Socially responsible practices in SMEs
A study investigated the awareness and practice of corporate social responsibility (CSR) among small and medium-sized enterprises (SMEs) in Hungary. The research found that product quality is the primary focus of responsible and ethical practices. However, it concluded that local stakeholders, competitors, customers or even family members often discourage owner-managers of SMEs from committing extra time, money and energy to CSR practices.
The tripartite National International Labour Organization Council of Hungary (Nemzeti ILO Tanács, NILO) commissioned research on the understanding and practice of corporate social responsibility (CSR) among small and medium-sized enterprises (SMEs) in Hungary. In the course of the study Corporate social responsibility at SMEs, carried out by a team of researchers from the Business Economics Institute at the Corvinus University of Budapest, semi-structured interviews were conducted with owner-managers of 20 socially responsible enterprises.
Awareness and practice of CSR
Based on the interviews, three of the 20 managers were sufficiently familiar with the notion of CSR to be able to define it accurately, and only in two cases did difficulties arise with regard to understanding the concept. In some instances, responsibility was interpreted as ‘paying taxes’ or ‘working successfully at the same place for the long term’.
CSR activities carried out by SMEs are not introduced suddenly, compared with those of large companies which are more inclined to follow a passing CSR ‘fashion’. Socially responsible SMEs usually carry out such activities from the outset, or these practices evolve in the course of their operation over time and in close connection with the owners and workers. The study found that the motivation behind CSR activities was, in most cases, internal and based on conscience or enlightened self-interest, rather than external pressure coming from stakeholders. Most of the activities are instinctive and sometimes ad hoc, often not planned or well thought-out in advance, in contrast to the CSR activities of large companies.
Features of socially responsible enterprises
Values underlying socially responsible activities
Since, in most cases, the owner and the manager of SMEs are the same person, enterprises are directly influenced by the personal values of the owners. The different views and values are formulated as the entrepreneur’s mission statement, which may embrace ideas such as ‘doing something better than others’, ‘building a lasting family business’ or ‘working together in a good atmosphere, for a decent salary’. Other ambitions have a more transcendental nature, such as the ‘hope that it will be better for the next generation’, ‘belief in the spread of ethical behaviour in business’, or ‘placing fair play before business interests’. Some statements reveal more interest in people than business; for instance, one of the interviewees declared: ‘The activity of our company is not the target, only a tool to improve people’s lives.’
Whether something is acceptable for the enterprise is often decided on the basis of moral values. A total of eight out of the 20 companies were named after the family name of the owner, which guarantees that their name underlines their activities. Such businesses are often run by several successive generations; thus, risking the company’s reputation also implies damaging the reputation of relatives and ancestors.
Relationship with employees
In the interviews, the owner-managers often referred to their employees as being ‘the key to success’, and the quality of the workforce was considered an important factor in achieving success. In the majority of companies surveyed, employees are involved in the decision-making process and they prefer working for their employer than for other companies where, they believe, employers care to a lesser extent about employees. The relationship between colleagues in socially responsible enterprises is characterised by friendship and references to family arose several times, either in a real or metaphorical sense. Reciprocity is also an important feature of relationships within such enterprises: the employer considers employee initiatives.
When asked about expectations, employers listed more attributes than employees did; thus, they seem to expect more from their employees than vice versa, despite the fact that many of the employers conduct formal or informal surveys among workers.
|Owner-managers’ expectations of employees||Employees’ expectations of owner-manager|
|Loyalty, full commitment||Stability|
|Efficiency, speed, high quality||Friendly environment|
|Committing free time to completing a project before a deadline||Good colleagues and manager|
|Ambition, commitment, enthusiasm||Good job|
|Good communication skills||Good salary|
|Modesty, discipline, endurance, cheerfulness|
|Working for success|
The issue of pay was emphasised in most of the interviews. Employees working in socially responsible enterprises seem to be satisfied with their wages, while employers strive to provide decent salaries and payment on time for their employees. Other benefits are also offered, the provision of which may require additional effort on the part of the employer, even if they are prescribed by law – such as a medical examination once a year or paid leave.
Focus on natural environment
According to the 2007 Accountability Rating for Hungary, which measures the extent to which companies have built responsible practices into the way they do business, those enterprises which see pollution as a challenge will focus on environment in their CSR reports. One of the reasons behind this conclusion is the composition of the sample: it comprised companies which were recommended by civil organisations, which appeared in sustainability reports or which were awarded for activities in environmental protection. Environmental awareness was measured as follows:
- by recognising environmental risks and health risks to employees;
- by taking action on a daily basis at corporate level to reduce pollution;
- by contributing to environmental protection, such as investment in renovating public parks adjoining the company site, recycling or revitalising rundown industrial areas.
A number of good practices were found for all forms of awareness in this regard. In some cases, companies stopped manufacturing products which were not environmentally friendly or invested heavily in reducing environmental risks.
Support for local organisations
All of the companies in the sample provided some kind of support to local civil organisations, schools or medical institutions. Most of the owners are contacted with requests for support every week. They usually visit the applicant organisations and make a decision about which one to support based on their impressions during the visit. Financial aid and support activities are not governed by a strategy, but ‘are carried out according to the actual needs’. Donations theoretically play an important role in local development; however, apart from the fact that SME owners are local citizens, most of them did not seem to have any particular connection with the local community.
Contact with customers and suppliers
Owner-managers maintain contact with their customers, but have not given special attention to this relationship. They have a stable customer base and clients rarely put pressure on the companies. The relationship with suppliers is also stable, decent and sometimes friendly. Contrary to international experience, where joint innovation projects with suppliers and customer are not unusual, no such initiative was found.
All of the owner-managers in the sample involve experts when deciding about important issues, although they make the final decision alone. When they consult stakeholders or the ‘collective opinion’, it is for both moral and practical reasons. Supporting a family background was also considered important when managers face tough decisions; rationality and a measured strategy are a further driving force.
Besides the positive experiences, some negative circumstances also emerged. While most of the respondents support responsible behaviour, many of their competitors, local stakeholders or even family members express their disapproval of this strategy. This opposition can lead to conflict. Acting responsibly requires considerable extra time, attention and effort, as well as increased financial costs and some personal involvement. The financial costs include paying the due taxes and contributions, providing more benefits for employees and making donations. Resistance from peer groups often demands additional motivation from the entrepreneur; one manager admitted: ‘In this country, some people out there are proud of cheating. They detest me for not following their example.’ Sometimes, even the family of the entrepreneur is against philanthropic acts and giving away money rather than spending it on new goods for the family.
All of the owner-managers rejected the often-heard view that socially responsible business faces a competitive disadvantage. They acknowledged that some minor losses arise as a result of running a socially responsible enterprise, but considered it worthwhile in the long term. Overall, the research results highlight that SMEs can adopt CSR tools and that the concept is already partly embedded in the local system and processes in Hungary.
Attila Petheő, György Pataki and Réka Matolay, Corvinus University of Budapest