Small Business Social Responsibility

Global Perspectives on Small Business Social Responsibility

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Governance frameworks for socially and environmentally responsible SMEs

Date: 19 November 2014

Venue: offices of the Association of Chartered Certified Accountants (ACCA), London

The programme for the day can be found here.

PowerPoint slides from the day can be found here.

This ESRC seminar took place at the headquarter of the Association of Chartered Certified Accountants (ACCA), and the event was very actively supported by Emmanouil Schizas, ACCA’s Acting Head of Small Business Policy.

 The rationale of this seminar was based on the underlying observation that the academic literature has failed to develop substantive theory and has neglected policy implications with regards to the role of appropriate governance frameworks for encouraging socially responsible behaviour among emerging and developing country SMEs. ACCA members around the world, including SMEs, have considerable interest in corporate governance (CG) and hence much of our discussion was about the link between CG and CSR.

 We learned about the inevitable diversity of CG practices. On the one hand, the context of CG can differ enormously, for example, in terms of CG regulation between different emerging markets. On the other hand, CG concerns of SMEs can be hugely diverse, for example, between listed firms and family-owned unlisted firms. In this regard, it was not surprising to learn that the importance of good CG practices is more compelling for medium-sized firms (defined by the World Bank as below 300 employees or US$ 15 million annual turnover) than small-sized firms (defined as below 50 employees or US$ 3 million turnover). The diversity calls for greater than usual differentiation in terms of training and tailoring of advice regarding governance structures for SMEs, just as we require much more academic research to understand what contextual factors matter to SMEs and under what circumstances.

 The presenters discussed various impediments to integrating CSR concerns in CG, including corruption (as SMEs in developing economies can get stuck in a corruption trap) and the practical lack of internal resources (as SMEs in developing economies may lack financial resources, qualified staff or even the basic understanding of the role of the board). Despite these challenges, it was agreed that SMEs would benefit from CG, as corporate boards demonstrably lead to effective management and there is an arguably virtuous flow of CSR and the argument was made that established CG mechanisms demonstrate to stakeholders that the company is committed to good governance, although these connections are not necessarily yet clear from existing research.

 Some important points were made about the relative hard measures of CG versus softer aspects of CSR. While there is convergence between the two it might be that it is CSR that is more important for SMEs in developing economies, especially with their strong community links and ‘local social gaze’. Given the importance of community-related issues, another possible developing economy perspective might be the focus on foundations as a social responsible arm of the business. In all of these discussions, we need to consider the merits of regulation, as well as compliance versus culture in terms of CG in developing economies.

 The seminar was packed with insights and in-depth discussions, as can be seen from the link to the Powerpoint slides above, but a half-day event did not allow us to raise every single relevant issue. We recognised that the discussion on governance mechanisms could be much broadened beyond CG. Governance can include issues ranging from wider societal governance (how wider governance including the role of government influences socially responsible practices) to specific family governance (how the structuring of family relations influences socially responsible practices in family-owned firms). We hope that some of these topics will be further explored in our Handbook of Small Business Social Responsibility.

Kiril Nejkov from the World Bank speaking (small size)

Kiril Nejkov from the World Bank speaking

Tracy Gordon from Deloitte speaking (small size)

Tracy Gordon from Deloitte speaking