How the business case for CSR can apply to any company, no matter the size.
Corporate social responsibility (CSR) is largely associated with big companies. They are more high profile, attract more media attention and are concerned about protecting and enhancing their reputations with the broader public as well as key stakeholders. They are also often better-resourced and more able to invest in socially responsible initiatives. This is not to say CSR is irrelevant for SMEs (small and medium-sized enterprises of up to 1,000 employees), in fact quite the opposite. CSR is important for SMEs too. Size matters not so much in whether the firm should engage in CSR but in relation to why and how?
The business case for CSR
CSR is voluntary, it goes beyond what the law requires, and is an integral part of how a company integrates social and environmental concerns into its business operations and stakeholder interaction.
While there may be many reasons for companies to give attention to CSR, the recent prominence of CSR thinking has been driven primarily by a strengthening of the “business case” – the recognition that attention to corporate social and environmental responsibilities is generally in the long-term economic interests of the firm.
There are still today plenty of organisations who have yet to move beyond the idea of CSR as philanthropy, however when companies implement “strategic CSR” they can find there are many business benefits not least of which is strengthened corporate and brand reputations and enhanced trust with key stakeholders. CSR initiatives can improve risk management, increase revenues from innovation that identifies new business opportunities, and reduce costs from efficiency improvements.
While the same motivations for attention to CSR may apply to SMEs, there are some important differences in CSR practices reflecting the different and often diverse characteristics of SMEs.
Few start-ups are just aimed at making money
Firstly, SMEs are generally managed by their owners, often the company’s founders, leading to profound differences in commitment to corporate purpose. Few successful entrepreneurs start businesses solely with the intent of making money. Like William Lever, who founded the firm that became Unilever on the belief that selling soap saved lives, founders of today’s start-ups often have some societal need in mind. This close involvement of owners and founders means that commitment to purpose is much easier to engender than in a large, publicly-held corporation. For this reason alone, SME’s can be more socially responsible than their much larger counterparts.
Intrinsic community ties
Another characteristic of SMEs is the importance of personal relationships to their success. Internally, employees are likely to all know each other and be well-known to management. Personal relationships also figure externally, with SMEs often deeply involved in their local communities. They may contribute substantially in terms of providing employment and they may also rely heavily on business relationships with customers and suppliers and others based in the local community.
Given this embeddedness, SMEs can be expected to invest in the local community to a much greater extent proportionately than larger companies, with contributions ranging from protecting jobs, to skills development, to infrastructure improvement.
Attention without financial backing
SMEs are unlikely to be as well-resourced as larger organisations. In most cases they have less funds available to invest in programmes that might be socially or environmentally beneficial, especially if the economic pay-off is less obvious or longer term. They also have fewer people to give time to CSR, particularly in cases where companies are operating hand-to-mouth.
Reputational considerations
SMEs typically have less reputational risk than larger organisations. The 2013 Rana Plaza tragedy in Bangladesh, where over 1,100 workers died in the collapsed factory building would have kept many a CEO from large branded apparel companies awake with the thought that their brand may be exposed as having sourced from a factory with unsafe labour conditions. The reputational pressures are generally less for a smaller firm (although over time these pressures on larger corporates will inevitably be passed down to their suppliers many of whom re SMEs.)
Smaller scale doesn’t reduce opportunity
SMEs might be less able to bring to scale the efficiency gains that can come from attention to CSR or exploit the business opportunities that might come through innovation in the form of new, more sustainable products. However, these business case considerations for CSR remain present. Indeed, new start-ups are being established right now exploiting green-tech opportunities.
In sum, while size matters, not least in what gets done, SMEs have many of the same reasons for engaging in CSR that large companies have, both in avoiding downside risk and in exploiting upside opportunities. In many cases, they may also be more intrinsically, if not better motivated, to give CSR attention.
N. Craig Smith is INSEAD Chaired Professor of Ethics and Social Responsibility (Fontainebleau, France)