Enterprise Social Responsibility – Why Should SMEs Adopt It?


“A business that makes nothing but money is a poor business.” Henry Ford-the founder of Ford Motor Company

The term ‘Social responsibility’ has been traditionally linked with the private sector, primarily with multinational companies. The attempt was made by EU in October 2011, when it redefined corporate social responsibility as “the responsibility of enterprises for their impacts on society”, and encouraged enterprises to have a process in place to integrate social, environmental, ethical, human rights and consumer concerns into their business operations and core strategy in close cooperation with their stakeholders.

Now, if we talk in context of globalization, even SMEs need to position themselves in a global market by building partnerships with multinational companies or invite foreign investors, and considering that we all owe it back to the society where we take it from, Enterprise Social Responsibility is an inherent business practice. It is, rather, the way we should run our businesses. The definition proposed to represent the social responsibility of SMEs is the one communicated by the EU Commission in 2011, which is “Social responsibility is the responsibility of companies for their impact on society.”

The critics argue that ESR diverts SMEs from their basic economic role of businesses, while another school of thought considers this as nothing more than artificial window-dressing. Another argument is that ESR is more of an attempt to obstruct government’s role as a watchdog over influential corporations though there is no logical evidence to support all these criticisms. Numerous studies indicate that ESR doesn’t have any negative influence on stakeholders of a company, but rather it seems to have improved shareholder returns.

Any businessman would know that institutions exist for a purpose beyond itself. For example, a company cannot exist without workers and an educational institute cannot exist without students and faculties. If you want to grow and sustain in today’s competitive world, you need a society and individuals who can take advantage of your products and services. This cohesive coordination between an enterprise and its audience helps it generate a win/win situation and also pave way for success in near future. Various studies indicate that even though primary stakeholders such as employees, customers, and suppliers play an important role in company’s growth, company’s social engagement with secondary stakeholders in the community, and the capital that is generated through the social engagements are far more crucial to the survival of SMEs.

How ESR can help SMEs increase productivity?

There are numerous ways using which SMEs can increase their productivity. However, they all call for certain investment for generating long-term profits and knowledge base. These include:

· investing in developing the competency of their employees

· attaining economies of scale

· investing in innovation and technology

· implementing better business practices

If an organization follows the ways described here, they can surely help it raise productivity as all of these ways emphasize how people should be treated and managed to enhance workplace productivity and work culture. If people are appreciated and respected at workplace, they feel motivated that results in more productive workplace. A positive work environment boosts their morale and efficiency.

What stops SMEs from participating in ESR?

The studies also indicate that a majority of SMEs are interested in participating in ESR, but certain factors play an important role in its execution. For example, the allocation of budget for such expenses would normally depend on the economic performance of the business. Moreover, SMEs lack adequate resources, knowledge base, and experience to follow systematic ESR policies, which also act as hindrance to practicing ESR in an organic and sustainable way. This gap can be filled in by multinational enterprises as part of their own social responsibility. If multinational companies come forward to strengthen and build the capacity of their supplier SMEs, help them integrate social responsibility in their operations, and facilitate their compliance, the knowledge transfer can be quick and smooth. Thus, the need of the hour is that SMEs perceive ESR as a source of social capital and a good opportunity to grow in every direction.

Does ESR call for huge investment?

No. An SME owner doesn’t need to invest huge amount of money for practicing ESR. In reality, it is easier for SMEs to practice responsible business practices as they have fewer employees. As a result, it is easier for them to develop the desired corporate culture within the organization. Moreover, due to less formal and bureaucratic structure, they have a flexibility to embrace innovative ideas and tap new business opportunities in the market while successfully implementing ESR in their organizations.

In conclusion, by adopting ESR in their business SMEs can generate profits for both- the businesses as well as the community. However, for SMEs, the sustainability of their economic business performance is the governing factor for their engagement in ESR. The findings of the UNIDO survey published here indicate that SMEs perceive ESR differently as compared to their corporate counterparts, who are practicing CSR as a risk-reduction measure to demonstrate their ethical business practices for shareholders, and contribute towards CSR so as to build beneficial grounds for stakeholders and to safeguard their brand image. SMEs, on the other hand, perceive ESR as an ethical duty towards their employees and the larger community. However, to realize how ESR can be a ‘profitable business practice’ overtime SMEs first need to start contributing towards activities associated with ESR and gradually, they will understand how to conduct business ethically yet profitably while adhering to government regulations.