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WILL BUYER PRESSURE ENCOURAGE SME's TO ENGAGE IN CSR?

The SME perspective on CSR

Society’s expectations of companies are changing. Nowadays, businesses are not only expected to act in a responsible manner to their stakeholders but to society as a whole. In the world of business, this has been reflected by the popular concept of corporate social responsibility (CSR) which has become an increasing importance in the business world today. To date, the majority of the attention has been focused on big corporations rather than small enterprises. Attention is now starting to prosper with regards to how SME’s can be encouraged to engage in CSR activities.

The European Commission defines CSR as “the responsibility of enterprises for their impacts on society.” (A renewed EU strategy 2011-2014 for Corporate Social Responsibility 2011)  But to what degree should this be legislated? A survey in 2008 in which 1,700 British SME’s took part in response to this question states: “the responses to the prospect of government legislation in this area ranged from incredibility ‘how can you legislate good will?’  to concern. Many businesses perceive legislation in this area as a stumbling block to getting involved and to sustaining responsible business practice.”  (FSB - Social and Environmental Responsibility and the Small Business Owner)

In contrast, some studies have perceived small enterprise businesses as ‘fortress enterprises’ that are detached from their environment, simply interested in their own business practises and too busy with the day to day running of the company.

Whilst reputation generally persuades and produces results, a major drawback can be any bureaucracy involved, which costs time and money for smaller businesses.

Buyer pressure

However, a report which was carried out by the Department of Trade and Industry (DTI) revealed that corporate social responsibility is likely to become an increasingly important business concern for many small enterprises in the very future.

This is because of the increase of ethical codes of practice by their large customer base, which is therefore creating pressure to demonstrate responsible practises back down to the supply chain. Supply chain pressure was revealed to be the most effective driver when it came to environmental change. Factors that affected a company’s competiveness were seen as more effective than voluntary agreements or pressure from employees. Supply chain pressure was ranked the highest, in terms of impact and also the likelihood of it being integrated in the future.

Another study involving Danish revealed that 60% had been asked to comply with requirements from buyers, some requesting information about CSR practises in general, whilst others requested specific criteria. Many suppliers perceived CSR buyer requirements as an ‘administrative burden’ with a lot of box ticking involved and there was a lack of genuine engagement with these CSR issues. When these buyer requirements were non-contractual, the research found that they would be unlikely to lead to any real changes with regards to the activities of SME’s as it was perceived that the buyers made their purchasing decisions on solely price and times of delivery.

These studies show that it is important to establish a two-way dialogue between buyers and their SME suppliers regarding corporate social responsibility. Additionally, buyers should have flexibility in their requirements to allow and encourage SME’s the freedom to express and enhance their own responsible practises.

Genuine and ‘pseudo’ CSR

There is a clear distinction between genuine and ‘pseudo’ CSR. A criticism that has occurred on numerous occasions with respect to large corporate organisations is that they use CSR as a marketing ploy. In such cases, CSR managers are hired, not to implement CSR strategies, but to create glossy brochures. The term ‘greenwash’ in this instance, is when more money is pumped into what is seen as a ‘marketing ploy strategy’ promoting a company’s green products rather than spending on what actually is ‘green’.

On the other hand, SME’s have a different approach to CSR. Research has shown that while these small businesses engage in many practises that would come under the concept of corporate social responsibility, these practises are done on their own terms and are rarely documented. Researchers Murillo and Lozano (2006) found that the terminology in SME’s was very distant; they also touched upon the importance of character and values of these small businesses’ founders to their responsible business practises. The companies that they had been studying had a tendency not to report their practises except on a more local level. In a similar UK study, 85% of SME’s stated their personal beliefs as their motivation for undertaking the likes of environmental activities: over a half of the SME’s in the survey indicated a commitment to reducing their environmental impact but only a quarter of the businesses recognised PR benefits of illustrating environmental responsibility. The survey revealed that these UK SME’s did not want any type of reporting that was linked to their CSR practises, which they viewed would be only hindering their responsible acts.  “Time spent filling in forms to prove that businesses are acting in a social and responsible manner is time that could be better spent actually doing it.”

Qualitative research that was based on focus groups composing of SME owners/managers shows similar concerns that show this supply chain pressure could be counterproductive if not handled appropriately. The focus group illustrated that these small businesses were genuinely concerned and perceived the whole process of reducing the fun and engagement and encouraging more bureaucratic issues. This was a huge concern that this would put off other small businesses due to the high levels of bureaucracy.

‘Silent CSR’

The Observatory Report, based on the results of 7,662 SME’s in Europe, found out that 50% of SME’s are already participating in some form of CSR engagement. These are mainly spontaneous actions which are not perceived as responsible business, but as an automatic response to a company’s position in the local community. This can be seen as ‘silent CSR’ which author Jenkins (2004) coined to describe the very nature of some of these small enterprises when taking part in CSR activities. Jenkins research demonstrated that historically the motivating factor for SME’s to engage in the concept of CSR was not linked to external pressure but from an internal drive from ‘doing the right thing’.

A changing society

The incorporation of having CSR criteria which some companies need in order to comply to supply large customers would therefore have the effect of asking small businesses to start recognising such activities as corporate social responsibility.  This risks changing the psychological mindsets of the SME/owners/managers in which they view and engage CSR activities, but the benefits could be a stronger drive to establishing social and environmental activities as a mainstream to business operations.

It can be said that attributing in a socially responsible way has a link with positive personal traits (e.g. ‘I am such a good person’) or to a person’s success (e.g. ‘the business is really successful so we can afford to give back to society’) This is much more satisfying to the ego than attributing the same sort of behaviour to external pressures.  
There are currently many external rewards such as increasing business opportunities through using CSR, but, internal rewards such as increased self-esteem and satisfying one’s ego should not be minimised.

However, society is changing rapidly and increasingly consumers as well as private and public sector buyers want their suppliers to demonstrate their social and environmental credentials. The case studies indicate that SMEs must start thinking in these terms if they are to remain competitive, yet they must be allowed to develop and document their CSR activities in way that is appropriate for them and without layers of bureaucracy which could be counterproductive.

Summary

Small companies agreed that buyer pressure would act as an incentive to make suppliers more aware and responsible, particularly environmental criteria. Indeed, Jill Poet’s article in Guardian Sustainable Business emphasises that supply chain pressure on CSR, gently handled, is an essential part of the sustainability jigsaw.

A common theme that has been noticed around the topic of CSR and SME’s is that small businesses dislike bureaucracy. Furthermore, it has been revealed that intrinsic motivation is a key driver towards responsible business with owner/managers being the driving force behind their CSR initiatives.

 A recommendation would be to allow SMEs to describe their CSR achievements in their own words rather than by a tick box approach. If it is made clear that small businesses’ achievements in this area are certified in the final decision process e.g. the buyer would not go ahead and purchase value for money variables regardless, then the small firm can take pride in their achievements knowing that ‘the more the better’. Jill suggests large companies should ask an open question during the tender process: 'We endeavour to ensure we work with organisations that operate in a socially and environmentally responsible manner. Can you demonstrate how you fit this criteria?'

By adopting this method, these small enterprises’ CSR activities will increase their chances of gaining both custom and reputation from larger organisations, creating a synergy that would be based on intrinsic motivations.

Small enterprises have to believe that genuine CSR engagement will affect their chances of success, by having intrinsic motivations that will be recognised and rewarded.

This will be something that will not happen overnight and will take time and commitment from their buyers. It can be said that this will not make their jobs any easier, and will consist of real genuine CSR efforts in the supply chain; not just from the SME’s themselves but from the buyers and those who establish the parameters for the buyers in the first place.  

It is important that these parameters remain flexible. But whilst bureaucracy must be avoided, it is appreciated that some sort of certification will help both buyers to validate claims made and suppliers substantiate the good work they are doing. They current ISO standards are often inappropriate for small businesses, but a useful alternative for SMEs is the Responsible Business Standard (http://www.responsiblebusinessstandard.org.uk/). This has been developed specifically for smaller companies by the Organisation for Responsible Businesses. It has been designed to be affordable, attainable, and of value both internally and externally.  This standard goes beyond the tick box mechanisms: the audit process adopts the ASTI approach so that rather than setting a benchmark, small companies are certified according to what is Appropriate to the Size, Type and Impact of their business. In other words, whilst they do need to demonstrate they meet good CSR standards, there is a great deal of flexibility in terms of how they are able to demonstrate that.

Dave Dhanoo
Dave is currently working with ORB as a Work Experience Intern, whilst studying for an MSc in Marketing Management. He has an interest in CSR and intends to complete his dissertation on this subject.
 


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