The social responsibility movement is killing of the SMV

Small and medium size companies or SMVs have been forgotten in our increased efforts to pressure companies to become more responsible. A few days ago I discussed with a local carpenter I know about how social responsibility is changing the way we are doing business and not least how business relates to society. He was not unreceptive to the ideas and recognized that business do potentially have a great impact on both social and economic factors. However, he did have some questions that I found difficult to answer directly through the mainstream CSR thinking.

1. As a small business he was unable to meet the new criteria that the state and municipalities put forward in order to get contacts. In “our” strive to force business to become more responsible we are at the same time killing of the small and medium size companies ability to bid for the most lucrative contracts. In Denmark there is about 305’000 companies (yes, it’s true. Out of a population of 5,5 million) of these are 1100 or 0,36% required by law to have a CSR policy. All though this is a very small percentage of the total number of businesses are the requirements for SMVs to document their ethical behavior in a wide range of areas on the increase. For example, if you want to be shortlisted to bid on government contract through the state purchasing central (SKI) you will have to document your performance in a wide of areas. In the final evaluation 10-20% weight or points will be given to the environmental impact that the business can document to have. Most small business do not have a elaborate environmental management system that will tell them what their impact is so for most small companies this area will be left blank or inadequate filled out. This has the effect that they will not be given points for the questions, or as SKI puts it:“If the questions are not answered or inadequately answered, and the requested documentation is not produced, the contracting authorities are entitled – and may be obliged – to disregard the tender in question.”
2. If you want to bid on big contracts anywhere, you need to have excellent computer skills. The time where big companies took up the phonebook and called the local electrician is over. Now local craftsmen will have to make bids, be short listed and document behavior on a wide range of areas before they let you in the door. For many small businesses this is just too much work so most contracts will go to medium or big size contractors. One of the reasons why they became craftsmen in the first place was because they did not want to sit in an office and fill out endless forms, but now they are forced to if they want to have any business at all.
3. The majority of SMV actually has a great social impact in their local community. In the old days if one of the youngsters came into trouble you took him to the mechanic or blacksmith around the corner and asked if they could help out with the youngsters “surplus” energy. This is still the case today but it’s not recognized as CSR actually it is not given any merit at all. When one look at the amount of training places there is in big companies compared to SMVs it is mind bobbling. Most big companies just don’t take trouble youth at all they rather have them out of the local technical school so that their costs for education can be deducted on their tax bill.
4. Most ethnic minorities have problems getting into the mainstream jobs so for many first and second generation immigrants the only option is to create their own business. These businesses support and create the foundation for future citizens that will bring new ideas and innovation to the societies that they are part of. The impact of immigration cannot be underestimated just look at the US, Australia and New Zeeland that are build upon immigrants wanting and striving to achieve a better future for themselves and their families.      
5. Small business presents a opportunity for women that would otherwise be out of the job market to get a foothold. Many new businesses are within e-business is started by women as it they can be managed from the home and in most cases does not require a lot of warehouse space (at least in the initial phase). If women choose to take full advantage of the opportunity for parental leave there is a relative high likelihood that they will lose their connection with their old place of work and in some cases they want to change their working patterns. Small business gives women a opportunity to be their own boss, planning and managing their own time. These are opportunities that big business does not offer, even with the best of work/life balance plans out there. 
6. Investment in small business has shown to have a significant local impact. Micro investments like the once done by Grameen bank have shown that investing/lending in “bottom of the pyramid” business ventures can have a very good return. Actually it has shown to be better than lending money to mainstream businesses because of the diversification of risk and that investments are done with survival in mind and not fluffy business ideas and fancy spreadsheets. Today one can as a private investor put money in microloans through websites like MyC4 and Kiva. 

With this in mind do big companies still have a obligation towards society? Of cause they do but in our euphoria to create a better world we should not forget that there are others out there that really do a difference and whose impact is many times bigger in total than all the biggest multinationals combined. It is like the question of what weights the most all the elephants of the world or all the ants? And the answer is, as you might know, the ants. They might be small but their sheer numbers combined make them weigh so much that they outperform all the elephants combined.

Capitalism and CSR

I just read an interesting paper by Wayne Visser. He criticizes what he believes is the failure of CSR, or what he names as CSR 1.0 as it current is being practiced. He makes the comparison between CSR and the developments within the internet moving from Web 1.0 to Web 2.0. He believes that there should be five guiding principles for a new form of CSR namely: Creativity (Sustainable Business innovation), Scalability (The ability to transfer individual experience into a systematic approach), Responsiveness (meeting the needs of the community), Glocality (a rewrite of being global but acting local) and Circularity (A cradle to cradle approach)  

His article looks into some of the key areas of CSR and comes up with a DNA model for responsible business. His key point is that companies of the future that practices CSR, or CSR 2.0 as he put it, will have to include four basic “codes” into all aspects of their business. These building blocks are Value Creation, Good Governance, Societal Contribution and Environmental Integrity.

I must admit I like the approach that Visser present. Especially one point, which he includes and I think that many CSR professionals tend to miss in their argumentation, is that companies have to make a profit in order to be able to contribute the society. While Visser thinks that “our modern capitalist system is faulty at its core” and points out that it is basically a limitless system dedicated to endless consumption of our global resources. He argues that Adam Smith and his “invisible hand” were wrong and that the resource consumption of capitalism should somehow be controlled. His basic argument is that nothing lasts forever and if business continues to exploit the resources of the earth we will all suffer.

As a firm believer in both CSR and in Capitalism (faulty as they both seem to be) I have to say a few words on behalf of our current economic system.

First, capitalism is not the perfect system assuming that one’s goal is that we should have a perfect harmonious world. Actually it has disharmony as one of its central points as markets strive in the vortex between demand from those who want and the ability of business to produce in order to meet that want.

When business operates it will always try to produce at the lowest cost possible at the right quality in a timely manner. This is because we as consumers wants to buy quality at the cheapest price available and that the owners wants as much out of their investment as possible. In a globalised world we are able to produce our products in one end of the world and sell on the local market in another, at a fraction of the price it would take produce the same thing locally.

In theory all should be happy, we as consumers (because we can afford the product), workers in the developing world (because they have jobs), Society (because we all pay tax and contribute to local community) and the environment (as we disperse a possible impact).

However, we are not as happy as we could be. Because consumers lose their jobs when their place of work is moved, as the working conditions in the developing world is far from what we have come to expect, as corruption and tax schemes tend to eat up all the potential benefits that having big business do investments should come with and because there is no effective local government to enforce en environment standards. And of cause because there are evil people who are willing to make others suffer in-order to make a buck.

But as flawed as it might be it seems to be the only system that we as humans are able to make work.

Secondly, Because of these tensions in the capitalist system and the access to information that have become available through the web about the impact of global business we have invented CSR. Or rather business has invented CSR, as it is not a system that governments have promoted, actually quite to the contrary actually. Think of strategic philanthropy and how giving company products to schoolchildren. Think about the controversy this raised among the public. So, why should capitalist endorse CSR? Well they already do because they want what every business desire namely growth, prosperity and market share, and in order to do so they need to manage risk, reduces costs, be ethical, retain and attract employees, manage their stakeholder relationships, have a positive brand, innovate and learn, and not least understand their business even better than it does today.

In this context is CSR a tool that business can use to be ahead in the future. Visser claims that business thinks short term, but I do not think that this is necessarily true. What I do think is that shareholders (e.g. us, through pension funds, bank connections, unions etc.) think short term and “we” pressure companies to do the same.

Third, should we leave the market alone? No of cause not, we need to manage capitalism and we need to have some form of business control and transparency. There are plenty examples that evil and corrupt people can do real harm to the world. Just think of Enron, Lehman brothers, Arthur Andersen, etc. and one can easily se that no control is REALLY a bad thing. So systems of control need to be put in place so that the biggest impacts of global capitalism can be mediated. These systems are being formulated as hyper norms or institutionalized norms through organizations like the OECD, UN, EU etc. where politicians and professionals alike find out and not least learn how capitalism can be gently pushed in the right direction for all of us.

One last note for you to think about as one put more and more on the shoulders of companies around the world. We shouldn’t leave it to business to solve the problems that governments can’t seem to agree to solve themselves. COP 15 and for that matter COP16 showed that politicians are unable and to a large extend unwilling to solve the issues that we are all becoming victims of.