Corporate Social Responsibility and SMEs

Impacts and Institutional Drivers

Johan J. Graafland

• Editore: Routledge
• Anno: 2021
• ISBN:
  9781000523256
• Edizione: 1
• Argomento: Commerce
• Categoria: Gouvernance d'entreprise

The world's people and their leaders face a complex and multifaceted set of 'eco-social questions'. As the productivity of humanity increases, the negative external environmental effects of production and consumption patterns become increasingly problematic and threaten the human welfare. As the regulating power of national and international governments is limited, this challenge has generated a strong interest in the corporate social responsibility (CSR) of companies. Firms find it increasingly important to meet the expectations of stakeholders with respect to the company's contribution to profit, planet, and people.

The primary aim of this book is to introduce the reader to the impacts and drivers of CSR, with a special focus on small and medium-sized enterprises (SMEs). Research into the social and environmental impacts of CSR is rare. This is a serious gap because if CSR were to fail to have favourable social and environmental impacts on society, the whole concept may become redundant. If societal impacts of CSR are substantial, it is important to know the drivers of CSR. This book considers (1) factors internal to the company, (2) the competitive environment of the company, (3) institutions external to the company, and (4) how the impacts of institutions are mediated or moderated by company internal factors.

This book will fill this gap by estimating various types of models that integrate external and internal factors driving CSR and its impacts on environment, innovation, and reputation, making it a valuable resource for researchers, academics, and students in the fields of business management and CSR.

The Open Access version of this book, available at http://www.taylorfrancis.com, has been made available under a Creative Commons Attribution-Non-Commercial (CC-BY-NC) 4.0 license.

1
Introduction

DOI: 10.4324/9781003216483-1

1.1 Introduction

Today, the world’s people and their leaders face a complex and multifaceted set of ‘eco-social questions’. As the productivity of humanity increases, the negative external environmental effects of production and consumption patterns become increasingly problematic and threaten the human welfare. As the regulating power of national and international governments is limited, this challenge has generated a strong interest in corporate social responsibility (CSR) of companies. Firms find it increasingly important to meet the expectations of stakeholders with respect to the company’s contribution to profit, planet, and people. This interaction between companies and various stakeholders constitutes a third mechanism that supplements the shortcomings of the market mechanism and government regulation in serving the well-being of the society.

What Does CSR Mean?

This book analyses the impacts and drivers of CSR. Based on a study of 37 definitions, Dahlsrud (2008) identifies five common dimensions of CSR: the economic, social, environmental, stakeholder, and voluntariness dimensions. These elements are nicely illustrated by the well-known definition of CSR by the European Commission (2001): ‘Corporate social responsibility refers to a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis.’ The economic dimension links to the P of profit in Elkington’s triple bottom line (Elkington, 1997) and refers to the profitability and other economic dimensions of welfare, such as innovations and the resulting employment opportunities for society. The social dimension (the P of people) is concerned with the ability of a firm to contribute to a better society, including respect of civil and human rights, abolition of world poverty, and better working conditions for employees. The environmental dimension refers to the P of planet and relates to the natural environment and natural resources. The stakeholder element means that the three dimensions – economic, social, and environmental – are important for various types of stakeholders who are affected by the corporate behaviour of the firm. The voluntary dimension reflects that CSR mostly concerns actions that go beyond the legal obligations of the organization.

The concept of CSR is closely related to the concept of corporate social performance (CSP). This concept distinguishes CSR policies, CSR implementation, and their impacts (Carroll, 1979). One of the most influential, parsimonious, and yet comprehensive conceptualizations of CSP is Wood’s CSP model (Wood, 1991, 2010). In her model, Wood synthesizes the various previous attempts to model CSP. Wood defines CSP as ‘a business organization’s configuration of principles of social responsibility, processes of social responsiveness, and policies, programs and observable outcomes as they relate to the firm’s societal relationships’ (Wood, 1991: 693). Wood’s model thus consists of three main parts. The first part concerns the principles of social and environmental responsibility, which includes the motivations for companies to be involved in CSR. The second part refers to the processes of social responsiveness, including environmental assessments, stakeholder management, and issues management. The third part includes implementation of CSR through programmes and the impacts of CSR in terms of the effects on stakeholders and society. By analysing the motives, implementation, and impacts of CSR, this book links to all three parts of Wood’s model.

Link between CSR and Financial Performance

Research has shown that CSR is potentially a promising mechanism to foster sustainable development because there is some evidence that the financial performance of companies is positively related to CSR (Orlitzky, 2001; Van Beurden and Gössling, 2008; Margolis et al., 2007). In a well-known meta-analysis of 52 empirical studies, Orlitzky et al. (2003) found that CSR is significantly correlated with corporate financial performance (CFP). The causation seems to be that CSR and CFP mutually affect each other through a virtuous circle: financially successful companies spend more to CSR because they can afford it but CSR also helps them become more successful.

1.2 Gaps in our Knowledge of CSR

The empirical indications of a positive relationship between CSR and CFP would suggest that the market provides companies incentives to engage in CSR and contribute to sustainable development. However, there remain several important questions that need to be answered before we can conclude that relying on CSR will effectively meet the eco-social challenges that the world faces in the long run.

CSR of Small- and Medium-Sized Enterprises

First, current research into corporate environmental responsibility is often limited to large companies. As far as small and medium-sized enterprises (SMEs) are concerned, large-scale empirical research is rare. SMEs (defined by the EU as firms with fewer than 250 employees and with a turnover of less than €50 million or a balance sheet of less than € 43 million) account for more than 98% of EU firms and for 67% of EU-19 employment (European Commission, 2012). A focus on SMEs is important because small businesses collectively account for up to 70% of industrial pollution worldwide. There are several reasons to expect systematic differences between large and small companies. As small firms are less visible to the public and the media, the reputational significance of CSR will be weaker for SMEs than for large companies, making investment in CSR less rewarding for them. Furthermore, because SMEs operate on a smaller scale, the costs involved with the development and implementation of CSR programmes are relatively large. Moreover, as small firms face more intense competition on their output markets than large firms, their profit rates will be lower. Large companies will therefore have more slack resources that can be invested to obtain long-term gains from CSR. Lack of money and lag of time are among the most frequent reasons for SMEs for not being involved with CSR (ENSR, 2001). This raises important questions, such as how much SMEs engage in CSR and how SMEs can be encouraged to contribute to meeting the environmental challenges the world faces. As large-scale empirical research on the drivers and impacts of CSR of SMEs is very scarce, these questions are still insufficiently answered.

A main reason for the lack of large-scale empirical research of CSR by SMEs is lack of data. In this book, we fill this gap by using a large database of 5,205 SMEs from twelve European countries (Denmark, Finland, Sweden, The Netherlands, Germany, France, Austria, Hungary, Poland, Italy, Spain, and the UK), which will be used throughout the book for empirical testing. The data stem from a large survey, which the author conducted in 2011 and repeated in 2014 (8,838 observations in total). The survey consisted of 130 questions that surveyed the institutional and economic drivers of CSR, the implementation of CSR policies and programmes, and their impacts. The survey document was translated from English into the languages of the 12 countries in which the companies were located. This survey, which was financed by the European Union, provides a unique means of testing the research questions addressed in this volume on a consistent data base.¹

Impacts of CSR

More and more companies now employ various kinds of CSR instruments, such as codes of conduct, ISO certifications, and stakeholder dialogue. But the impacts of these instruments in terms of the realization of social and environmental goals are uncertain. Therefore Banerjee (2008) argues that CSR initiatives are really nothing more than window dressing. Whereas the triple bottom line approach calls on companies to weigh the effects on stakeholders and the environment alongside profit, in practice companies have co-opted it and shifted towards a business ethics agenda that supports rather than questions business practices and only adopted CSR insofar it can be aligned to narrow strategic interests (Marens, 2008).

Whereas the various models of CSP conceptualizes CSR policies, CSR implementation, and their impacts, there are relatively few empirical studies that analyse the causal relationship between these three elements. Part I of the book addresses this research gap by analysing the incidence of decoupling, defined as the divergence between implementation of CSR instruments and CSR impacts. By studying the relationship between CSR implementation and their impacts, we can identify if CSR is merely ceremonial or if it really creates substantial impacts. Because of limited empirical evidence, it remains uncertain to what extent the implementation of CSR really leads to impacts. This is a serious gap in the field of CSR research because if CSR would fail to have favourable social and environmental impacts on society, the whole concept may become redundant.

Another type of impact of CSR concerns innovation. Literature has recognized that CSR may be of strategic value because it contributes to innovation. Several researchers claim that CSR can stimulate innovation (Porter and Kramer, 2006; Frondel et al., 2007; Clausen and Loew, 2009; Wagner, 2007b; Bocquet et al., 2011). One of the reasons is that CSR attracts highly qualified people who foster innovation in general (Turban and Greening, 1997). With its focus on sensitivity to industrial and societal needs, CSR represents an approach that supports innovation (Midtun, 2007). However, innovation may also reversely impact CSR. Innovation frequently is a condition for bringing about the changes required for the realization of CSR (Shrivastava, 1995; McWilliams and Siegel, 2000; Scholtens, 2008). Hence, innovation could be seen as a factor stimulating CSR and R&D intensity (an indicator of innovation at the firm level) has indeed been shown to lead to CSR (Padgett and Galan, 2009). This two-way causation suggests that innovation and CSR can form a virtuous circle. Still, the empirical evidence of a virtuous circle between CSR and innovation remains weak, particularly for SMEs.

Drivers of CSR

A third gap in our knowledge of CSR concerns other drivers than financial performance. As discussed earlier, some researches indicate that companies may be interested in CSR in terms of the ‘business case’, as CSR might improve financial performance and innovation. However, if CSR is really a ‘business case’, why is sustainable development so challenging and governments put so much stress on stimulating CSR? If CSR is in a company’s own interest, we would expect that companies take responsibility for the society’s welfare by developing CSR initiatives that contribute to the three dimensions of value creation outlined earlier. Social and environmental challenges that the world faces would be solved in a natural way by the market, provided that companies devise rational strategies that guarantee their economic success. In reality, the data indicate that, although companies have increased their CSR strengths between 1991 and 2005, this was more than countered by a rise in the number of CSR concerns, which means that the average (net) CSR decreased (Lougee and Wallace, 2008). Apparently, CSR is not always a ‘business case’.

Indeed, the empirical evidence of a positive link between CSR and CFP is not undisputed. Some studies found a neutral or negative relationship between CSR and CFP (Jones and Wicks, 1999; McWilliams and Siegel, 2000). This also holds more specifically for the environmental dimension of CSR. For example, Filbeck and Gorman (2004) and Telle (2006) did not find a positive relationship between environmental and financial performance, rather the opposite. The latter conclusion is supported by Cañón-de-Francia and Garcés-Ayerbe (2009), who found that the relationship between ISO 14001 certification and the market value of companies is negative for less-polluting and less-internationalized companies. The argument that companies care about CSR because it increases the company’s financial performance therefore seems too superficial, particular in the case of SMEs.

A study into other drivers than financial performance to explain the CSR of SMEs more thoroughly is therefore warranted. If the influence of CSR on profitability is ambiguous, one wonders why companies would take up a proactive attitude towards CSR. What factors other than the profit motive stimulate companies to engage in CSR? In this book, we consider two types of drivers of CSR: factors that are internal to the company and factors that are external to the company.

Internal drivers include motives of business-owners and managers to engage in CSR. Research into the motives for enterprises engaging in CSR other than strategic motives to ensure the financial success of the firm is still considered embryonic (Campbell, 2007). The main strategic reasons to engage in CSR are enhancement of reputation, meeting pressures from governmental and civil pressure groups, strengthening the competitive advantage of a firm, and the potential retention of employees (Whitehouse, 2006). Within the boundary condition of maintaining or enhancing profitability, stakeholder expectations are satisfied as much as possible. However, there are indications that other motives matter as well, particularly in the case of SMEs. ENSR (2001) found that ethical reasons, improved relations with community and public authorities, and customer loyalty are the most important motives of CSR for SMEs in Europe. Graafland and Van de Ven (2006) and Basu and Palazzo (2008) found that ethical motivation is a stronger driver of CSR of SMEs than the financial motive.

Research into CSR has recently also become more focused on external drivers, such as competitive landscape and national and global institutions (Aguilera and Jackson, 2003; Campbell, 2007; Matten and Moon, 2008; Brammer, Jackson et al., 2012). The concept of institutions has been famously defined by North (1991: 97) as ‘the humanly devised constraints that structure political, economic and social interactions’.² National and international institutions shape corporate decisions by giving rise to different competitive environments that affect the behaviour of important external stakeholders of the company.³ Other studies have conceptualized CSR as resulting from a combination of internal and external factors (Delmas and Toffel, 2004; Aguilera et al., 2007; Brown et al., 2010; Delmas and Burbano, 2011). This type of literature provides more insight into the interaction between the internal and externa...

Indice dei contenuti

• Cover
• Half Title Page
• Series Page
• Title Page
• Copyright Page
• Contents
• List of figures
• List of tables
• About the Author
• Preface
• Acknowledgements
• 1 Introduction
• Part I Impacts of Corporate Social Responsibility
• Part II Internal Drivers of Corporate Social Responsibility
• Part III Impacts of Competition on Corporate Social Responsibility
• Part IV Institutional Drivers of Corporate Social Responsibility
• Part V Integration and Management Lessons
• References
• Appendix 1: Survey Questions
• Appendix 2: Sample and Methods of Statistical Testing
• Index