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«PROACTIVE ENVIRONMENTAL STRATEGIES IN SMALL BUSINESSES: RESOURCES, INSTITUTIONS AND DYNAMIC CAPABILITIES Jan Lepoutre Promotor: Prof. Dr. Aimé Heene ...»

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contrast, inactivity concerning external stakeholders and the environment was much higher (39% and 52% respectively) (Vives et al., 2005). Moreover, the fact that compliance with labour legislation was much higher than with environmental legislation serves as additional evidence for this variety in issue perception. Although similar trends can be found among medium-sized and large firms, these larger firms nevertheless showed higher activity levels in environmental and external social issues (Observatory of European SMEs, 2002; Vives et al.,

2005) and were also more prudent with regard to operational and tax issues than they had concerns about marketing issues (Murphy et al., 1992).

This empirical evidence indicating the differences in perception between smaller and larger firms can be explained by the moral imperative that is experienced along the three moral intensity dimensions as summarized by McMahon and Harvey (2006). First, size has an effect on the perceived Probable Magnitude of Consequences. Whereas the effects of unethical behaviour in marketing issues are often very visible and open to external scrutiny, financial issues are not as widely audited in small firms as they are by the formal controls in larger firms (Longenecker et al., 2006). Thus, the issue visibility – whether the behaviour can be noticed by constituents inside or outside the organization (Bowen, 2000) – is important, as it influences the magnitude of the consequences of irresponsible behaviour. Likewise, a number of researchers have demonstrated that many small businesses perceive their impact on the natural environment or their efforts to improve it to be negligible (Holland & Gibbon, 1997; Merritt, 1998; Petts et al., 1999; Ludevid Anglada, 2000; Observatory of European SMEs, 2002; Schaper, 2002; Hitchens et al., 2005; Vives et al., 2005). If individual behaviour does not result in immediately noticeable improved or worsened environmental outcomes in specific situations, then many people are not willing to engage in such behaviour despite their abstract concern with society or the environment (Sharma, 2000; Schaper, 2002), especially when “bad” behaviour is followed with only mild punishment (Trevino & Youngblood, 1990). However, when there is a perception that such an effort is part of a shared responsibility to work for environmental betterment, then small business owner-managers will be more willing to accept their own responsibility (Spence et al., 2000; Ludevid Anglada, 2000).

Second, size also influences the Proximity of the responsibility issues. After reviewing 22 studies on the stakeholder pressures related to small business environmental performance, Hillary found that few customers were interested in the environmental performance of small businesses, possibly because they also believe that the small business impact on the environment is negligible (Hillary, 2000b). Stakeholder pressures for environmentally

Chapter 4

responsible behaviour are thus not always present (Holland & Gibbon, 1997; Gerrans & Hutchinson, 2000), partly explaining the reduced importance given to specific environmental actions. On the other hand, researchers have suggested and found higher employee commitment to the organization and job satisfaction when higher ethical values are present (Hunt, Wood, & Chonko, 1989; Turban & Greening, 1996; Schwepker, 2001; Valentine, Greller, & Richtermeyer, 2006). It is obvious that the Proximity of the effects of internal SBSR actions is therefore much higher than external issues such as community involvement and the natural environment.

Finally, Social Consensus also has a different impact on small businesses. Differences in SBSR have been found both in the same culture (Serwinek, 1992; Smith & Oakley, 1994;

Teal & Carroll, 1999; Observatory of European SMEs, 2002) and between different cultures (Bucar et al., 2003; Vives et al., 2005). Small firms are influenced and affected by the general value systems which dominate their societal networks in their sector and in the rest of the value chain in which they operate (Arbuthnot, 1997; Tilley, 2000). Norms and pressures from community and peers constitute among the most important internal drivers for ethics (Brown & King, 1982; Petts et al., 1999). The influence of the local business community culture is so strong, that a small business owner-manager’s personal values developed in youth are displaced by the values of this community (Brown & King, 1982). Based on focus group

conversations with small business managers, Vyakarnam et al. could report that:

“one of the most strongly felt influences was the rules of the ‘game’ by which one operates in a given industry. There appear to be norms within the sub-culture of the industry which behoves an individual to conflict with it. (…) Other industries have norms around the way prices are set, deals are done and so on. These forces may be stronger influences on an individual than the national culture.” (1997: 1633).

In summary, these empirical findings indicate that smaller firms do not necessarily recognize fewer issues, but recognize and experience different issues than larger firms. Small size results in different visibility of issues to both the business and its constituents, diminishes the sense of impact on society and the natural environment and increases the power of peer pressure within a certain industry. The imperative for socially responsible action is therefore mostly felt with regard to internal stakeholders and in a much lower level with regard to external stakeholders and the natural environment compared to larger firms.





Chapter 4

4.4. Personal characteristics As owner-managed small businesses depend on the owner-manager for their management, an analysis of the peculiarities of small business owner-managers is germane to understanding the size – SBSR relationship. Contributions on the relationship between personal characteristics and socially responsible behaviour are dominated by two substreams.

The first associates some typical personality traits of entrepreneurs with responsible behaviour. The second relates the general position of the owner-managers in a small business with regard to his or her possibility to interpret and act upon SBSR issues.

4.4.1. Entrepreneurship and ethics Recently, we have seen great theoretical advances on the relationship between entrepreneurship and ethics. Especially the works by Solymossy and Masters (2002), Morris et al. (2002) and Longenecker et al. (2006) have added insight to the theory on the entrepreneurial antecedents of SBSR decision-making. Although Solymossy and Masters postulated that “the similarities between the predictors of entrepreneurship and of ethical behaviour are striking” (Solymossy & Masters, 2002: 235), their analysis and that of Longenecker et al. (Longenecker et al., 2006) also indicate that entrepreneurial traits are not necessarily always associated with more ethical behaviour. While entrepreneurship may yield new jobs, innovations and economic growth (Audretch, 2002), the entrepreneurial act may also be allocated to such activities as rent seeking or even crime (Baumol, 1990), or may result in innovations that pose new ethical problems to society (Hannafey, 2003). The entrepreneurial traits that have been used to explain these contradictory results are locus of control, need for achievement, tolerance of ambiguity, Machiavellism and Cognitive Moral Development (Morris, Schindehutte, Walton, & Allen, 2002; Longenecker et al., 2006).

Entrepreneurs are said to have an internal locus of control, a high sense of control over the events in their environment (Shaver & Scott, 1991). Although a number of studies report a positive relationship between an internal locus of control and ethical behaviour (Zahra, 1989;

McCuddy & Peery, 1996; Yurtsever, 2003), others were inconclusive (Hegarty & Sims, 1978). Similarly, a high need for achievement has been identified as a typical entrepreneurial trait (McClelland, 1961) and has been associated with ethical decision-making (McClelland, 1961), but only as far as the need for achievement does not involve a trade-off between ethical behaviour and some other entrepreneurial goal (Longenecker et al., 2006). As many ethical situations are ambiguous and ask for a careful balance of interests (Hannafey, 2003), tolerance for ambiguity, the ability to respond positively to ambiguous situations (Teoh & Foo, 1997),

Chapter 4

has equally been related to ethical behaviour (Morris et al., 2002). Machiavellism, the act of influencing others to further a personal goal has only been found to have a negative influence on ethical decision-making aspects (Yurtsever, 2003). Finally, some evidence exists that the Cognitive Moral Development (Kohlberg, 1969), the level of cognitive skills that guide moral decision-making, is a fraction higher among entrepreneurs than among others (Teal & Carroll, 1999), which would suggest that entrepreneurs are more likely to have higher ethical standards to begin with. In summary, results on the links between entrepreneurship and ethical behaviour are rather inconclusive. Entrepreneurship may thus be a convenient machinery for those people wishing to act in ethical ways, but is no guarantee that ethical behaviour will be deployed.

Despite the interesting insights the works of Solymossy and Masters (2002) and Longenecker et al. (2006) have given, their focus is on entrepreneurs, a very specific type of small business owner-manager (Smith & Miner, 1983; Carland, Hoy, Boulton, & Carland, 1984). They fit the definition of the “opportunistic entrepreneur”, who exhibits “breadth in education and training, high social awareness and involvement, confidence in their ability to deal with the social environment, and an awareness of, and orientation to, the future” (Smith & Miner, 1983: 326). At the other end of the spectrum is the “craftsman entrepreneur”, characterized by “narrowness in education and training, low social awareness and involvement, a feeling of incompetence in dealing with the social environment, and a limited time orientation” (Smith & Miner, 1983: 326). As Deeks (1973) suggested, only maybe one out of ten small businesses owner-managers may be an entrepreneur of the former type. In reality, most owner-managers will show features that position them somewhere in between those two ends of the spectrum. Restricting personality characteristics of small business owner-managers to those of entrepreneurs would therefore be a mistake. In the following section, we will expand our analysis to the stereotypical characteristics of the small business owner-manager.

4.4.2. Characteristics of small business owner-managers Small business owner-managers are often depicted as having a permanent lack of time and a lack of (specialized) knowledge.

“In small firms the entrepreneur often participates intensively in day to day production, on the shop floor. As a result, his time is extremely scarce. (…) Small firms will in majority have no specialized staff for finance, personnel or marketing, and certainly not for legal affairs.” (Nooteboom, 1994: 288)

Chapter 4

The results on the impact of time on SBSR are well documented and also unanimous: small businesses that experience a lack of time are less likely to engage in SBSR practices (Gerstenfeld & Roberts, 2000; Hunt, 2000; BITC, 2002; Schaper, 2002; Hitchens et al., 2005). Likewise, the lack of knowledge about SBSR issues among small business ownermanagers has been described extensively (Holland & Gibbon, 1997; Tilley, 1999; Ludevid Anglada, 2000; Gerstenfeld & Roberts, 2000; Hunt, 2000; Observatory of European SMEs, 2002; del Brío & Junquera, 2003). However, those firms that delegate responsibilities and create an empowering and learning environment for SBSR seem to circumvent these time constraints (Petts et al., 1999). More networked firms also experience fewer problems with time and knowledge (Noci & Verganti, 1999; Hunt, 2000; Meredith, 2000; BITC, 2002).



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