SME and CSR PARACTICES - Final
- 1. SMALL COMPANIES AND THEIR CORPORATE SOCIAL RESPONSIBILITY PRACTICES Business Ethics Course Summer Semester 2014 Prepared by: Yunakova Desislava Regkli Effrosyni Mahl Yannik Bremer Max Dežman Jan
- 2. Content Introduction............................................................................................................................................................................2 Definition.................................................................................................................................................................................4 Corporate Social Responsibility (CRS)...................................................................................................................4 SMEs in General................................................................................................................................................................4 Benefits.....................................................................................................................................................................................6 Concepts of CSR and their realization in small and medium enterprises ...................................................8 Environment oriented CSR..........................................................................................................................................8 Example of SMEs.........................................................................................................................................................9 Employees oriented CSR ...........................................................................................................................................10 Example of SME........................................................................................................................................................11 Market oriented CSR...................................................................................................................................................11 Examples of SMEs....................................................................................................................................................12 Society oriented CSR...................................................................................................................................................13 Examples of SMEs....................................................................................................................................................14 Comprehensive..............................................................................................................................................................15 Example of SME........................................................................................................................................................15 Disadvantages of CSR.......................................................................................................................................................15 Profit maximisation.....................................................................................................................................................16 Competitiveness............................................................................................................................................................16 Social issues are the concern of the government ...........................................................................................16 Conclusion............................................................................................................................................................................17 References............................................................................................................................................................................17 Introduction Corporate social responsibility or CSR is relatively a recent matter that concerns the business world and more and more companies have begun to realize the importance of having corporate social responsibility. The truth is that it is a very important issue for the enterprises not only because through corporate social policy they contribute to the creation of a sustainable social environment and development, as they are obliged to do,
- 3. but also because CSR gives them the opportunity to obtain a competitive and comparative advantage against the competitive companies. Nowadays the competition is inexorable and the competitive advantage is the key point for the survival of a firm and business men have to use all ways in order to obtain it and maintain their competitiveness. However, corporate social responsibility is mostly combined with the big companies and the multinationals. When CSR is discussed among academics, in the media and wider civil society, people concentrate on the largest companies while Small- and medium- sized enterprises (SMEs) are often overlooked. This is because the big profit companies attract the mass media much more than the small ones due to their high profile and thus they are a lot concerned about their image and their reputation. Being exposed to the public opinion results in trying constantly to protect their reputations and relationships with consumers and any other key stakeholder and engaging in CRS. Besides, their size, their profits and their resources make them more able to invest in corporate social responsibility. Undoubtedly, CSR is important for small and medium-sized enterprises as well and they are also able to adopt CRS practices in their own different ways. There are many reasons and motivations for small companies for engaging in CRS and there are many examples that prove the significance of CRS and the huge advantages that can offer even to the small companies. It is not about the size. Since every business entity has its stakeholders and its impacts on society corporate social responsibility (CSR) should therefore be equally valid for large and small enterprises. In this essay there is lengthy analysis concerning the relation between small and medium enterprises and corporate social responsibility. Firstly there is a reference to some definitions of the basic terms such us CRS and Small and Medium Enterprises (SMEs), the explanation of the importance of CRS implementation for SMEs follows and after that there is a reference to the competitive advantages of practicing CRS. A very big part of the analysis that follows is about examples of European SMEs with CRS practices and in the end there is a conclusion of this analysis.
- 4. Definition Corporate Social Responsibility (CRS) It is essential, as a beginning for the analysis of the subject the reference to some definitions and first of all the CRS definition. There are many definitions of CSR. The main idea of Corporate Social Responsibility or responsible entrepreneurship is the duty that businesses have to contribute to the sustainable development of societies. Fundamentally, CSR refers to the obligations of the firm to society or, more specifically, the firm’s stakeholders—those affected by corporate policies and practices. These obligations have to do with acting ethically or in a responsible manner. The EU’s widely- disseminated definition stresses that CSR is voluntary, goes beyond what the law requires, and is an integral part of the business: it is “a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with stakeholders on a voluntary basis. It is about enterprises deciding to go beyond the minimum legal requirements and obligations stemming from collective agreements in order to address societal needs.” In other words, it means accomplishing economic success, but also managing the expectations of other people, such as employees, suppliers and the community around the company. It means contributing positively to society and managing the enterprise’s environmental impacts. Economic success has to go along with social and environmental considerations. The implementation of this theory not only is beneficial for the society but it can also bring direct benefits to every business and secures its long-term competitiveness. That is why companies give attention to CSR implementation. SMEs in General According to World Bank Group data, in 2012 SMEs accounted for about 90 percent of businesses and more than 50 percent of employment in the world. In Europe their share in the total number of companies is even larger, reaching about 99 percent and providing two thirds of the private sector employment. It is also interesting to note that nine in ten SMEs in Europe are micro companies, i.e. with less than 10 employees. Why do we say they are of such importance for the economy? SMEs are where the entrepreneurial spirit and skills are developed and utilized. This is why they are a key engine for economic growth and what is even more important – they are a sort of innovation incubators and R&D labs. But this is just part of their contribution. Contrary
- 5. to the widespread opinion that corporate social responsibility is too expensive for SMEs and that it is mainly a duty of large corporations, it appears that SMEs are actually much more experienced in this field. This is so because they apply CSR practices in their everyday practices intuitively and continuously. In small companies the personal and ethical values of owners and managers are closely transmitted into the company’s practices, mission and therefore to the individual employees. Very often the staff also strongly believe in the moral principles governing the business of a small company because they can easily associate themselves with the direct and indirect impacts their work contributes both to the company and to the general environment which the SME operates in. Nowadays, a greater majority of people start being genuinely concerned about their impact on the environment, the society, the economy, etc. That is why especially young people increasingly look for jobs in companies that act responsibly and sustainably. Another important aspect of the nature of SMEs is that quite often they satisfy very specific needs of a region or a community. Combined with ethical conduct of the business this makes their CSR practices very practical and result-oriented because the social and environmental issues they deal with are of local character, so the positive impact on the community and the region is greater and more tangible. It is true that some issues that SMEs would like to target might be too expensive for them. But in such cases SMEs could very effectively cooperate and join resources, knowledge and efforts in order to achieve the desired impact. Actually, the creation of a network for SMEs to share and discuss their good practices is a priority in the EU and the Commission devotes funds to that matter. By maintaining such an environment of sharing, SMEs could contribute to the further development of today’s knowledge-based economy, reduce the costs associated with some issues and finally achieve greater results. This leads to another three concepts that are very popular today, namely effective communication, transparency and interaction. Very often they are achieved intuitively and informally, mainly because there are less people to coordinate within and between small companies, thus making their internal processes more efficient and sustainable.
- 6. Employees of SMEs can also benefit a lot from the scope of knowledge and skills they develop. It is rather often that employees in small business go out of their official job descriptions and constantly take up new responsibilities and projects. The companies themselves often invest in training for their staff, thus contributing to the development of human capital. While it turns out that SMEs act responsibly in their own ways, it is still true that many people are not aware of that. This is partly because reporting and advertising these activities is too costly for small companies and some of their CSR activities remain known for a narrow group of people. It can also be said that the term Corporate Social Responsibility as most people understand it may not be the most correct one when it comes to SMEs. Their conduct of business may also be referred to as “responsible entrepreneurship” - a term that EU institutions are trying to introduce. And this really is what they are – opportunities entrepreneurial people identify and utilize, thus creating healthy competition, new working places, new knowhow and skills for their employees, and a livelier economy. Benefits A major benefit SMEs enjoy when they work ethically and responsibly is that they improve staff retention. First of all, employees are more likely to be willing to associate themselves with a responsible and efficient company. Moreover, when the staff of a business is small, more informal connections are likely to appear, making the employees a really bonded team that communicates effectively. This leads to greater staff loyalty and more motivation to work for the company. This also makes investment in employee development more sensible because the company can longer benefit from the increasing expertise of its team. Responsible companies also gradually win the loyalty of their clients. People are rather irrational and very often the choice of a particular service provider or a product depends highly on the emotional associations that the customers makes with the company. And the increasing number of socially and environmentally concerned people, that we said would enjoy working for a responsible company are also on the other side as customers.
- 7. A benefit that a company could enjoy if it has responsible environmental standards, for example, is decreased costs for water, electricity, paper and other supplies. Another form of CSR practices that SMEs could have is the support to students and educational institutions because this does not mean only supporting them financially, but also sharing experience and knowhow. We could take one quite small Bulgarian company as an example. It is called IN YOUR HANDS and its core business is making business simulations, trainings, team-buildings and consultancy for other businesses. This company cooperates closely with AIESEC Bulgaria (AIESEC is the biggest student- run organization in the world) by providing trainings and professional advice to the members of the organization. They participate in almost every conference of AIESEC in Bulgaria and also invite members to some of their events, when they need additional help. AIESEC members definitely benefit a lot from this cooperation, but the company itself also benefits by reaching many young, motivated students, who already have practical experience from working at a student organization. As a result, around half of IN YOUR HAND’s staff is of former AIESEC members, who have proven their professional and interpersonal skills in advance. The case with Triodos bank, originally a Dutch bank, is also quite interesting. The bank has special requirements for the businesses it gives loans to and ethical and responsible small businesses are among their main target group. Their lending strategy in devoted to helping the development and innovations in sustainable sectors and they finance projects that can deliver real social, cultural or environmental benefits. Their criteria also take into account the possible negative impact of initiatives on people and the planet. The bank has offices in The Netherlands, Belgium, Spain, United Kingdom and Germany, where every small company with responsible and sustainable business ideas could get financing. It is also interesting to note that when Triodos Bank was established in 1980, its start-up share capital was only 540 000 Euro, which made it quite a small lending facility, especially compared to the normal size of its competitors. However, its responsible and effective activities have helped it to develop into a larger and very successful financial institution.
- 8. Concepts of CSR and their realization in small and medium enterprises As already mentioned CSR is a very wide field and every company deals with it in a different way. The most common CSR concepts are based on the four major field’s: environment, employees, market and society, which cover most actions a company introduces to accomplish their contribution concerning an ethically correct business. Those four CSR-areas will be described by explaining their main characteristics and their exemplarily implementation in selected European small and medium sized companies. Environment oriented CSR Nowadays nearly no topic has as much recognition as global warming. The "greenhouse effect" leads to unsteady weather all over the world, to melting of the poles and therefore higher sea levels, floods and many more catastrophes. But not only green political party’s care about the future of the planet, also the broad public sphere is aware of this serious issue. People pay more attention to company’s environmental behavior than 50 years ago. Besides price and quality, customers favor products and services from sustainable sources without negative impacts on their environment. This pressure from the demand side forces companies to act responsibly towards their environment, to keep their competitiveness on the market. Not only should the use of input from sustainable sources be a cornerstone of the company policy, but also their sufficient use. On the one hand it is in the purpose of environmental protection, on the other hand, the optimum use of resources will lead to decrease of the variable costs of the company and therefore to an economical advantage in comparison to companies that use their inputs less than ideal. This goes together with a reduction of produces waste, whereby in different branches a particular rate of waste cannot be prevented. In such cases it’s the firm’s duty, to reduce the share of waste products to a minimum and then try to recycle this waste. If recycling is not possible the waste has to be disposed in a proper form. Another important leverage point concerning ethical behavior towards environment is the obligation to inform others about current issues or facing problems. In times of globalization firms all over the world cooperate with each other. Material flows are harder to handle, transportation ways are increasing and managing a supply chain is
- 9. getting tougher. But environmental protection requires not only the participation of single links in the chain. To ensure a sustainable development of the business, environmental topics have to be spread and measures for protection have to be arranged within the whole supply chain. Example of SMEs The British medium sized company "Wood and Beyond", located in London, sells hardwood products. The company selects its suppliers on the aspect, if they use sustainable sources. With this strategy the firm fights natural exploitation. They even got a so called "red-data-list", on which trees and species are listed that are under the threat of extinction. Based on this principle the firm has a very good reputation, which is, combined with their high quality promise one of their key factors to success. The Danish company Kvadrat, with 138 employees, is set in the textile industry. They were on 21st place on "best national company’s 50-500 employees" to work at in the year 2013. But Kvadrat is not only a good place to work, they also have high standards concerning environmental protection. The 1968 founded company’s main aim is to find a good balance between environmental concerns, social responsibility and economic aspects. To reach this balance the company makes sure that the products comply with the relevant EU Ecolabel criteria. Furthermore Kvadrat is constantly reducing their CO2 emissions and minimizing their waste production, by analyzing and monitoring all the production steps to find optimizing potentials. In 2013 they installed a CTS device (a building management system) at their headquarter, to make the whole construct greener.
- 10. They also apply strict standards to their suppliers, to reduce impact on the nature all along the supply chain, but still guaranteeing high quality products to satisfy their customers. Employees oriented CSR "A company's employees are its greatest asset and your people are your product." - Richard Brenson, British businessman and billionaire A company's key to success is its employees, but why? Depended on the branch of the company, staff costs can make up 70% (industrial sector) to even 90% (commerce sector) of the whole costs. Apart from some companies with high level of automation, most firms are depended on manpower. In times of demographical change in some parts in Europe (e.g. Germany) companies have to offer special treatments to their current and their potential employees (war for talents) to make them stay or to make them join the company. An ethical correct treatment of firm’s employees includes for example an improvement of the working conditions. Safety measures at the workplace will satisfy and protect the employees' health and furthermore decrease cases of illness, which will prevent loss in productivity. Additionally the firm’s costs for sick pays will be reduced. Guaranteeing a fair work-life balance is another point of ethical attitude towards workers. Besides the fact, that immoderate stress at the workplace can cause psychological illnesses like burnout and therefore additional costs for the company, actions like demand of excessive overtime work are against the European labor law. An employee who likes its job has, according to economic researches, a higher productivity and therefore a higher benefit for the company than an unsatisfied employee. But not only a good work-life balance makes a satisfied worker, more and more employees seek for chances to get into higher positions, not only because of better payments, but because of a wider range of responsibility and self-fulfillment. So a company should offer training, schoolings and other measures to develop their staff and equal chances to climb to a higher position of power.
- 11. Apart from the opportunity for advancement, it is a wish of many employees, to have a right to participate concerning company decisions. Therefore it’s not necessary to let workers decide on major strategic aims of the company, but to give them the opportunity to express their ideas. In most companies nowadays decisions are made without asking the people who are affected, but in some cases so called "bottom up" decisions are more effective than "top down" decisions, because people who are directly involved, have a deeper fractal knowledge than most of the managers above. Moreover with this bottom up approach the range of ideas is much broader as if one single person makes up a decision. All in all, one can say that not treating your employee’s ethical correct, leads to additional costs, and a decrease of productivity and if the behavior becomes public, to enormous image damage (e.g. Wal-Mart, Amazon...). Example of SME The German medium sized enterprise "LR Gebäudereinigung GmbH", founded in 1953 offers to employees with immigration background German language courses for free. The company's aim is, to integrate foreigners as good as possible into the society. Beneficial for the company itself is, that the communication between the workers and the customers is therefore better and less problems occur. The company in general does very many things concerning CSR, not only in the topic employees. It was rewarded several times, e.g. in 2009 for the so called "B.A.U.M. Umweltpreis" for a longtime ecological standards and holistic cleaning concepts, or in 2002 for commendable integration of foreigners in the Federal Republic of Germany. Market oriented CSR This CSR concept concentrates on creating additional (social) value for, on the one hand, customers and, on the other hand, for suppliers and business partners. By including all members of supply chain a new general value of CSR comes up – a team feeling rises. Further on it is getting more and more important implement such a concept, because in
- 12. many branches it is the only way to differ from your competitors. The following heels show the most important ways to offer on top value. Improving safety and quality of products is one way to target this value. Therefore each member of the supply chain has its advantages: suppliers and producers can be proud of better products and use this for a positive PR-campaign and for customers it is worth to pay more. By offering free and voluntary services to their products, firms get more reliable for their customers with their CSR concept. Out of this reason the company’s CSR idea lives on without any additional costs. Another very important part of the market oriented CSR is fair pricing. This is somehow the basement, because with fair and good prices the supply chain relationships stay alive and with it the already grown values. But it is not only about fair prices. For the reason that especially smaller companies have a limited liquidity it is important to hand over the money in time. Closely related to the environmental concept is the fact that it is much more worthy to contract with local partners regarding to communication and acting on jointly (local) projects. This stresses the local image and guarantees the support of local politicians and cities, which is always important for economical success. By supporting the local market a company creates the cornerstone for future regional business alliances, which leads to an optimum level of value creation. With such a business alliance it is easier to establish standards of behaviour and production through the whole supply chain. Examplesof SMEs As a practical example you can have a look at the Finnish company “Eko-Expert”. They are providing a special technology to reuse old building isolation material. Beside the
- 13. environmental advantage clients save a lot of money and have a competitive advantage. Indeed this concept has a huge disadvantage for the producing firms of isolation material, but in a long run “Eko-Expert” is creating much more value. An even better example is the German company “Die Möbelmacher GmbH”, a producer of kitchen facilities. They arrange cookery events and courses for their mostly local customers. During these meetings clients are able to test all the different kind of kitchen advises and have the chance to understand the values and key ideas behind the products. Society oriented CSR Society is growing and getting older. Both facts have a huge impact on the daily pressure of working people. Companies have the opportunity to relieve this pressure by using their impact on society. Indeed the impact of a SME is limited but you can not underestimate their impact as a group or in local areas. By hiring handicapped persons a SME indirectly “takes care” of them for a certain time and takes away huge pressure at some other place. We call this “Social integration”. But it is not only about reducing pressure; it is further on giving handicapped people the feeling of being part of something and being accepted by society. Indeed this does not only count for handicapped persons. “Social Integration” is possible with past -prisoners, -alcoholics, etc. In this way a company can bring back a lot of people’s self-confidence. Talking about handicapped people, it is necessary to mention that they often need special infrastructure systems like entrances, bigger letters or special sidewalks. A SME knows exactly where help is needed and can start improving local infrastructure. It is not necessary that a company is tackling a problem by its own. Of course a firm has the opportunity to give cash or in-kind donations to a community institution like schools, hospitals, etc.
- 14. But even a SME does not have to stop in its local area. The company can offer help to developing countries or world-wide organisations. Because SMEs have often much more deep relations to their international suppliers, they mostly can figure out the special and particular need for help in the affected area of the supplier. Supporting society is possible by, as already mentioned, cash or in-kind donations. But that this is not the end of the story. More and more companies provide employee programs, where a limited number of a company’s workforce has the chance to get new experiences by working with e.g. handicapped persons. This creates a totally new “win- win” value and can be very valuable for society. Examples of SMEs A practical example is the Norwegian SME “Stormberg AS”, a wholesaler. This company employed more than 25 % handicapped persons and around 30 % past-prisoners, school drop outs and other people, who would have a lot of problems to find their way back to society alone. Another good example is the Polish PR-Consulting company “Toolbox Creative Communications”. They decided to offer their work for free to all social organisations, which try to improve the communication between Polish and Jewish people. Totally new clients and more enlightened people are only two consequences.
- 15. Comprehensive A comprehensive CSR concept covers, as the name implies, all areas the company deals with. Besides employee care and market satisfaction also the ensuring of a sustainable environment for future generation and the maximum benefit for society should be concealed. Example of SME Ketchum Pleon is a German daughter company belonging to BBDO Worldwide. Ketchum is set in the communication branch and employes 330 workers in seven locations spread all over Germany. The Main seat is in Düsseldorf. The company itself is very engaged in CSR. Besides sponsoring 95 kids ins third world countries like Tanzania and India, Ketchum also participates annually in certain events like International Women’s Day, International Day of the Girl, Movember and International Literacy Day. Furthermore the firm businesses are committed to operating local premises with a very high energy efficiency and preventing greenhouse gases through yearly improvements of local travel policies and practices. In addition to that, Ketchum also cares for their current and future employees, by having strong connections to many universities and high schools, to guarantee trainings for current staff and better employment chances for students. Disadvantages of CSR Since 1960s when the concept of CSR was first brought up publicly, there have been many debates and articles published on this subject. It is extremely difficult concept or even theory to pin down. As it has been already said in theoretical part, there are many definitions of CSR so there may be many definitions of advantages and disadvantages of applying CSR.
- 16. The same goes for arguments for and against applying CSR practices. Briefly speaking, challenges lie in allocating reseources and time needed to meet CSR standards whatever they may be. Although CSR approach may have clearly positive effect overall on the society there are still articles and authors – and nevertheless, companies – who claim CSR is not optimal for cocmpanies of all sizes and therefore free economy. Profit maximisation CSR and its practices (in theory) are not getting along well with business environment in free economy. Moreover, function of business in capitalistic society is profit maximisation and economic efficiency and not social responsibility. Reduced costs and higher incomes are only goals for corporations to fullfill expectations of shareholders. Now, their task is to balance the financial expectations of company owners with the requirements CSR and other stakeholder groups. What is cost increase for big corporations may be deadly for SMEs who struggle on daily basis. Speaking of shareholders, their expectations may vary dramatically. Some shareholders are happy to invest in companies that operate with high integrity and some may not. Competitiveness Argument of competitive disadvantage is very similar to to profit maximisation. Modern economy became so complex that whole industries can become incompetitive due to raised opportunity costs on behalf of CSR. Simply but: some companies cannot afford putting resources – i.e. money – into CSR programs. Social issues are the concern of the government Following argument has been repeatedly emphasized mainly my economists and businessmen. They argue role of companies in free-market economies is to make profit. Social responsibility should simply be concern of the government and NGOs. In addition, Milton Friedman argues that companies contribute to society enough by paying taxes to their governments.
- 17. Conclusion CSR gained a lot importance and media attention through the recent years. It became one of important tools of customer retention as well as general public is more and more conscious of social and environmental aspect of doing business. There are many defitinitions and concepts of CSR. Regarding the former, its fundamentals lie in CSR approach refering to obligations to society. Speaking of the latter, assignment focused on four of its concepts (employment, society, environment and market) with »real life« examples. SMEs are too often overlooked in presence of concept of CSR. They have an extremely important role in economic growth in Europe and contribute quite a decent amount to society and environemnt in general through different mechanisms. This piece focused on some succesful practices and cases for better understanding of the subject. References http://www.die-moebelmacher.de/ http://www.toolbox.com.pl/ http://www.stormberg.com/en/ http://www.eko-expert.com/ http://www.csr-in-smes.eu/index.php?tab=5 http://vbn.aau.dk/files/66744278/Corporate_Social_Responsibility_on_SMEs.pdf http://www.ketchum.com/sites/default/files/2012-2013_ksr_report_final_04.14_2.pdf http://kvadrat.de/about/environment-and-quality http://www.csr-in-smes.eu/index.php?tab=5 http://www.csr-in-smes.eu/index.php?tab=5&child=4 http://www.csr-in-smes.eu/index.php?tab=5&child=1 http://www.lr-facility-services.de/home/unternehmen/auszeichnungen