This series of blog posts looks at the new ISO 26000 standard for corporate social responsibility. In five parts, it summarizes the report, How Material is ISO 26000 Social Responsibility to Small and Medium-sized Enterprises (SMEs)?, written by Oshani Perera in Sept, 2008.
PART III: RESULTS OF THE SME SURVEY ON ISO 26000 SOCIAL RESPONSIBILITY
NETWORKED BUSINESSES ARE BETTER SOCIAL RESPONSIBILITY INCUBATORS
SMEs that are well-networked are likely to have a higher capacity to appreciate and respond to social responsibility challenges. It is well documented that SMEs tend to suffer for a chronic shortage of time to address issues that are beyond immediate operational concern. Indeed, 45 percent of the SMEs interviewed cited a lack of time as a major obstacle in improving social responsibility performance. They report that they have little time either to collate and interpret information, or scan their impacts on stakeholders and the environment. In such cases, it is easy to see how the social responsibility agenda, which requires higher-order learning and mindset changes, can be a harder sell. Consequently, the more networked an SME is—be it through multinational value chains or through local professional and philanthropic networks— the greater its learning and absorptive capacity for the sustainability agenda are likely to be.
THE LACK OF EXPERTISE IS A GREATER HURDLE THAN THE LACK OF TIME
The point made above suggests that time and resources are always going to be a constraint for smaller companies in working around social responsibility. This study also points out, though, that for companies already engaged in social responsibility, the lack of time wasn’t as much of a hurdle as the lack of expertise to make the right decision in the given business context. The interviews with SMEs and NCPCs were especially revealing in that respondents were not concerned with the time spent on implementation, but rather, the time spent on finding out what needed to be done. SMEs appear to lack the expertise to understand the social responsibility agenda, prioritize it within their business interests, and estimate the time and resources required to address them.
FINANCIAL RESOURCE CONSTRAINTS
Forty one per cent of SMEs and 37 per cent of the consultants and NCPCs observed that it was the liquid capital that prevented SMEs from investing in systemic improvements and new technologies that were inherent to social responsibility. These SMEs also viewed the increasing social compliance costs as a constant barrier to improving competitiveness, and suggested that their outputs did not reach the necessary economies-of-scale to justify investments in social and environmental improvement.
On the other hand, 38 per cent of the SMEs and 60 per cent of the consultants and NCPCs suggested that social responsibility-related investments did not present additional cost-burdens, provided that the mix of social responsibility strategies was suited to the firm’s immediate priorities.
SMES’ LACK OF NEGOTIATING POWER ACROSS THE VALUE CHAIN
Research has shown that smaller size often reflects lower negotiating power and lower leverage on market forces (Porter 1980), and this perspective was echoed by almost persons consulted in the survey. Some SMEs went so far as to state that even if they were to demonstrate of strong commitments to social responsibility, market forces were unlikely to reward them. Indeed, several respondents suggested the SMEs are more ethical than multinational firms, but they lack the negotiating and marketing power to demonstrate this commitment and to lobby for rewards for responsible entrepreneurship. Given these realities, as well as the inherent challenges of successfully competing in a global marketplace, it is perhaps no surprise that SMEs feel that social responsibility is an agenda in which mock compliance is the best way forward.
SIZE DOES INFLUENCE THE UPTAKE OF SOCIAL RESPONSIBILITY?
There is wealth of academic and empirical evidence to suggest that larger SMEs are more likely to implement – and gain advantages from – social responsibility improvements, vis-a-vis smaller companies and micro-enterprises. And this study corroborates these findings, given the direct correlation between company size and the higher business profitability ratings provided by the SMEs.
SMES REQUIRE SPECIALIZED SUPPORT SERVICES AND IMPROVED ACCESS TO CREDIT
All the respondents commented that environmental and social responsibility required concerted support, and that the currently available resources were insufficient, sometimes even inappropriate, and that many smaller firms did not even know how to access these support services in the first place. This study identified three areas in which respondents believed more support was needed:
1) Strengthening of the overall fiscal and economic infrastructure to support SME
development and reward proactive companies,
2) Building the capacity and capability of SMEs to recognize social responsibility issues and opportunities, and
3) Improving SME access to financing.
The chambers of commerce interviewed also affirmed that they need to boost their services for SMEs in many areas, including sustainable enterprise. The traditional role of chambers of commerce has been to provide advisory services for business development, but advice on environmental and social issues is still very much viewed as an add-on. The reason offered for this by some of the chambers in the survey was that it was “out of their remit” and they felt that companies did not like to be “preached at.”
RISKS OF “DOING WRONG BY NOT DOING RIGHT”
Over 68 per cent of the NCPCs and consultants were of the view that SMEs did not engage in social responsibility practices because they were afraid of performing poorly and thereby exposing themselves to additional risk.”When you don’t know what to do, and if you are not sure what you are doing is what is needed, it is best to do nothing.” (NCPC, Jordan)