	0.378	0.446	0.772
RI4	0.268	0.342	0.329	0.820
RI5	0.357	0.336	0.390	0.800
RI6	0.361	0.336	0.382	0.775

and

Table 5. Heterotrait–monotrait ratio.

	BS	EC	GOV	RI
BS
EC	0.444
GOV	0.387	0.446
RI	0.449	0.478	0.488

, respectively, where valid discriminant validity is observed.

3.9. Structural Model

Table 6. Path analysis.

Relationships	Beta	Standard Deviation	T Statistics	p Values
EC- > BS	0.277	0.055	5.081	0.000
GOV- > BS	0.169	0.077	2.198	0.015
GOV*EC- > BS	0.137	0.059	2.310	0.011
RI- > BS	0.285	0.082	3.495	0.000
RI*EC- > BS	0.121	0.049	2.467	0.008

* highlights the moderation.

presents the findings from the part analysis. These reveal that organizational governance (GOV) (B = 0.169, p < 0.015) and responsible innovation (RI) (B = 0.285, p < 0.001) are linked positively and in a statistically significant manner with the business sustainability of family-owned business in Saudi Arabia. Therefore, H1 and H2 are accepted. The findings also reveal that entrepreneurial culture (EC) (B = 0.121, p < 0.008) significantly and positively moderates organizational governance, responsible innovation, and business sustainability for family-owned businesses in Saudi Arabia. H3 and H4 are also accepted. The results of the coefficient of determination (R²) (showing how well a statistical model predicts an outcome) are presented in Table 2, and are all over 0.19, with a greater R² corresponding to a better outcome [96,101]. T-values indicate the path coefficients’ significance (Figure 2, Figure 3 and Figure 4) [99].

4. Discussion

The results empirically confirm that governance (GOV) has a positive relationship with business sustainability (BS). This finding is in line with Westman, Moores, and Burch [19] on SMEs that good governance assists in achieving business sustainability. The results also confirm the findings of Peng and Zhang [18], who argue that businesses which implement good governance rules and regulations in their business dealings with stakeholders can win their trust and build effective relationships with them, contributing to business sustainability.

Furthermore, the findings agree with those reported by Setyahadi and Narsa [67] and Correa-Garcia et al. [55] in Indonesian and Latin American business group samples, respectively, that the implementation of good governance principles leads to business sustainability. The analysis in the current study is in line with Hussain et al.’s findings [68] that good governance encourages businesses to plan their operations with minimal adverse effects on the environment and society, and strong environmental and social governance contributes to business sustainability. Developing a sound family governance system can benefit both the business-owning family and the family business. However, one size does not fit all; business-owning families introduce formal and informal family governance mechanisms for different reasons, at different points in time, and this heterogeneity means that governance arrangements need to be tailored to each business family’s particular needs.

Finally, the results are also in line with the socio-emotional wealth theory, which argues that family businesses are created to pursue aims related to the family, including familial unity and continuity, for example [70], which ultimately supports the maintenance of socio-emotional wealth. Sustainability activities are therefore necessary for family businesses, as they can help in developing reputational status at the community level, and promoting relationships with various stakeholder groups and the external environment [71], ensuring continuity of the family business across generations [27]. An insight provided by the results is that family business support for SEW and the adoption of good governance will not only lead to business sustainability, but, among other things, will also contribute to the provision of unique resources and capital (human, social, and psychological) that can facilitate the growth of family enterprises [102]. Naturally, close monitoring and control by the family can help family firms to achieve prosperity in the long run, hence guaranteeing sustainability.

For the responsible innovation variable, the analysis revealed a positive association with business sustainability which had statistical significance. This supports the findings of Lehoux et al. [73], and Bronson [74], which also confirmed that the adoption of responsible innovation, resulting in improved and efficient methods of production, assures environmental protection and the social welfare of the public, which provide a basis for business sustainability. The findings also agree with the works of Tian and Tian [57], who found, based on data collected from China, that innovation that takes stakeholders’ interests into account is not only crucial for sustainable business, but also for sustainable performance. The results are consistent with those of Long et al. [75], who stated that responsible innovations that involve ecologically friendly practices, such as the transition to renewable energy, responsible production, water management, waste management, etc., create business sustainability. The results of Chamuah and Singh [103] and Bronson [74] also agree with our current findings.

However, the study’s findings are not in line with Carney [76] and Gomez-Mejia et al. [70]. Carney [76] found that family businesses may suppress sustainability activities to maintain the status quo (traditions of the family and cross-generational legacies) and always protect their SEW. Similarly, Block [78] stated that family businesses generally show lower levels of innovation in terms of investing in R&D. They may consider new practices as a deviation from and breach of the traditions of the family.

The results for the third variable show that entrepreneurial culture has a moderating influence between governance and business sustainability, which corresponds with the study conducted by Manning et al. [79]. Using a sample of Dutch firms, the researchers confirmed that entrepreneurial cultural values that are close to employees’ interests can facilitate the easy implementation of governance principles and business sustainability. The current findings also agree with those of Bae et al. [25] and Agovino et al. [80], that when there is a supportive and moral entrepreneurial culture, entrepreneurs are better able to comprehend and apply good governance that enhances business sustainability. Furthermore, the findings support Achim et al. [82] in their view that with a suitable entrepreneurial culture, adopting the main pillars (e.g., transparency, responsibility, accountability and fairness) of good governance will create a bond or trust between businesses and other stakeholders (internal and external), leading to improvement in business processes and consequently achieving business sustainability.

Finally, the identification of a positive and significant link between entrepreneurial culture, responsible innovation and business sustainability is also supported by the findings of Kuleto et al. [84], and Rivard and Lehoux [85], who confirmed that a supportive entrepreneurial culture and responsible innovation improve the quality of the work environment and contribute to environmental sustainability, which contributes to business sustainability. Furthermore, the results reflect those reported by Orobia et al. [87] using data collected from the Mbarara district of Uganda, a developing economy, that entrepreneurial culture improves both responsible innovation and business sustainability.

Family businesses have a longer time horizon, principally derived from their intention to continue family control and the succession of future generations in a firm. Gearing all their activities toward protection of their SEW may help family-owned businesses to avoid limited short-term earnings and direct their efforts toward developing patient capital and long-term investments such as sustainability practices.

5. Conclusions

The basic goal of a business is to earn profits. Businesses that are socially and environmentally conscious evaluate the effects of their operations on environmental conditions and society in addition to their profits, hence encouraging business sustainability [4]. This study focused on three key business sustainability factors: governance, responsible innovation and entrepreneurial culture, to examine their effects on business sustainability, and also to analyze the role of entrepreneurial culture in mediating the relationships between governance, responsible innovation and business sustainability.

Generally, the results reveal positive, statistically significant links between governance, responsible innovation, and business sustainability. These findings show that when good governance is effectively implemented to regulate business activities, it considers the interests of stakeholders and maintains environmental quality, and so achieves business sustainability. The findings also point to the adoption of responsible innovation as improving the quality in business processes, products, and services that are socially desirable and do not negatively affect environmental quality, encouraging not only environmental sustainability but also business sustainability. Furthermore, the results also show that entrepreneurial culture plays a positive moderating role between governance and business sustainability. When entrepreneurial culture is supportive, ethical, inspiring, and innovation-oriented, governance and responsible innovation are effectively implemented, and business sustainability can be developed. Indeed, responsible innovation and positive entrepreneurial culture matter in family business sustainability, but the level of their success is predicated on the creation and maintenance of an effective family governance plan and generational succession plan for the continuity of the family organization among others.

In theory and practice, family businesses demonstrate specific, family-centric aims which link to protection of their SEW. However, these aims, alongside good family governance, responsible innovation and an entrepreneurial culture, can develop to form business strategy and activities by improving the capabilities and motivation of the family [104] to achieve business sustainability. The positive links that our study found among governance, responsive innovations, entrepreneurial culture and business sustainability have notable implications for research, policymakers and family business practitioners not only in Saudi Arabia but also for other developing economies that share similar business and cultural characteristics.

5.1. Theoretical Implications

This study adopted the use of theories, especially the socio-economic wealth theory; related to influences on the behavior and actions of family businesses, as a significant guide for its review of the literature and analysis. In this, it contributes to the existing literature on family businesses. Theoretically, the application of this study’s independent variables can do no harm to a business, but can only help to achieve family business sustainability, as also confirmed in some previous studies [104]. This study, based on empirical results, also confirmed this position in the case of Saudi Arabia, but to a limited extent. Probably, the strict implementation of some aspects of national culture in this area may need to be relaxed to fully achieve good governance, responsible innovation and positive entrepreneurial culture.

The Saudi Arabia national culture is a ‘control culture’ (delegating and managing power). This national culture affects entrepreneurial culture (business culture), governance and even innovation. The primary reason for this is the tight control exercised by the founder/founding generation. The role and position inside the hierarchy give authority. Information flows top–down and bottom–up rather than horizontally. Conflicts are not seen as being healthy and are usually suppressed. The culture that is needed is a ‘collaboration culture’, where members of the family business partner with professionals for growth. Saudi Arabian family businesses should understand that culture affects all aspects of the business, including attracting and retaining talent and laying the foundation for decision-making and communications that impact execution. These can help to develop and improve business strategies and activities, and motivate family businesses to achieve business sustainability.

This study also extended the ‘family business sustainability’ literature by simultaneously exploring the influence of governance, responsible innovation and entrepreneurial culture on business sustainability, and used entrepreneurial culture as a moderator between governance, responsible innovation, and business sustainability. Previous studies have mainly considered the governance angle. Furthermore, this study applied SEM, which allows for the measurement of non-observable variables through indicators. The SEM approach has significance in relation to social capital theory, due to the existence of variables that require indicators to describe them. Finally, the study used SmartPLS, which has shown effectiveness within management science in calculating, producing and validating models generated from theories.

5.2. Practical/Managerial Implications

The findings of this study also have some practical and policy implications for the management and regulation of family-owned businesses. First is the appreciation that the factors (good governance, responsible innovation and positive entrepreneurial culture) identified in previous studies in other climes can also work in a positive direction in the context of Saudi Arabia to enable family business sustainability.

Arguing from the perspective of how important family-owned businesses are and the value they create for the Saudi economy, this study may provide a guide for family business management towards policies and strategies to implement governance principles within their organization effectively, in order to create business sustainability. Among other enabling factors, good governance, upon which the success of other factors may depend, is vital for family businesses, entrepreneurs, and the government of Saudi Arabia with respect to long-term survival, the sustainability of family businesses, and socio-economic growth in the Saudi economy. Good family governance can take many forms, especially in the context of this study, but its key function is to promote effective ownership communication and deliberation, especially in understanding the values, vision, and goals of the business and the family, and how these are related and support each other, especially for older family businesses in the Kingdom.

Furthermore, the separation of family and business decision making should be the goal in the Kingdom. However, this is complicated in most family businesses, and Saudi Arabia is no exception, because in most family-owned businesses, individuals often have dual roles, resulting in conflicts of interest. Nevertheless, the adoption of good family governance procedures makes it easier to identify and address these conflicts with reasonable objectivity, and thus such adoption will enhance family business sustainability.

Related to the adoption of good family governance procedures is the ability of family business owners in Saudi Arabia to learn to manage two facets of governance: first, business governance, which is concerned with the direction of business operations and strategy (e.g., responsible innovation), and second, family governance, which provides a framework of rules that define family members’ roles and responsibilities, and how the members interact with their business. Along these lines, Saudi family businesses must: (i) appreciate the importance of demonstrated competence in assigning responsibilities; (ii) create family conflict management processes; (iii) create and maintain an effective family governance plan; and (iv) establish an effective generational succession plan for the continuity of the family organization. Finally, for new and growing family businesses in the Kingdom, it is reasonable to recognize and organize governance early when the family enterprise is young and the family group is relatively small. During this period, it is assumed that family relations are often harmonious, while big issues such as succession struggles may remain a distant prospect (see Martin [105] for further studies).

Both successful and struggling family businesses can benefit from this study, first by recognizing the importance and adoption of good governance principles in the management of their organizations, and then utilizing responsible innovation and developing a positive entrepreneurial culture, to ensure business success, which can encourage sustainability. For their part, regulatory authorities continue to develop and review policies, as evidenced by the series of updated governance rules. They also need to oversee the implementation of these policies and issue penalties for violation if necessary. New regulations or governance codes also need to be tailored to different sizes and stages of development of family-owned businesses, and be flexible enough to take account of context.

5.3. Limitationsand Future Research

This research presents certain limitations that may potentially affect its findings. Firstly, the use of SmartPLS to evaluate the model meant that this assessment was performed using r-squares for each dependent or mediating variable. However, different techniques produce different results and offer divergent managerial implications. Second is the use of three explanatory variables. Several other factors could be included in the model that might influence business sustainability, and therefore overgeneralizations should be avoided. Moreover, measurement of the variables using the identified indicators may be a limitation, as there are several indicators for each variable in the family business literature. Finally, this study did not differentiate the sample into sizes (e.g., very small, small, medium or medium to large) and/or sectors.

To overcome some of these limitations, future research may first increase the number of independent and moderating variables, as there are countless other parameters involved in achieving sustainability. This approach may build a superior model with better empirical results.

Second, future research should segregate samples into sectors, and further into sizes, to be able to identify the degree of impact of the independent variables on each sector and/or size. Future research in this area may use different techniques or a combination of techniques in the evaluation of the model for robustness checks.

Third, this paper has examined the nexus linking governance and responsible innovation, entrepreneurial culture, and business sustainability for family firms within a Saudi Arabian context. Family-owned firms are run in many other countries besides Saudi Arabia, which have quite different economic conditions, as well as specific influences in terms of society and the environment. Thus, the present study does not give reliable results for all countries, and other national contexts would need to be examined in further studies.

Finally, a cross-country study specifically for GCC countries may be considered to isolate the relative business sustainability practices of member countries, since they share common business and cultural features.