“What do you mean by ‘Corporate Responsibility’?“ is a question I was recently asked in a conversation with a next-generation SME family business leader.
Given this person’s generation, the question came rather quite surprising to me, and startled me, to say the least. Could it possibly be that there is not even an intuitive understanding among the next generation of business owners and leaders?
Corporate Responsibility: Definition
So let’s tackle that question head on, by using a definition the UN Principles for Responsible Investment (UNPRI) habitually uses, and which is one of the few short yet formal definitions I have come across :
- Good corporate governance (CG) = encompasses good management practices and corporate decision-making, with an appropriate board structure and control mechanisms in place to promote this outcome.
- Good corporate responsibility (CR) = doing business ‘responsibly’, namely considering the impact of a company’s activities on its long-term performance prospects, its stakeholders and the environment in which it operates.
- For a longer, less fuzzy, more stringent version, please consult 1
And, just to ensure that this English terminology finds its equivalent in other (Western) languages, here a short list across the spectrum:
- Fr: Responsabilité des entreprises
- De: Unternehmensverantwortung or Firmenverantwortung
- It: responsabilità aziendale
- Es: responsabilidad corporativa or responsabilidad empresarial
- Pt: responsabilidade empresarial
Looking at the above, the wording, ‘corporate’ should actually be replaced by ‘organisational’, as the responsible business conduct – sine qua no – should (must!) also be exhibited by governments, public authorities, as well as any other formal, and even informal, organisation.
Corporate Responsibility: SME x Expectations x Assumptions
Let’s once more go back to the question I was originally asked: “What do you mean by ’Corporate Responsibility’?” It is probeable, that the person asking the question had expectations and/or assumptions that led to the question.
Beyond the definition, the question clearly was aiming at hearing a list of examples, expectations … but mostly ‘ideas that would pay for itself’. As well as – and maybe more importantly – that would be low hanging fruits, i.e. easy to get done.
Because, as the refrain goes: SMEs do not have the resources or capacity to be truly responsible, because they are too small (to matter, or to have any resources at all) and in any case overburdened.
This is where I don’t share the view most have: Being a responsible company is not easier or more complicated for SMEs than for large scale corporates. It is just different.
- Big corporates have more cash at hand, occasionally more lever with the legislator and in their supply chains. But: they are big, complicated, slow to move, and a shark pool of politics.
- SMEs in contrast: small, not so big a lever … but typically with a lot of knowledge about their customers, their product requirements, they tend to me more nimble, closer to the market and their customers, and with the ability to have a locally relevant impact. They also tend to be extremely well connected within their own industry and in their local area.
In short, I don’t buy the story of SMEs being less capable of implementing responsible processes and attitudes. Actually, quite to the contrary. I truly, truly believe that SMEs are much better ‘in shape’ to do business responsibly than any of the biggies.
But indeed, there are couple of aspects where SMEs do differ fundamentally from the big corporations:
- Their dependence on their leadership’s commitment.
If the top leadership, often the company owners, do not jump onto the band waggon, the journey is over before it started. Or as the proverb goes: ‘The fish starts to rot from the head’, and this is particularly true for SMEs. In bad, but of course(!) also in the good. - Their perception of and ability to absorb risk.
SMEs tend to be hugely risk aware a well as risk averse. They are generally speaking not comfortable at all in carving out a profile that significantly differs from that of their competitors (a bit yes, but please not too far out …). Risk is immediately associated with the spectre of bankruptcy. Much more so than for big corporates.
This is why corporate responsibility has such a difficult stance with SMEs:
- Societal pressure is limited because their radius of activity tends to be fairly local, and the immediate surroundings know them rather quite intimately ‘just as they are’. And in any case assume they are responsible, precisely because they are locally rooted.
- Mental overload: many SME business leaders are stretched to run their core business in a scalable (and occasionally organised) manner. The mental overload that as a consequence already exists does not invite to ‘further adventures’, or changes of any type.
- ‘We are already responsible’ attitude. Or worse: ‘we’re too small to matter’ attitude.
- The first is by definition not true: not a single business on this planet is already responsible. Else we would not run the economy we do run as a society.
- The second cannot be true, because 80%+ of all employment is created by the collective of SMEs. So is 80%+ of all the negative (and in the future: potentially positive impact) of companies.
What few are consciously aware of: Many SMEs are part of a larger corporate or organisational supply chain. Somewhere, somehow. It is undoubtable that these biggies, wanting to hedge their indirect upstream risk, will cascade their ‘problems’ to their smaller partners. In other words: they will through requirements ‘over the fence’ to their contracted supply chain partners. Which are – you guessed it – generally SMEs. And then what!?
Corporate Responsibility: The Reality x Practice
Let’s once more, for a third time, go back to the question I was originally asked: “What do you mean by’ Corporate Responsibility’?” And reflect on the hands on aspect SMEs have in mind. The How To behind the question.
Why should we be responsible and not ‘just normal’? Responsible to whom about what? How do you know a company is responsible? What does a responsible company do that an irresponsible company does not? And for many the most relevant, sometimes also the only, concern: What is our benefit (in cash currency)?
Let’s tackle one after the other:
- Why should we be responsible and not ‘just normal?
That is a decision you have to take. To be a company who just cares about itself and the profits, or to live values where the well-being of others, including the environment, is as pivotal as your profits. Personally I think there is just one way to go, because that aligned with the values I try to live by as a person. But clearly there could be other decisions …resulting in not giving a f* about anything else then the profits, bottom line, and growth of the company. - Responsible to whom, about what?
About What: See next point.
To whom: To all those that make a company possible at all. Employees, the environment and its natural resources, clients, suppliers, … and the community where they are located. - How do you know a company is responsible?
There is no simple question on this. In my experience: talk to the employees, the clients, the suppliers about what goes well, what goes badly, and how crisis are being managed. Then judge. There is no such thing as a check list. But if the different stakeholders agree that they are being cared for, treated with respect and have a say in all things concerning them …. a company probably is perceived as being responsible. - What does a responsible company do that an irresponsible company does not?
It ensures that it has as little negative impact, and as big a positive impact, as possible on its different stakeholders such as employees, the local community, clients, suppliers etc.
It even tried to make amends, or contribute to solve challenges, that others have created or that exist in society at large. - What is our benefit (in cash currency)?
This is not a straight forward answers. Because, like with efficiencies in production, the benefits may well not turn up where a change was implemented or the investment made. And like with innovation: there is a time gap to see the results.
But from research we know: Responsible companies tend to have for example less churn in their staff (hence: less hiring costs); or less issues with product quality (hence less write offs, and less waste) to just take 2 examples.
The last point is the most important one: Being a responsible company does reap benefits, but the 1:1 allocation to the costs of change management are not quite as straight forward as a CFO would like them to be.
Conclusion:
A responsible company is one that ethically and morally does its best to avoid negative impact on society and the environment, as well as equally doing its best to create as much positive impact on society at large and the environment as possible. And because ethics and morals are a very value-based decision criteria … it is clear why ‘’Corporate Responsibility’ is such a difficult topic. Because, after all, ethics, morals and responsibility cannot be outsourced. And if you own, or even just work, for a company, be it an SME or a big corporate, you can’t just disassociate yourself from the company’s ethics, morals or responsibility. Because after all the saying goes for good reason: fly with the crows, get shot with the crows.
The somewhat less fuzzy, but also much longer version stems from the German Wikipedia page
(while English version still officially requires a lot of extra work):
What internationally and in management theory usually is referred to as corporate responsibility [Unternehmens oder Firmenverantwortung in German] is what a company is or should be responsible for towards its stakeholders and the natural environment. It depends on the ability to make decisions and influence others. The greater a company’s ability to act or the greater its impact, the greater its responsibility. Therefore, corporate responsibility is particularly relevant in a capitalist or market economy system in which companies play a key role.
On the one hand, corporate responsibility refers to specific events from the past or present: whether a company has acted or is acting responsibly. On the other hand, it refers to ideas and attributions that point to the future: how a company should act responsibly.
Like any responsibility, corporate responsibility can be divided analytically into four areas:
– Actor: the company as the bearer or subject of responsibility;
– Impacted: employees, consumers and other stakeholders as well as the natural environment as objects of responsibility (to whom or for what the company is responsible);
– Rules: certain criteria – for example laws, codes of conduct or standards – on the basis of which responsibility is defined;
– Authorities: certain bodies – for example courts, associations and the media – that judge whether an action or omission was responsible or what constitutes responsible behaviour. ↩︎
