«PROACTIVE ENVIRONMENTAL STRATEGIES IN SMALL BUSINESSES: RESOURCES, INSTITUTIONS AND DYNAMIC CAPABILITIES Jan Lepoutre Promotor: Prof. Dr. Aimé Heene ...»
“Heroic resistance to an oppressive power is the province of the students at Tiananmen Square, not the businessfolk in the capitalist societies the students risk their lives to emulate. Businesspeople do not stand on principle when it comes to dealing with abusers of power and trust. You have to adjust, we were told. If we dealt only with customers who share our ethical values, we would be out of business.” (Bhide & Stevenson, 1990) The sustainability of a business’s products may also depend on the characteristics of its resources, for which it may rely on suppliers in the market. If there are no players in the market that supply sustainable resources, this might be a situation that a small business cannot change by itself (Noci & Verganti, 1999). Likewise, when socially responsible action would require the cooperation of all players in the supply chain (e.g. closing material loops through waste recycling), SBSR action is only possible when parties up- and downstream of the supply chain are also willing to engage in such practices (Noci & Verganti, 1999). Larger
businesses then have more leverage to instigate socially responsible behaviour among their constituents.
Finally, due to their limited individual political significance in terms of job creation or general social power, influencing political decision-making is limited (Hillman & Hitt, 1999).
Not only do larger firms have more leverage, but they also have more resources they can dedicate to actively contribute in the policy making process (Bourgeois, 1981; Meznar & Nigh, 1995). Such political power is important when small firms want to aid in public policy making, for example to establish a ‘level playing field’ among peers, but also among players in the supply chain. When it comes to resolving boundary spanning social problems, small businesses expect a considerable role from the government in setting a ‘level playing field’ for all business, giving indications on environmental standards or guidelines (Tilley, 2000;
Ludevid Anglada, 2000), rather than relying on voluntary self-regulation (Petts et al., 1999;
Tilley, 2000). Small business therefore often work through employers’ organizations or branch organizations, that often do have an institutionalized place in the policy decisionmaking process (Hillman & Keim, 1995; Doh & Guay, 2006). As we will further argue, these organizations thus have a considerable responsibility for the SBSR of their members as well.
In summary, we therefore conclude that due to a lack of power, small businesses will be more dependent upon the social responsibility behaviour of their constituents than larger firms.
4.6. Context characteristics Although context factors have been mentioned as important moderating factors of the size – SBSR relationship throughout our paper, there are three contextual factors that are of particular importance: external stakeholder pressures, the socio-economic context and the institutional environment.
4.6.1. External stakeholder pressures.
The importance of stakeholder pressures on SBSR behaviour has already been mentioned several times in this paper. It has been demonstrated that smaller firms face stakeholder pressures distinct from larger firms. However, the relationship between external stakeholder pressures and size has not been addressed yet. Due to their larger size, large enterprises would be more visible and experience more scrutiny from the general public, with increased institutional pressures as a result (Oliver, 1991; Greening & Gray, 1994; Meznar & Nigh, 1995; Henriques & Sadorsky, 1996; Brammer & Millington, 2006). Yet, findings on the
relationship between organizational size, visibility and SBSR behaviour yields diverging results. Bowen (2000) observed that the visibility of an organization – whether it can be seen by its relevant constituents or not – is not determined by organizational size alone. Rather, the size – visibility relationship is moderated by the community in which the business operates and the type of business it is in. Smith and Oakley (1994), for example, found that entrepreneurs in nonurban areas were less accepting of ethically questionable behaviours than those in urban areas. Businesses that were active in smaller communities were therefore found to develop more responsible behaviour (Bowen, 2000). By contrast, businesses that have no such relationship with the local community may choose to operate in stealth mode (Chen & Hambrick, 1995) and remain invisible to the general public as a competitive strategy or avoid institutional pressures from the public.
Yet, in the situation that a small business chooses to be visible and reap the benefits of a good market reputation (Fombrun & Shanley, 1990), it may lack the size to really capitalize on brand names or product reputation and “market” its environmental or social performance (Spence et al., 2000). Although it is often assumed that the small business maintains direct and dyadic relationships with its stakeholders, many stakeholder interests are not communicated directly to the individual firm but through a web of influences at different levels in society (Rowley, 1997). It is often only the branch organization that receives the demands and expectations from NGOs and other pressure groups in society. Reputation may thus not be formed at the level of the individual firm, but at sector or country level. As a result, small businesses may be saved from scrutiny and individual punishment when they refuse to take their social responsibility, but also be unable to reap the benefits of an improved reputation as a result.
In summary, whether smaller size results in diminished organizational visibility greatly depends on the context the business is operating in. Those small business that are characterized by higher levels of organizational visibility will receive more scrutiny and information from their stakeholders and will therefore engage more in SBSR. In addition, they will have more opportunities to capitalize on the benefits of being socially responsible.
4.6.2. Socio-economic context Based on their comparative analysis of the external social responsibility activity of 7662 European and 1330 Latin American SMEs, Vives et al. (2005) suggested that a country’s general welfare level has an impact on SBSR activity. Whereas Latin American small businesses demonstrated more SBSR activity in general, efforts were also
predominantly directed towards disfavoured groups in society, rather than sponsoring sports or cultural activities in Europe. Moreover, a lack of financial resources was a more important barrier than the lack of time. They found an explanation for these differences in the higher presence of poverty in Latin American societies. This is in contrast, however, with the results as found in the Observatory’s study, showing that the highest involvement was found in Northern countries such as Finland, Denmark, Iceland and Norway. The lowest percentages of involvement were found in lower welfare countries such as Spain and Greece. Here, different public welfare traditions, the differing role businesses are attributed in society and different cultures were proposed as possible explanations (Observatory of European SMEs, 2002).
However, except for a few exceptions, higher SBSR levels are consistently associated with larger size in both parts of the world. Based on these findings, we conclude that it is not possible yet to determine how the socio-economic context influences the way smaller business take SBSR action.
4.6.3. Institutional environment The literature on SBSR is consistent on the peculiar institutional needs of small business on at least three aspects. First, small businesses want a government to set a ‘level playing field’ for all businesses with regard to SBSR issues and are sceptical towards selfregulatory mechanisms. Not only do they distrust the ethics of their peers (Tilley, 2000; Vitell et al., 2000; Ludevid Anglada, 2000), but they are also “vulnerably compliant” – compliance with the law is more good luck than good judgement (Petts et al., 1999). Such policies are, however, difficult to align with the emphasis that has been put on the voluntary nature of CSR (European Commission, 2001; EMSF, 2004). A second stream of literature has therefore suggested that any policy initiatives should be directed through existing channels that small businesses already know and trust (BITC, 2002; Grayson, 2003; EMSF, 2004; Castka, Balzarova, Bamber, & Sharp, 2004). Especially, the development of industry organization and small business supporting systems is critical in the level of socially responsible behaviour (Spence et al., 2000; de Bruijn & Lulofs, 2000). Finally, as was mentioned before, industry culture is a very important conditioning factor for SBSR. Industrial organizations therefore have a responsibility to create a sense of shared responsibility, joint institutions for collective responsibility taking and to steer “cowboys” to more SBSR behaviour (Spence et al., 2000;
Ludevid Anglada, 2000; de Bruijn & Lulofs, 2000).
We conclude that industrial and branch organizations, by providing the information channels and meeting fora that small business trust and by creating a shared responsibility
among peers, will be more important drivers for socially responsible action among small business than they will be among larger business.
4.7. Discussion and conclusion Although there is both anecdotal evidence and theoretical logic to argue that being a small business does not necessarily impede SBSR behaviour, we cannot ignore the compelling evidence in the studies by Vives et al. (2005) and the European Observatory of SMEs (2002) that there is a relationship between size and socially responsible behaviour.
What has become clear from our analysis is that the contradictory evidence does not negate the idiosyncratic difficulties of small businesses in taking their social responsibility, but it indicates that the size – SBSR relationship also depends on a large number of conditions.
Such a conclusion is important, as the result of our critical assessment helps to identify ways for small business owner-managers and their constituents to overcome the problems they encounter in the context of SBSR. We see at least four areas where this is possible.
The first and most important conclusion we draw is that most small business do not recognize specific social responsibility issues. More important than the practical barriers to engage in SBSR activities are the cognitive processes that forego such actions. If an issue is not recognized, than the likelihood of SBSR action is very low. The SBSR literature identifies both differing issue characteristics and limited cognitive capabilities as the most important antecedents of this low issue recognition. Our analysis has shown, however, that those ownermanagers who are able to increase their discretionary slack, absorptive capacity and their knowledge by engaging in networks and delegating responsibilities, are more likely to both recognize responsibility issues and ways to contribute in resolving them.
Second, the case for a culture of shared responsibility and the creation of institutions for joint responsibility taking is compelling. Not only does it increase the recognition of responsibility issues by giving small business owner-managers a sense that their contribution has a noticeable effect in the resolution of responsibility issues, but also provides opportunities for joint learning, risk sharing, overcoming scale disadvantages and getting access to resources.
Third, we have seen evidence that entrepreneurship itself is no guarantee for responsible behaviour. However, those small business owner-managers that have established intent to engage in SBSR activities will benefit from entrepreneurial features both in finding opportunities and engaging stakeholders.