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Preface The current chapter addresses the first research question in this dissertation, i.e. “What is the impact of firm size on the adoption of PES in smaller firms? Here, the goal is to refine the analysis that was presented in the former chapter and specifically focus on the interaction between the small scale of small firms and its impact on the ability and willingness of small firms to engage in PES. As became clear in chapter 3, however, extant literature on small business PES remains scarce to date. Hence, we decided to broaden the scope of the literature review, and include insights from the broader business and society scholarship. Given that the broader “corporate social responsibility” literature is dedicated to the investigation of organizational behavior that goes beyond legal expectations in addressing general social issues, of which the natural environment is a subset, the findings should be appropriate to PES as well. In addition, we also included reports and non Web of Science-papers and books in the review of this paper.

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4. Investigating the Impact of Firm Size on Small Business Social Responsibility: A Critical Review

4.1. Introduction Over the last decades, Corporate Social Responsibility (CSR) has gained salience in academic literature (de Bakker, Groenewegen, & den Hond, 2005). However, although CSR can be applied to all sorts of businesses, regardless their size or sector, it has been predominantly investigated at the level of the larger firm (Spence, 1999; Hillary, 2000a;

Observatory of European SMEs, 2002; del Brío & Junquera, 2003; Werner & Spence, 2004).

A specific investigation of CSR in a small business context is important for three reasons. The first argument is that small and medium-sized enterprises (SMEs) constitute 99% of all business in the EU and are responsible for 66% of total employment and around 40 % of the total value added in the EU (Observatory of European SMEs, 2003). Their impact on society is therefore underestimated and ignoring SMEs in research is “in fact totally inappropriate” (Spence & Lozano, 2000). Second, implementing CSR in large enterprises is not necessarily the same in SMEs. Small firms are not little big firms (Dandridge, 1979; Welsh & White,

1981) and have a number of specific characteristics which have an impact on what a small business social responsibility constitutes. Finally, large firms are becoming increasingly entrepreneurial in nature, implying that the research on small business social responsibility may yield valuable insights for larger enterprises as well (Quinn, 1997).

Although the literature on small business social responsibility (SBSR) has been growing over the last years, the knowledge on SBSR is still fragmented and has not yet developed into a coherent theory. A theory is important, as it provides an economic means to organize information in a way that is internally and externally consistent, verifiable, has generality and possesses scientific parsimony (d'Amboise & Muldowney, 1988). Such a slow theory development can be explained by the fact that, in general, it is difficult to integrate all small businesses in one general theoretical framework (d'Amboise & Muldowney, 1988;

Curran & Blackburn, 2001). The small business community is very heterogeneous and behaviour is influenced by a number of factors. The same variety seems to exist in SBSR research. The influence of firm size on SBSR, for example, yields diverging results and opinions. On the one hand, a number of reports state that small firms are better positioned and equipped for socially responsible behaviour than large firms. Small businesses are often celebrated for such social benefits as creating jobs, inducing economic growth and introducing innovations (Wennekers & Thurik, 1999; Audretch, 2002; European Commission,

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2003b). In addition, many small businesses attract clients and employees in the local community. As having a good reputation is of paramount importance to their competitiveness, small businesses would naturally engage in practices that are aligned with their stakeholders’ wishes and behave socially responsible (Besser, 1999; BITC, 2002; European Commission, 2003c; EMSF, 2004). Furthermore, the entrepreneur, as a specific type of the small business owner-manager, is associated with personality traits that increase the likelihood of responsible behaviour (Teal & Carroll, 1999; Solymossy & Masters, 2002). For those reasons, it is often stated that due to their very nature, small businesses are socially responsible, but that they just do not know they are (BITC, 2002; EMSF, 2004).

Other researchers have found that small businesses experience more difficulty than larger firms to take their social responsibility. Many small business owner-managers have never thought about CSR or believe that their social and environmental impact is negligible (Petts et al., 1999; Hitchens, Thankappan, Trainor, Clausen, & De Marchi, 2005). Small business managers themselves argue that they have no time or resources to dedicate to social responsibility (Tilley, 2000; Observatory of European SMEs, 2002; BITC, 2002) and that obeying the law may be a problem to begin with (Tilley, 1999; Petts et al., 1999; Gerrans & Hutchinson, 2000). Empirically, these statements have been substantiated by a number of studies that have found a positive relationship between size and community involvement or environmental behaviour among SMEs (Murphy, Smith, & Daley, 1992; Besser, 1999;

Observatory of European SMEs, 2002; BITC, 2002; Vives, Corral, & Isusi, 2005), and similar impacts of firm size on CSR have been found among larger enterprises as well (Greening & Gray, 1994; Adams & Hardwick, 1998; Sharma, 2000; Brammer & Millington, 2006).

These conflicting observations demonstrate that the question whether and how the small business context influences CSR remains unresolved. In this article, we therefore want to contribute to the development of SBSR theory by critically reviewing the relationship between firm size and small business social responsibility. We will do so by consecutively exploring the effects of size on four antecedents of managerial and organizational behaviour.

Our analysis begins with issue characteristics, then personal characteristics, followed by organizational characteristics and finally context characteristics. We conclude our paper with a discussion on the implications of our model for practice and theory and suggest directions for future research.

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4.2. Defining the Small Business and its Social Responsibility Small businesses have been distinguished from larger companies by such criteria as financial turnover, assets, market share, numbers employed and ownership (Curran & Blackburn, 2001). The cut-off levels that are chosen along those dimensions, however, vary considerably between studies and are sometimes not even reported (Spence, 1999; Hillary, 2000a). We take the EU definition for small enterprises, with inclusion of micro-businesses, as a starting point. Small businesses are those that have less than 50 employees and have a turnover or balance sheet total that does not exceed € 10 million (European Commission, 2003a). Furthermore, Spence recommended that “small businesses should be defined as those with fewer than 50 employees, and that they should be owner-managed and independent” (Spence, 1999: p. 169). In this paper, we focus on those businesses that fall within the scope of both these definitions, because it allows a narrowed focus and increased possibility of finding patterns that are generalizable across companies. Although studies that also comprised medium-sized enterprises were not excluded, they were only included if their results were also valid for small business.

We base our definition for SBSR on the European Commission’s publication on “Responsible Entrepreneurship”, in which it defined the responsible entrepreneur as one that (1) treats customers, business partners and competitors with fairness and honesty; (2) cares about the health, safety and general well-being of employees and customers; (3) motivates his workforce by offering training and development opportunities; (4) acts as a ‘good citizen’ in the local community; and (5) is respectful of natural resources and the environment (European Commission, 2003c). In our review of SBSR literature, we have thus integrated contributions from “small business ethics” issues, “social responsibility” issues and “environmental” issues.

In order to cover the impact of size on all the contingent factors of SBSR behaviour, we follow a number of reviews that have classified the contingent factors of small business behaviour into four, more or less similar, dimensions (d'Amboise & Muldowney, 1988; Chau & Siu, 2000; Solymossy & Masters, 2002; Longenecker, Moore, Petty, Palich, & McKinney, 2006): issue, personal, organizational and context characteristics. Issue characteristics refer to the situation or the matter of concern to SBSR behaviour; personal characteristics relate to the values, competencies and actions of the owner-manager; organizational characteristics involve the tangible and intangible resources and structures of the firm; and context characteristics refer to the economic, social and institutional factors which are external to the organization.

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4.3. Issue characteristics In the literature on small business social responsibility, we find a number of instances where the “moral intensity” of social responsibility issues – the moral imperative that a certain situation generates – varies with firm size. In his landmark paper, Jones (1991) proposed a model that explains moral action on the basis of six dimensions of issue moral intensity. The higher the moral intensity of these dimensions, the more likely a person will (1) recognize the moral issue; (2) use sophisticated moral reasoning; (3) develop an intention to behave morally; and ultimately (4) behave ethically. Recent research suggested that these six dimensions can be reduced to three (McMahon & Harvey, 2006): Probable Magnitude of Consequences, Proximity and Social Consensus. Probable Magnitude of Consequences refers to the probability that an action will have a certain level of effect in time. Proximity relates to the feeling of social, cultural, psychological or physical closeness of the agent with the victim (or beneficiary) of the action. Social Consensus indicates the level of social agreement that the action is evil (or good).

Empirical research found that large and small enterprises are very similar with regard to the importance they attach to


normative ethical, social and environmental principles (Longenecker, McKinney, & Moore, 1989; Merritt, 1998; Bucar, Glas, & Hisrich, 2003). However, small and large businesses differ with regard to the responsibility issues recognized once these abstract principles are applied in specific situations in reality (Longenecker et al., 1989; Humphreys, Robin, Reidenbach, & Moak, 1993; Hornsby, Kuratko, Naffzigger, LaFollette, & Hodgetts, 1994; Lahdesmaki, 2005). Small business owner-managers are particularly sensitive to activities related to their immediate internal stakeholders (employees, customers and suppliers), involving loyalty in their (often close) relationship with customers and employees; openness, honesty and fairness in contracts, agreements, payments and (marketing) information; pricing issues among competitors; and the origin of resources (Humphreys et al., 1993; Hornsby et al., 1994; Vyakarnam et al., 1997;

Vitell, Dickerson, & Festervand, 2000; Lahdesmaki, 2005). On the other hand, such unethical actions as padding expense accounts, often resulting in a higher income for the ownermanager, are experienced as less problematic (Longenecker et al., 1989; Murphy et al., 1992).

Also, SBSR actions in domains external to the firm (e.g. community and the natural environment) are relatively limited and fragmented (Tilley, 1999; Tilley, 2000; BITC, 2002;

Vives et al., 2005), predominantly because small business owner-managers “have never thought about it” (Observatory of European SMEs, 2002). In Latin America, for example, only 5% of small businesses remained idle with respect to internal SBSR activities. In

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