Business today is called to consider sustainability or corporate social responsibility. Is this call meaningful or relevant to SMEs? Using the taxonomy of Garriga and Mele the literature on the broad spectrum of work related to sustainability and CSR is reviewed to develop a framework for SMEs, structured around the simple concepts of why, when, what, how and where. Further work with the framework will answer two questions; the circumstances of how SMEs engage in sustainability and what are the unique aspects of this sustainability for SMEs.
Over recent times there has been a growing demand for business to consider corporate sustainability. Most large public companies are engaging with the concept in some way as evidenced by the production of Sustainability or Corporate Social Responsibility Reports (Bartells, 2008). Small and medium sized businesses (SMEs) are less likely to be engaged and some would argue they are not even sure what the concept means or whether it is relevant (Redmond, Walker, & Wang, 2008; Spence, Jeurissen, & Rutherfoord, 2000; Vives, 2006).
There is a large body of literature on the aligned concepts of sustainability, corporate social responsibility, corporate social performance, global responsibility and corporate citizenship, with a variety of perspectives, definitions and assumptions. There is no integrated theory or framework broadly adopted by scholars and in fact there have been only a few attempts at this (Garriga & Melé, 2004; Jones, 1983; Montiel, 2008; Wood, 1991). Within the SME literature there have been calls for research to develop a theoretical framework to understand CSR and SME’s (Jenkins, 2006; Thompson & Smith, 1991).
Whilst there is a growing body of literature focused on SMEs it is often merely descriptive and uses a single theoretical lens. A broader model encompassing a wider range of theoretical perspectives may have more utility. The utility and practicability of the framework as a tool for small business will be tested as part of a lager project to develop, from case study research and the literature, a useful integrative framework, to assist SMEs to engage with sustainability in the most appropriate and relevant way for their business. The normative approach frequently used in studies of large organisations whilst ideal may not be the most pertinent to SMEs.
This paper aims to develop a practical theoretical framework unifying the spectrum of theoretical and empirical approaches and focussing in particular on the needs of SMEs. The paper starts with an outline of the concept of sustainability and a review of the unique aspects of SMEs. It then moves into a review of the literature using a taxonomy based on Garriga (Garriga & Melé, 2004), considering both theory development and empirical studies. From this the most relevant elements are drawn together to develop a number of propositions regarding both the circumstances of how SMEs engage in sustainability and what are the unique aspects of this sustainability for SMEs. To add to the practicality of the framework it will be structured around 5 dimensions; Why, when, what, where and how?
At the outset a normative definition with regard to sustainability is required to anchor this work. Corporate sustainability is an umbrella concept (Gond & Crane, 2008) which integrates the social, environmental and economic dimensions into business operation. Within these three categories, there are a range of elements which are comprehensively detailed in the Global Reporting Initiative (GRI, 2006). Corporate Social Responsibility (CSR) is often used interchangeably with sustainability in the business world and large companies may have either a CSR or sustainability report with little notion of the long theoretical tradition behind each of the terms. In the academic literature there are quite different origins of the two.
It is worth digressing to briefly explore the history and overlaps of the terms. CSR as defined by Carroll encompassed four elements, economic, ethical, legal and philanthropic (Carroll, 1979). This was later refined to three with philanthropic being incorporated into the economic or ethical space depending on the logic (Schwartz & Carroll, 2003). Until Wood’s work in 1991 there was no mention of the natural environment within the CSR literature (Wood, 1991).
In parallel, during the late 80’s ecological modernisation implored business to consider its environmental impact and look for solutions to environmental problems (Mol & Sonnenfeld, 2000). Also in the 80’s, as a response to the UN movement on sustainable development, business or corporate sustainability was developed, focusing not only on profit, but on the social and environmental impacts of business. Thus there were three independent movements – CSR (predominantly social/ethical), ecological sustainability (predominantly environmental) and sustainability (economic, social and environmental). This differentiation still exists in scholarship. When one considers the divisions within the Academy of Management there exists both Social Issues in Management (SIM) the natural home of the CSR scholars and Organisation for the Natural Environment (ONE) the natural home of the environmentalists. Those who chose the sustainability path exist in both divisions and are not completely at home in either.
The concepts of CSR and sustainability are becoming closer. Some scholars now argue that environmental issues are an explicit subset of CSR (Agle, Mitchell, & Sonnenfeld, 1999; Waddock, 2008) . Montiel claims that both CSR and sustainability now include the economic, social and environmental elements, with sustainability more integrated and with different questions asked by researchers in each paradigm (Montiel, 2008). The difficulty remains in the implicit versus explicit definitions. CSR literature often includes the environment implicitly. The risk is that what is implicit can be overlooked, and so CSR could exist without considering the environment, but in sustainability the environment is explicit, although not exclusive. Social and economic considerations are also explicit in sustainability. This is one reason sustainability is more appropriate then CSR as the focus this work.
There is another subtle difference between the two with CSR being more concerned with an ethical perspective, and a requirement that involvement must be voluntary and beyond any legal requirements. This last concept is not considered in sustainability. Research on CSR often reflects on individual activities tagging philanthropy and volunteering as evidence of CSR (Jenkins, 2006; Porter & Kramer, 2002) . Corporate sustainability is focused more on the long term and has no relative measure against any legal requirements. Two key concepts are clearly defined in sustainability and less explicit within the CSR literature, particularly earlier papers. These are upstream social impacts in the supply chain and the expanded concept of product stewardship. Product stewardship refers to the environmental or social impact of the product from raw material, through manufacture and its useful life to disposal impacts. The supply chain factors include the social impacts on employees and communities upstream in the supply chain. As a final clarification, sustainability in some work focuses only on the environmental case (Bansal & Roth, 2000; Tilley, 2000), however in this paper the term sustainability refers to the wholesome integration and consideration of the dimensions of economic performance and social and environmental impact into a business, and is very much aligned with the approach that has been described as Corporate Sustainable Development (Bansal, 2005).
In an ideal world sustainability is a normative concept with business understanding that it has a wider responsibility than simply an economic outcome and must consider its impact on the social and ecological environment it operates in now and for future generations. The major focus of the larger project, of which this paper forms a part, is to determine if this is real and meaningful for SMEs or if there is a more appropriate definition and framework for SMEs.
There are a few definitions of SMEs in the literature. For this exercise we will adopt a definition of businesses between 10 and 200 employees (the Australian Bureau of Statistics definition of SMEs). They tend to be owner operated. There is much evidence that SMEs are different to large firms and hence behave in different ways. Generally they are independent, multi-tasking and cash strapped (Jenkins, 2004; Williamson, Lynch-Wood, & Ramsay, 2006) more flexible and less formalised (Aragón-Correa, Hurtado-Torres, Sharma, & García-Morales, 2008; Lefebvre, Lefebvre, & Talbot, 2003), have a shortage of management skills (Luetkenhorst, 2004), are unlikely to use costly professional advice (Spence, Schmidpeter, & Habisch, 2003), and manage stakeholders with whom they have personal relationships (Jenkins, 2006). When the economy is tough SMEs have to focus on short term survival as they generally do not have the depth of resources of larger firms (Luetkenhorst, 2004).
This suggests a resource constraint in adopting new approaches to work wether focused on sustainability or strategic management. This is explicitly stated as an inhibitor for SMEs to adopt CSR (Kuhndt, Volker, & Herrndorf, 2004). A contrasting view suggests a shared vision, proactively driven by the founder, combined with the innovativeness and flexibility, will actually encourage adoption of better practices in SMEs and in the case of one study, better approaches to environmental management (Aragón-Correa et al., 2008).
There is a comprehensive body of work on SMEs and sustainability, which tends to show evidence of attention to some of the elements of sustainability within SMEs almost accidently (Lawrence, Collins, Pavlovich, & Arunachalam, 2006; Roberts, Lawson, & Nicholls, 2006), very little affiliation with CSR (Jenkins, 2006) or environmental impact (Petts, 2000; Redmond et al., 2008) and a general disengagement with sustainability (Vives, 2006). All papers argue the importance of looking at small business because of its aggregated size and impact and its difference to large business where a much more substantial body of work has been undertaken. In the review of the theoretical approaches relevant empirical or descriptive work from the SME literature will be considered.
There are a number of articles which detail the history of scholarly endeavours into CSR, sustainability and aligned concepts (Bansal, 2005; Carroll, 1999). Suffice to say that after 50 years no single theory or integrative framework exists which brings together the disparate views of corporate sustainability, stakeholder theory, natural capitalism, resource based views of the firm, corporate social responsibility, global responsibility, sustainable leadership and corporate citizenship, into a framework beneficial to business operators and not just academics. From an empirical approach, the Sustainable Leadership model of Avery developed using a grounded theory methodology (Avery, 2005), contains many elements from most of these theories as does Stubbs Sustainability Business Model (Stubbs & Cocklin, 2008) and will be reviewed later.
Garriga and Mele published a taxonomy of the CSR field in 2004 based on the work of Parsons who identifies four problems in any dynamic system; that of building and distributing resources; the economic aspect, that of allocating and prioritising resources; the political aspect, that of maintaining social relationships; the social aspect and that of ensuring actors display the right values; the ethical aspect. Using these dimensions, theories based on the prime organisational goal of wealth creation Garriga identifies as instrumental theories, those based on the responsible use of the social power of organisations are defined as political theories, those based on integrating social demands to satisfy today’s stakeholders are integrative theories and those based on normative values unbounded by time and environment, they term ethical theories. The authors add that most theories will have elements of all four aspects with a strong focus on one area, used as the basis for segmentation (Garriga & Melé, 2004).
A limitation of the review is that it focuses on predominantly American literature and ignores salient literature such as global responsibility (GR) developed in other geographies. Considering the context of the business system or the surrounding institutions (Luetkenhorst, 2004; Matten & Moon, 2008), focusing on a single geography gives the narrow focus of a single business system. A second limitation is that the theories considered are all firm centric and so papers that look at how external institutions can impact CSR activities are not considered. Finally the work does not include the literatures outside of the traditional CSR space so ecological modernisation and business sustainability are excluded. The following will include a review of the broader literature omitted from Garriga’s paper. The taxonomy chosen is relevant given the empirical evidence of its elements in the CSR activities and motivations of large companies (Whitehouse, 2006)
To develop an integrated framework for SMEs, this paper must cover off a broader range of literature which includes institutions that may impact on SMEs involvement with sustainability. With this and the limitations of the Garriga taxonomy in mind, expansion of the concept of political theories to look at external as well as firm centric theories is appropriate. This group will be called institutional theories after Powell and Di Maggio (DiMaggio & Powell, 1983).
In the following sections each of these four groups, ethical, instrumental, integrative and institutional is explored in more detail, considering the main theories within each group, any supporting empirical or SME research. Finally the most relevant questions and implications for SME’s are extracted to develop propositions which form the bones of the integrated framework.
Within this group are considered theories that are predominantly ethical – arguing that it is the responsibility of business to look beyond the financial bottom line to the wider context and impact of business on the societies in which it operates, in a relatively unbounded manner, because it is the right thing to do. All strategic management theories have some moral or ethical underpinning (Phillips, Freeman, & Wicks, 2003) however they are only included in this group when this is the primary focus of the theory. Under review will be CSR, normative stakeholder theory and global responsibility followed by a review of relevant empirical or SME work.
Corporate Social Responsibility in its original form was an ethical theory. Developed in the USA as early as the 1950’s it was unabashedly normative, “the social responsibility of business encompass the economic, legal, ethical and discretionary expectations that society has of organizations at a given point in time” (Carroll, 1979, p. 500).
The normative version of stakeholder theory is also ethical; “Stakeholder theory begins with the assumption that values are necessarily and explicitly a part of doing business” (Freeman, Wicks, & Parmar, 2004, p. 364). Normative stakeholder theory is differentiated from the applied or integrative use of stakeholder theory in that it generalises on which stakeholder interests should be considered and admonishes managers that these stakeholders must be considered in decision making (Phillips et al., 2003).
In the last few years a new “global responsibility” literature has developed in Europe. The concept has its origins in CSR however the new label is proposed on the basis there are greater pressures from technological progress and globalization, moving so fast, that neither ethics nor legal frameworks can keep up. Thus it is up to business owners to fill this ethical vacuum and develop a new business model based not on making profit but on making progress. De Woot states: “In a global economy the raison d’être of the firm is to ensure economic and technical progress that furthers human progress and facilitates the type of society we wish to have” (de Woot, 2005, p. 113). The corporation is viewed as a source of energy and creativity which has led to massive global development. DeWoot seeks to change the focus of this energy towards progress, not just profit, and to fill the gaps in global governance.
Global Responsibility supersedes CSR, claiming that both corporate and social are too narrow (Antal & Sobczak, 2004). Perez defines global responsibility in more detail, identifying responsibility for actions and their consequences in a global context which implies extensions to the societal, environmental and time dimensions in which we are used to operating. The responsibility is borne both by the organisation and its “social representatives”, with responsibility owed to shareholders, external authorities and other stakeholders (Perez, 2003). Beyond the strict definition of the words, the intent of both concepts is the same, for business to be motivated by more than the “single thought” (de Woot, 2005, p. 39) or profit motive and consider both a wider goal and a wider sphere of impact.
A number of authors identify two opposing models of company orientation aligning one with a firm response to the ethics of global responsibility or CSR and the other with a sole focus on profit. The former has been called the Rhineland model (Albert, 1992; Avery, 2005) and is expressed by Perez; “The manager considers that his mission, and that of the enterprises he manages, is a multiple one: he must of course be competitive – to do otherwise would be suicidal – but also, as far as possible, be attentive to his internal and external partners, think about the environment and future generations, in short be globally responsible”… (Perez, 2003, p. 82). The opposing perspective is the Anglo US model (Avery, 2005) and follows the ideology of the single thought (de Woot, 2005). It is this differentiation which leads to a contentious issue in the CSR literature. Much of the CSR literature talks about the need to go beyond legal requirements (Carroll, 1999) however once this is interpreted through the lens of the national business system it can be seen why this has come about. The lack of regulation in the American corporate context, to address other than financial imperatives, requires that if a company is considering its social impact it must go beyond compliance. In the European context many of these requirements are bound up in institutional aspects of the local business model. Matten and Moon refer to this as implicit and explicit CSR (Matten & Moon, 2008). This international context of the institutions, cultures and norms of the society in which firms are rooted needs to be considered in much of the discussion about CSR and sustainability, particularly when we talk of institutional literature.
Much of the work stemming from United Nations initiatives around sustainable development such as the Brundtland Report and the Global Compact also stem from an ethical perspective. The argument is about the rights of the worlds people’s and hence the dual obligation on business to maintain the ecological environment for the benefit of future generations and to be responsible for the social impacts on society today.
The common thread amongst the ethical arguments is that they are all focused on why these broader issues should be a responsibility of business. They do not venture into what or how: this will come from subsequent literature. There are relevant empirical studies which help to develop this “why” concept further – particularly for SMEs, which will now be reviewed.
Empirical work on ethical theories of sustainability, CSR or normative stakeholder theory is sparse (Berman, Phillips, & Wicks, 2006). No research investigating global responsibility and business could be found, although there are a number of descriptive case studies of business which are used to show evidence of a global responsibility approach (Antal & Sobczak, 2004; Zinkin, 2004). De Woot identifies that small business is unable to make the changes required alone – and this will only happen through their professional associations (de Woot, 2005).
Within the descriptive literature on SMEs and the adoption of CSR or sustainability there is considerable evidence that there is an ethical motive behind some business activities which could be considered a part of the CSR spectrum (Condon, 2004; Graafland, van de Ven, & Stoffele, 2003; Spence et al., 2003). Jamali’s work in Lebanon reached a conclusion that is typical of many studies: “there was a high level of convergence regarding a philanthropic conception of CSR that was characterized as an obligation parallel to the business rather than being integrated into it. All six SME managers (with no exception) equated CSR with philanthropy, which they considered as a necessary activity independent of mainstream business transactions.” (Jamali, Zanhour, & Keshishian, 2009, p. 364) This is not unlike the early view of CSR, where the key issue was philanthropy as an activity of the firm somewhat separate from the firm’s business.
Spence has looked deeply at the personal ethics of small business owners and how this impacts their business operation, to identify four orientations; profit maximisation, subsistence priority, enlightened self interest and social parity (Spence & Rutherford, 2001). This frame gives us some insight into the utility of ethical theories of CSR. For those who have a social orientation, ie those exhibiting enlightened self interest or social priority an ethical theory may have utility in further integration of sustainability into the business beyond mere CSR activities. For those with a profit maximisation focus, however ethical theories are unlikely to entice operators to be involved. Which begs the question – if ethical theories are only useful to those who are ethical then do they have any utility at all? And yet maybe they do and the focus needs to be to inculcate business to understand that if they claim to be ethical they need to take on De Woot’s call and use their energy to change the way their business operates and strategically incorporate the new paradigm into their daily operations. It may be that it is the inability to gain traction with ethical arguments that led truly committed individuals such as Elkington and Hawken to develop their work as instrumental theories and encourage business buy in this way.
In summary the research shows that for SMEs an ethical intent of the owner may lead to adoption of sustainability or at least elements of CSR. This will be considered further as propositions are developed to build the framework.
Within the taxonomy, instrumental theories are defined as those that argue that CSR can be adopted as a means to achieve an economic end. In other contexts they are termed the Business Case (Dyllick & Hockerts, 2002; Epstein & Roy, 2003). Garriga includes Friedmans’ shareholder maximisation theory, the work of Porter on social investments in a competitive context, Prahlad on the bottom of the pyramid, Hart’s natural resource view of the firm, and work on cause related marketing. To this can be added Natural Capitalism and the triple bottom line.
Hart’s Natural Resource Based view seeks to engage business to maintain and protect the environment by exhorting a firm to consider a wider view of the resources available to it, and extend from the traditional consideration of capital and labour as the only constrained resources to include the natural resources it uses. In particular it asks a firm to consider pollution prevention, product stewardship and sustainable development. The theory is instrumental because it argues that over time the adoption of this strategy will lead to competitive advantage, which in the current business paradigm equates to more profit (Hart, 1995). The theory is extended to a model for how to integrate sustainability through the sustainable value framework – a somewhat integrative model – however clearly focussed on creating shareholder value, which may be a broader construct then profit alone (Hart & Milstein, 2003). One concept clearly articulated in this framework and absent in many others is that this is a strategic choice and should be part of the strategic decision making framework of the firm. Patagonia is held up as a company whose successful growth and green reputation is based on successfully integrating the elements of natural resource based theory into its strategy (Fowler & Hope, 2007).
Porter weighed in on the environment debate in the 90’s arguing that to be green would lead to long term competitive advantage albeit at a potential short term cost (Porter & Linde, 1995). This is very much an instrumental or profit oriented approach. He came late to consideration of CSR and unsurprisingly has also taken an instrumental approach. The profit motive is explicit in his comment; “The essential test that should guide CSR is not whether a cause is worthy but whether it presents an opportunity to create shared value – that is, a meaningful benefit for society that is also valuable to the business” (Porter & Kramer, 2006, p. 84).
Prahalad’s plea for multinationals to engage in developing products appropriate for, and taking their business to, developing countries, whilst altruistic, is again instrumental. The focus is that business can make money with the approach (Prahalad, 2002). Since this is a call to multinational corporations this is unlikely to be relevant for the SME framework, except potentially to the extent of product development.
The Triple Bottom line is another instrumental approach. Elkington comes from a personal conviction that the world must change (Elkington, 1999), with an argument that is not unlike DeWoot’s global responsibility argument. This is his personal motive for raising awareness. However in developing his theory and identifying the seven pillars of a sustainable future and thus calling others to action he relies on a business case and clearly states that the reason is not about ethics or religion (Elkington, 1999) He avoids the argument for a paradigm shift and reverts to a business case argument almost as if he were trying to seduce business to accept his ideas and unwittingly do the right thing by the environment.
The theory of Natural Capitalism has a similar thread. It is again easy to confuse the theory with the ethics of the creator. The four pillars are increased resource productivity, waste elimination through closed loop material circuits, an economic shift to a solutions based business model and investment in natural capital. However as the proponents states: “…that enable business to behave responsibly towards both nature and people while increasing profits, inspiring their workforce and gaining competitive advantage” (Lovins & Lovins, 2001, p. 99). They are profit focused and thus instrumental and move from the “what” typical of most instrumental theories and extend it in to a “how” which we typically see in Garriga’s integrative theories.
As a generalisation instrumental theories tell us what to look at to achieve competitive advantage or profit. There is a focus on material usage, waste and physical resources (Hart, 1995; Lovins & Lovins, 2001), product stewardship (Hart & Milstein, 2003), symbiotic partnerships (Elkington, 1999), relevant social issues (Porter & Kramer, 2006) and on marketing and business models (Elkington, 1999; Lovins & Lovins, 2001). From a theoretical perspective we now have why, what and a little on how. The following paragraphs review the empirical work on SMEs and instrumental theory to further inform the framework.
There is significant empirical work testing the validity of the business case argument. Orlitzky’s meta-analysis of this body of work shows that there is a correlation between corporate social performance and corporate financial performance (Orlitzky, Schmidt, & Rynes, 2003). This finding gives an additional utility to this group of theories – for the profit motivated adopting the new ethics of CSR or sustainability makes a contribution to profit so we have a why as well as a what. Ethicists however take issue and question whether the ends – adoption of CSR – justify the means – taking it on because it adds to profit (Gond, Palazzo, & Basu, 2009).
Within the SME literature there is a strong case argued that contribution to profit is critical and when this can be demonstrated practices which form part of the sustainability agenda may be adopted (Castka, Balzarova, Bamber, & Sharp, 2004; Williamson et al., 2006). Studies show that cost savings and competitive advantage can be gained from attention to the environment (Aragón-Correa et al., 2008), successful implementation of eco-efficiency and environmental policies was motivated by a business case (Côté, Booth, & Louis, 2006; Kerr, 2006, p. 34) and application of Harts strategies are directly applicable to SMEs (Avram & Kühne, 2008).
When looking deeper into the literature for the items identified in the discussion of instrumental theories, ie material usage, waste and physical resources, symbiotic partnerships, relevant social issues and marketing and business models, it is only the clear business performance characteristics which resonate and are considered (Williamson et al., 2006). In considering the integrative framework it will be necessary to consider what elements identified should be considered given the limitations of SME resourcing.
Integrative models consider how social demands are integrated into a business. They do not have the scope of ethical theories and are bounded in the present – what social issues demand the attention of the business now. In Garriga’s taxonomy integrative theories include stakeholder management, corporate social performance, issues management and public responsibility. Dunphy’s pathways framework (Dunphy, Griffiths, & Benn, 2007) and Tilbury and Wortman’s organisation development methodology (Tilbury & Wortman, 2004) are added into this class. Integrative theories developed because an ethical notion of CSR is holistic and does not help the manager in determining the granularity of what issues to address and how to address them. In developing the idea of CSR as a process, issues management, Jones states “Corporate managers do not advance by asking abstract questions but by making the pragmatic, specific decisions that confront them in the operation of their business.” (Jones, 1980, p. 60). Similarly in her 1991 paper, Wood develops a practical framework from the previous theoretical work on CSR and corporate social performance, integrating principles, process and outcomes (Wood, 1991).
Within the GR literature Thevenet also tries to develop an integrative form of global responsibility in an attempt for relevance. For GR to be effective he suggests business is responsible to expose and train managers, to develop personal reflection and maturity without which he claims ethical decisions cannot be made, “The key to global responsibility will be, at the end of the day, behavioural responsibility from people” (Thevenet, 2003, p. 124).
With a prima facie base in ethics the separation between integrative and ethical theories is ambiguous. The difficulty is that once the theory becomes integrative and focused on application, the origins become less significant and the same process can be used for different reasons. At the extreme is the work of Gond on the Mafia as an organisation which – on the surface – can be said to exhibit many CSR best practices yet is patently not an ethical organisation. Practices include; developing good relationships with the local community and stakeholders (albeit using standover tactics to do so), engaging in strategic philanthropy (with the means of engendering payback at a later time), or developing a business ethic program (the code of secrecy) (Gond et al., 2009).
Stakeholder management has developed in many directions since Freeman’s seminal work. Originally it was a model for developing strategy (Phillips et al., 2003). It has a normative or ethical core as discussed in ethical theories. The stakeholder literature has developed in two other directions; descriptive – empirical and instrumental (Donaldson & Preston, 1995). Instrumental work falls into the category of integrative theories focussed on developing implementation methodologies. In some cases there is not a normative approach (Johnson-Cramer & Berman, 2006) and in others “stakeholder theory finds its justification in a pragmatist approach to management theory” (Freeman et al., 2004) and is explicitly managerial (Donaldson & Preston, 1995). The theory of stakeholder salience (Mitchell, Agle, & Wood, 1997) gives useful guidance on how the interests of stakeholders should be integrated into a firm based on an assessment of the power, legitimacy and urgency of their claims and this may have some resonance to SMEs.
Another model to be added to this group is the Sustainability Phase model developed by Dunphy, Griffiths and Benn. This is also an integrative approach describing how business should generate change. The authors claim “The time to debate abstract theories is past; what we need now is to embed our theories in action and to engage in dialogue around working models” (Dunphy et al., 2007, p. 4). Action is the aim and the authors have little interest in why the corporation acts stating that the key drivers are both a business case and an ethical responsibility. This model is integrative because it is the integration which is central, not the reason why.
Maon develops an integrative framework for implementing CSR (Maon, Lindgreen, & Swaen, 2009). His framework, based on change management principles is integrative, not because of its title but because it aims to bring social issues into the firms’ consideration.
Stubbs Sustainable Business Model is an integrative model developed from the institutional base of ecological modernisation, which highlights key characteristics of this “new” business approach (Stubbs & Cocklin, 2008). An important aspect of this model is that it implicitly develops a strategic approach, which goes beyond a standalone CSR or sustainability strategy to incorporating the sustainability elements as both a lens through which to develop corporate strategy and a measure of the business outcomes of that strategy.
Avery through a case study approach has identified business characteristics or behaviours which contribute to sustainability; the sustainable leadership model (Avery, 2005). By modelling these behaviours she argues that leaders can make their organisations more sustainable. This can be seen as an integrative approach since it adds to the theory of how to integrate social issues.
Organisational development processes such as that proposed by Tilbury are also effective in integrating sustainability. They recommend the key behaviours of visioning, critical thinking and reflection, participative decision making, partnerships and systemic thinking as critical behaviours to get buy in from an organisation (Tilbury & Wortman, 2004)
The group of integrative theories has informed us on how to incorporate social issues into management. Thus we now have ethical theories describing ‘why’, instrumental theories describing ‘what’ and integrative theories describing ‘how’. This how, what and why is appropriate to an SME framework. In the next paragraphs empirical work on integrative theories will be reviewed to add further depth to the analysis.
There is a limited amount of empirical work on instrumental stakeholder theory and corporate social performance (Berman et al., 2006). The organisational development approach has been used successfully in large Australian organisations (Hunting & Tilbury, 2006). Both Avery’s and Dunphy’s model have been built from observation but have not been tested from a change management perspective and there may be lessons in this for SMEs
Stakeholder theory has informed some empirical research on SME’s. Jenkins has considered the variety of stakeholders and the risks to a business in an SME context to find that it is often only a single customer who is a significant stakeholder (Jenkins, 2004). She also argues that stakeholder relationships are based on “a more informal, trusting basis and characterised by intuitive and personal engagement with less of a gap between the relative power and influence of company and stakeholder” (Jenkins, 2006). Avram identifies a stakeholder approach for all business, including SMEs, called responsible business behaviour (Avram & Kühne, 2008). Similarly Kundht defines a stakeholder approach as relevant for SMEs to identify priorities for implementing “ad-hoc” CSR, aimed at realizing short term improvements (Kuhndt et al., 2004)
Given the resource constraints in SMEs some very simple implementation methodologies have been developed. Jenkins proposes a 4 step methodology; understanding CSR and translating this into business principles, focussing on appropriate activities, overcoming obstacles and reaping the benefits. Recognising it may be overly simplistic, she states the need for a more useful theoretical framework (Jenkins, 2006). Castka developed an implementation framework derived from a process-based management system. The approach adopts the tried and true quality system method of establish, manage, document and improve to ensure that stakeholder expectations are continually reviewed and transform the organisation as necessary (Castka et al., 2004).
At a more strategic level Kerr identified leadership characteristics for successful integration of sustainability; leaders committed to sustainability and continuous improvement, management systems focussed on environmental goal setting, specified functional approaches to ensure environmental focus across the business and a culture where continuous improvement of environment and social activities is as highly valued as improvement on financial initiatives (Kerr, 2006). Kerr’s approach is process based, highlighting continuous improvement, EMS systems and the alignment of functional roles to meet these goals. This is somewhat different to Avery’s sustainable leadership model (Avery, 2005). Whilst there is overlap in culture, innovation and environmental responsibility, elements such as the scope of the CEO role, the distance from financial markets, the way decisions are made and the nature of staff relationships are omitted in Kerr’s model and may well be less applicable to SMEs because of their size.
The empirical work gives some pointers as to “how” for SMEs in general; keep it simple but provide concrete guidelines. Having a why, what and how the institutional theories are now reviewed to see what they can add.
Garriga’s final group is the political theories which consider the responsible use of the firm’s power. As explained earlier this group is broadened in this paper to consider not just political but institutional theories. Institutional theory is often used in the discussion about the political nature of society and the interactions between the various actors with iso-morphism defined as the process by which institutions change and it may be either mimetic, coercive or normative (DiMaggio & Powell, 1983). Expanding this group allows us to bring in the work on the social licence of a firm, ecological modernisation (Mol & Sonnenfeld, 2000), the institution of environmental management (Stewart & Jones, 1999) and the more recent work from Europe looking at an institution of CSR (Bondy, 2009; Campbell, 2007) to gain insights into how isomorphic processes may impact the interaction of SMEs with sustainability.
The social licence literature infers that there is a quasi-contractual relationship between society and the firm. If society does not value the firms goods, or dislikes their activities, then the “social licence” of the firm can be revoked either directly, by a cessation of demand, or indirectly by using other institutions such as NGO’s and government to apply political pressure. The intent of this theory is that society is considering the current activities of the firm and so it should attend to its social stakeholders to keep them engaged and informed (van Marrewijk, 2003).
How institutions can impact CSR is explored by Campbell to develop a theoretical case for the circumstances under which organisations are likely to engage in a minimum level of CSR. The propositions developed consider not only the economic environment but the impact of institutional effects such as legislation, industry self regulation, active lobbying organisations, normative pressures and union or employee organisations (Campbell, 2007). When we consider SMEs these propositions will be considered in more detail.
There is strong evidence that an institution of CSR is developing (Bondy, 2009; Waddock, 2008) Typically it shows mimetic isomorphism with business being pressured by competitors and suppliers to copy the leaders in the field (Bondy, 2009). There is also evidence of an institution of environmental management which arises when certain conditions are met and enables sustainable solutions to environmental problems to be developed (Stewart & Jones, 1999). This may impact both the institution of CSR and the politics of sustainability, informing legislative reforms. This links to the argument that it is necessary to legislate environmental compliance so that all SMEs play in a market with a level playing field (Petts, 2000; Tilley, 2000).
The group of instrumental theories informs us of the wider context, the implications of the environment in which a business is operating or in a simpler form “where”. Along with the “why” from ethical theories, the “what” from instrumental theories and the “how” from integrative theories we are a long way towards our integrative framework. Once we have looked at the empirical research on institutional theories to glean further insights the last question will be considered and a detailed set of propositions developed to define the framework.
Networks and intermediaries are seen to have a large influence in this sector with business often relying on networks and external support. This is promoted by many as the way to increase engagement. Networks and trusted business partners are seen as the key channel in UK work (Castka et al., 2004; Roberts et al., 2006). There is a concern regarding the quality of support through the networks and a desire to ensure best practices are adopted (Hoevenagel & Wolters, 2000; Murillo & Lozano, 2006). Spence’s work also identifies compulsory membership of Chambers of Commerce correlates with a broader range of CSR activities (Spence et al., 2000). The network implications indicate empirical support for an institution of CSR within SMEs. There is some evidence that mimetic isomorphism is driving adoption (Jamali, 2009). This needs to be considered further as part of this framework development.
Some early work shows evidence that SMEs want legislation to drive environmental engagement (Petts, 2000; Tilley, 2000). Certainly the increased level of environmental responsiveness in the Netherlands compared to the UK is attributed in part to the comprehensive licensing and inspection system legislated in the Netherlands (Spence et al., 2000). Underlying this is a belief that supporting the environment will cost money, confirmed frequently as a barrier. SMEs believe that without legislation many will choose not to spend, and hence there is a perception that green companies will be disadvantaged in the market place. Yet we have seen above that it is business performance that has motivated many to participate. The impact of networks in transmitting best practice should be considered as part of the framework.
Lynch -Wood develops a five factor model for the social licence. The key elements are the environmental impact of the firm’s products, customer power, customer interest, corporate or band visibility and community pressure. He then argues that because of their very size these factors do not gain enough significance to be a driving force in motivating SME behaviour (Lynch-Wood & Williamson, 2007). Whilst this has not been tested empirically the case is strong enough to discount this stream from an integrated framework.
In summary we need to consider network impacts, isomorphism and legislation in the SME framework. We have an overview of why, what, how, where and the remaining element is when. The next section will review some additional literature which may give us this insight.
There are two papers worth mentioning that develop and test propositions using contrasting perspectives alongside the instrumental resource dependence approach. Berman et al consider the theoretical implications of the integrative stakeholder work alongside resource dependence (Berman et al., 2006) and Bansal reviews institutional approaches (Bansal, 2005).
In considering both resource dependence theory and stakeholder theory it was theorised that munificent environments discourage stakeholder performance, environments that are dynamic or complex or have a high level of managerial discretion, encourage stakeholder performance. Under testing however the only hypotheses strongly supported was that managerial discretion had a positive impact on stakeholder performance and also performance was positively correlated with size (Berman et al., 2006). If we extrapolate this finding to a SME environment where there is often little managerial discretion with a hands on CEO, and businesses are smaller it could be suggested that stakeholder performance will be poor, and in fact many of the empirical studies in the SME environment show this to be true (Bubna-Litic & De Leeuw, 1999; Jamali et al., 2009; Redmond et al., 2008).
Similarly Bansal tests the impact of institutional and resource based theories hypothesising that international experience, capital management, organisational slack, mimicry, fines and penalties, and media attention will all positively correlate with corporate sustainable development. Testing showed that only international experience, mimicry and media attention were significant variables. Like Berman et al size also correlated positively (Bansal, 2005)
By testing overlapping concepts his work has given us insights into “when” we are likely to see sustainability integrated into a business. Much of the descriptive studies on SMEs and sustainability or CSR also review “when” without necessarily using a particular theoretical lens. This gives us the view of the antecedents driving a business to integrate sustainability into its process or strategy. An example of this is McKeiver’s work which show that a higher education level, younger age and high awareness of the environment from the business owner positively correlates with EMS implementation supports this thesis (McKeiver & Gadenne, 2005).
This completes the literature review. In summary, the focus of the group of ethical theories is a call to action – why business should change, rather than how or what it should change. So the potential utility of ethical theories is in explaining “why”. Considering the instrumental theories with a focus on the business case the utility of the group seems to be about “what” to focus on rather than why. There is also a smaller element of how to go about introducing the concepts to a business. Integrative theories talk about how to incorporate social issues into management and so extending our utility concept further these give us “how” and a smaller element of what. The institutional literature takes a broader view of the external world whether it be the political interactions of the firm or the external institutions impacting on the firm. Looking at utility this group of work defines “where” the focus needs to be – what institutions are relevant in the external environment and finally the crossover literature and the descriptive research provide the last element which is “when” it is likely that SMEs will engage with CSR or sustainability.
An integrative framework for sustainability in SMEs
In this section the details around, why, what, how, when and where are integrated to inform the development of a framework which can then be tested through research.
From our ethical theories we have a strong moral case for all business to be engaged with sustainability. This should apply to SMEs. Also from the instrumental theories we have literature and research that shows that a business case or some sort of profit motive will also motivate engagement with sustainability in SMEs. The literature is inconclusive as to which has a greater impact or under what circumstances each may apply. This leads us to two propositions:
Proposition 1: SMEs will engage in sustainability because the CEO believes it is the “right” thing to do.
Proposition 2: SMEs will engage in sustainability because they believe there is a business benefit to doing so.
These propositions are not exclusive and there are 4 possible outcomes – both are true, both are false or one or other is true. Testing the propositions will give some insight into the motivations of firms involved in sustainability. Additionally mediators such as the demographics of the owner or the type of business may be identified which correlate with the outcome.
The most relevant work informing “when” is the institutional work of Campbell and the studies of Bansal and Berman et al. The three papers use different constructs; socially responsible behaviour, corporate social development and stakeholder performance respectively. The propositions of all three are reviewed in light of the characteristics of SMEs described earlier, to identify which may be applicable to SMEs.
Reviewing Campbell’s work, we can exclude his propositions 5 and 6 which link the likelihood of responsible behaviour to the presence of NGO’s, social movements, institutional investors and the media who can monitor and mobilise for change, and institutionalised normative call for good behaviour through business publications and business school curricula (Campbell, 2007). SMEs generally have neither the size nor the impact to be on the radar for these types of organisations and it is unlikely these drivers would be applicable. This is similar to the argument that the social license does not hold for SMEs (Lynch-Wood & Williamson, 2007).
The impact of financial resources is of interest. It seems that when times are tough business is less likely to be engaged in sustainability and this is likely to be true for SMEs as well. When there is excess cash will SMEs invest in sustainability or growth? Given the more short term survival identified one suspects that growth will take precedence and this needs to be tested.
Bansal links international experience, capital management, organisational slack and media attention as antecedents (Bansal, 2005). Considering SMEs none of these elements are likely to be seen – their very size will limit the international and capital management capabilities and any likelihood of media attention and from our discussion of resource constraints in SMEs it is unlikely there will be any organisational slack.
Berman et al find a link between stakeholder performance and high levels of managerial discretion and size (Berman et al., 2006). Both of these are counter to the SME world where the business are naturally quite small and as a consequence there are generally few middle managers and hence little managerial discretion.
Excluding these less relevant elements leads us with a set of propositions;
Proposition 3: SMEs are less likely to be engaged in sustainability when they are experiencing weak economic performance.
Proposition 4: When excess funds are available some SMEs will invest in sustainability where they believe it will lead to growth.
Proposition 5: SMEs in dynamic environments are more likely to be engaged in sustainability.
Proposition 6: SMEs are more likely to be engaged in sustainability when there are strong and well enforced regulations in place.
Proposition 7: SMEs are more likely to be engaged in sustainability if they are involved in trade associations which promote this type of activity.
Proposition 8: SMEs are more likely to be engaged in sustainability if other key players in their industry are.
Proposition 9: SMEs are more likely to be engaged in sustainability if they are engaged in institutionalised dialogue with stakeholders such as unions, employees and community groups.
The instrumental or business case theories inform “what” needs to be considered by an organization to achieve a better financial outcome through implementation of sustainability. Given the research which shows that a business cost reduction will drive them to act, some of these items are likely to be relevant to SMEs.
The literature shows us that for many SMEs CSR is little more than philanthropy and so Porter’s approach becomes more salient. SMEs do not generally undertake strategic planning well (Singh, Garg, & Deshmukh, 2008), so it is more likely that SMEs will engage in what Porter calls responsive CSR rather than strategic CSR (Porter & Kramer, 2006). In the proposition below this is reframed to a more general sustainability focus.
Proposition 10: SMEs are more likely to undertake Porter’s responsive philanthropy rather than strategic philanthropy.
As we noted earlier Natural Capitalism, Natural resource based views and some of Elkington’s work focus very much on impacts on the natural environment and seek attention to elements such as materials usage, waste reduction, energy usage, clean energy, life cycle implications, and sustainable development. The literature on the one hand argues that cost saving is a motivator (Côté et al., 2006; Williamson et al., 2006) and on the other that SMEs do not believe their impact on the environment is significant enough to warrant action (Perrini, 2006; Redmond et al., 2008; Spence et al., 2000; Vives, 2006). Propositions 6 and 8 above go some way to addressing the likelihood of involvement with these types of activities. However this is not enough. The proposed impact of this stream of work goes to more than just cost saving but to new products and new business models. Knowing the resource constraints of SMEs it is unlikely the strategic opportunity will be maximized. Yet given their innovativeness and flexibility new business models and unique products which may address Prahlad’s requests could be found. This suggests two propositions to explore in the framework.
Proposition 11: Leading edge SMEs will take a strategic approach to identifying opportunities for minimizing resource use.
Proposition 12: Leading edge SMEs will take a strategic approach to identifying business opportunities from sustainability.
Elkington also includes an increase in transparency with triple bottom line reporting, and a move to symbiotic partnerships (Elkington, 1999). SMEs often have no need to publish financial or other reports to the market. As small business they have a small element of statutory reporting but no other legal requirement. Will they then report on a triple bottom line when they are not even reporting on a single bottom line? There is evidence of a strong linkage between SMEs and community (Jenkins, 2006; Perrini, 2006; Spence et al., 2003) and a link between customers supply chain requirements driving engagement with sustainability (Biondi, Frey, & Iraldo, 2000; Kusyk & Lozano, 2007; McKeiver & Gadenne, 2005) and so it is possible that they may produce reports for customers, particularly if they are multinationals with a strong focus on code of conduct requirements on their suppliers. Propositions 13 and 14 address this.
Proposition 13: SMEs who are actively engaged in sustainability will produce some form of report for stakeholders.
This proposition also has a potential mediator of the type of customers the business has.
Proposition 14: SMEs with large customers strongly focused on reputation are more likely to produce sustainability reports.
Industrial symbiosis refers to partnerships in communities that go deeper than the standard customer supplier relationship. Kalundberg and Kwinana are two industrial communities based on the concept of symbiosis with wastes from some operations used as inputs to others. The goal is zero waste outside the system (Harris, 2007). Whilst there is a long term business case there is often considerable capital investment required which is likely to be out of reach of most SMEs.
There are many different approaches to the how in the integrative theories. Some such as Moan’s change management approach (Maon et al., 2009) and the sustainability phase model (Dunphy et al., 2007) appear to be specifically targeted at large business with a considerable resource requirement and an assumption that there is a large enterprise to be turned. Condensed versions of these tools could be in use. The agility of SMEs often makes change management much easier (Aragón-Correa et al., 2008) and so the change management approach may be overkill. The organisational development approach of Tilbury is quite a simple approach and may resonate with SMEs. Additionally the simplicity of Woods three processes of CSR; environmental assessment, stakeholder management and issues management (Wood, 1991) may guide SMEs. The proposition below addresses this with a view that exploratory research may uncover further depth as to what processes have been tried and proved effective.
Proposition 15: Simple process or organisational development approaches are more likely to be found in SMEs then complex change management or wave model adoptions.
Within the stakeholder frame there may be relevant approaches for SMEs. Stakeholder is a word that is widely understood in business so it is likely that SMEs understand the concept and identify key stakeholders. The process of identifying all stakeholders and their legitimacy, power and urgency should be relatively simple in a SME context, however it is unlikely that the concepts are widely known. Similarly guidelines such as the seven principles of stakeholder management (Mele, 2008) are complex and could confuse and disengage SMEs, which leads to:
Proposition 16: SMEs identify key stakeholders but do not undertake a rigorous assessment, more through a lack of knowledge than a lack of intent.
The sustainable business model (SBM) proposes that strategy is key: “A SBM draws on economic, environmental and social aspects of sustainability in defining an organizations purpose” (Stubbs & Cocklin, 2008, p. 121). This takes the integration to a new level and should be evident in SMEs with a strong ethic for sustainability.
Proposition 17: Those SMEs engaged in sustainability may be starting to consider economic, environmental and social aspects of sustainability in defining their purpose
The leadership models of Avery and Kerr also lead to propositions around engagement; innovation, a strong continuous improvement ethic and a focus on leading and developing people are likely to be evident in organisations with a sustainability focus which leads to:
Proposition 18: SMEs engaged in sustainability are likely to take on enabling behaviours such as; more emphasis on innovation, a strong continuous improvement ethic and a focus on leading and developing people.
The institutional theories tell us about the external world and how it facilitates change. Ecological modernization gives us a raft of transformations which will occur as the dynamics of business change to address the ecological state of the planet. The key items for SMEs would appear to be the key role of the market – and in this case the supply chain from larger customers, and finally the view that it is no longer legitimate to ignore the environment, in leading SMEs to a changed approach. These form the basis of a number of propositions.
Proposition 19: SMEs engaged in sustainability do so because of the market in the form of their customers are demanding it.
Proposition 20: SMEs maybe engaged in reducing their ecological footprint because they believe society expects it of them.
Proposition 21: SME’s may be reducing their environmental footprint as a byproduct of looking for operational efficiencies.
The institution of CSR is developing in a mimetic way with evidence that this applies to SMEs (Bondy, 2009; Jamali, 2009). The following proposition brings this into the framework.
Proposition 22: SMEs with competitors engaged in sustainability are more likely to be engaging themselves.
It could also be suggested that institutions such as the GRI, or supply chain impacts are providing normative isomorphic pressure. Whilst there is a GRI tool available for SMEs given earlier comments about SME reporting it is unlikely there will be much evidence of this. Supply chain may be an issue and may come out of the investigations into propositions 13 and 14.
These propositions give us a framework for the why, where, when, how and what of SME sustainability. Further research should be undertaken to test these hypothesis.
Using a taxonomy based on Garriga and Mele’s work, considering ethical, instrumental, integrative and institutional approaches a broad range of theories of CSR, sustainability and a host of allied concepts have been reviewed to develop an integrative framework for sustainability. Adding to this an interpretation based on the literature on SMEs in general and with a particular focus on CSR or sustainability a number of propositions have been developed to modify the frame work. These propositions give us the why, where, when, how and what of sustainability for SMEs. Conducting further research on this framework will answer two distinct questions, under what circumstances are SMEs engaging in sustainability, and if so what is the type of sustainability they are adopting.
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