Corporate Social Responsibility (CSR) and Small Firms: Theory and Reality

Dr. Athanasios HadjimanolisAssociate Professor

European University of Cyprus

Definitions of CSR and SME

Corporate social responsibility: “continuing commitment by business to contribute to economic development, while improving quality of life of workforce and their families as well as of the community and society at large”. (World Business Council for Sustainable Development)

SMEs: firms with less than 250 employees

Nature of CSR Voluntary action / Connection with

business ethics Societal demands/expectations from

firms Obligations of business: economic (be

profitable), legal (obey the law, ethical (follow morality principles), discretionary (be a good corporate citizen, e.g. engage in philanthropy)

Stakeholders: groups of people affected by business and affecting business

Importance of CSR

CSR focus

People (employees, community) Planet (natural environment) Profit (value to shareholders) The triple bottom line (profit can not be

the only performance criterion has to be supplemented with social and environmental performance criteria)

The stakeholder theory

Makes CSR practical and comprehensible Main stakeholders: primary, i.e. directly affected (employees,

shareholders, customers, suppliers) secondary (neighbors, communities, government)

Main stakeholder analysis: Interest in your company, importance, power, urgency of their demands, quality of contact.

The SME perspective

CSR in small firms (informal, based on personal values)

CSR: Maybe the wrong term! Enterprise social responsibility (ESR) is probably a better term.

Motivation for CSR: external pressures (customers, government,

expectations of local communities) internal motives (efficiency gains e.g.

through staff motivation and retention, must do because it is the right thing)

SME differences

Micro firms: less than 10 employees Small firms: up to fifty employees Medium size firms: (51-250 employees) Size of firm matters! CSR activities more

visible in medium size firms Sector of economy important

Barriers to CSR adoption in SME

Resource constraints Lack of time Simple structure (concentration of

activities and powers to hands of owner/manager)

Management style (autocratic) Focus on short term

Enablers of CSR adoption in SME

Flexibility Adaptability to changing society

and stakeholder demands SMEs closer to stakeholders Flatter hierarchy/ faster decisions

Nature of CSR in Cyprus

Large firms: types of CSR activities in Cyprus (e.g. banks involved in large scale philanthropic activities, large oil firms taking road safety support initiatives). CSR activities carried on a systematic basis and widely publicized.

SMEs: (several CSR activities types like employee training, employee welfare initiatives, environmental measures), but usually not planned and on ad hoc basis.

CSR and Strategy

CSR integrated into strategic plans CSR and financial performance Benefits: opportunities (e.g. in green

products), competitive gains, trust in enterprise, corporate reputation, goodwill as insurance cover in periods of crisis

Costs (Managerial and personnel time, expenditure on specific activities)

Budget for CSR/Cost-effect ratio of measures

CSR: Knowledge gaps in SME

Confusion over exact meaning of CSR Lack of appreciation of its importance Belief that only large firms can undertake

it Poorly understood and implemented Cost considerations, underestimation of

benefits Lack of employee involvement in CSR

activities

The role of owner/manager

Central role of SME owner/manager in human resource management

Personal involvement of O/M in relationships with suppliers and customers

Undertakes usually the role of managing CSR activities among many other tasks since SMEs can not afford to employ CSR manager.

Acceptance of CSR depends on personal attitude of owner/manager

The environmental dimension

Environmental initiatives Waste management Recycling Energy saving Pollution prevention and reduction

strategies Eco-efficiency (reduction of consumption

of packaging, etc. ) Design and marketing of green products

Public authorities and collective organizations

Role of government (legislation, support and promotion of CSR)

Role of NGOs (Non-governmental organizations) – advocates of societal demands

Role of business associations (dissemination of CSR awareness among members)

Role of local authorities (supporters & collaborators)

Conclusions

CSR is essential for SMEs Appreciation of CSR & Better

implementation knowledge are required Integration of CSR in strategy Interest/commitment of owner/manager

crucial for CSR

Recommendations

Self-test for current CSR performance Best practice of others (especially SMEs) Timetable and budget for

implementation Monitoring CSR activities/ measuring CSR

performance Start from existing actions & adapt CSR

activities to nature, needs of particular SME