Small But Mighty Firms Make Proactive CSR Pay Off
Small businesses that proactively pursue CSR perform better than their penny-pinching peers.
Small businesses have unique strengths that enable them to pursue proactive corporate social responsibility (CSR). And those businesses that do proactively pursue CSR perform better than their penny-pinching peers – even in tough economic times.
The findings come from Nuttaneeya (Ann) Torugsa and Rob Hecker – both at the University of Tasmania – and Wayne O’Donohue from Griffith University. The researchers studied 171 small- and medium-sized enterprises (SMEs) in the machinery and equipment sector of Australia’s manufacturing industry.
The authors define “proactive CSR” as CSR that “goes the extra mile.” It captures the environmental, social, and economic investments companies make beyond those required by law or regulation. By lowering costs, improving product differentiation and increasing energy efficiency, proactive CSR generates tangible financial payoffs for those companies. Compare this to “reactive CSR,” which involves expending the minimum resources necessary to comply with regulations and does not typically generate financial payoffs for companies.
Previous research (most of it dedicated to large firms) reveals three capabilities predict a company’s ability to conduct proactive CSR:
According to survey responses, SMEs that conducted proactive CSR are more financially successful than SMEs that did not. Specifically, SMEs implementing proactive CSR reported possessing the three capabilities mentioned above and they reported being more financially successful.
The findings run counter to conventional wisdom, which assumes SMEs lack the expertise, spare capital and economies of scale necessary to invest in proactive CSR. But the findings do support the researcher’s theory that SMEs have unique characteristics that position them to pursue proactive CSR in other ways. These characteristics include:
- Better entrepreneurial alertness
- Simpler capital structures that improve efficiency and flexibility
- A spirit of innovation that allows agile responses to competitors
The findings prove SMEs are effective at capitalizing on their unique characteristics to overcome their size limitations.
The researchers developed their hypotheses using theories based on the “resource-based view” (RBV) of the firm. They collected their data using a questionnaire survey and analyzed the data using structural equation modelling. The survey relied on self-reporting, creating the possibility of bias. Future research in this area should examine how SMEs can develop the necessary capabilities for proactive CSR and whether the relationships and capabilities examined in this sector were applicable across other industries and markets.