Ethics in Small and Medium Sized Enterprises

Within the business ethics field, the presumption of the unit of analysis as a large firm has always been the norm. In recent years, however, recognition that this narrow approach is inappropriate has been rising. Journal special issues on the topic of smaller businesses and ethics can be found in both business, and ethics journals, but have been regional in perspective, with examples from the United States (Harris et al., 2009) and most consistently, Europe (Spence & Rutherfoord, 2003; Moore & Spence, 2006; Morsing & Perrini, 2009). Unfortunately, there is much less to report in terms of research on small and medium sized enterprises (SMEs) in developing countries.

In this paper, we explore the role ethics plays in African SMEs. We looked specifically at the role that relationships between SMEs and their stakeholders play in enabling or foreclosing the possibility of ethical business practices. We argue that certain relationships, such as those between SMEs, suppliers, employees and local communities, can be described as enabling. Other relationships, such as those with corrupt governments, are contaminating. What seems to be needed is to expand on and strengthen certain constraining relationships, such as those that exist between peers within a certain industry, professional associations, and civil society.

In this paper we outline the status quo of ethics and social responsibility in small and medium sized enterprises (SMEs) in the European Union (EU). Social issues and SMEs is an established topic of research and subject of policy-making in Europe, and thus in this paper we are able to draw on existing activities to summarise what we know about the topic. We describe the important position given to SMEs and entrepreneurship as drivers of the economy through job creation, social inclusion and issues such as employee health and welfare. We note that the ethics/social responsibility practices and strategies of SMEs tend to be greater than expected, but are informal and local community-based rather than replicating large firm approaches. To demonstrate the variety within Europe, we provide some nation-specific perspectives on social responsibility and SMEs with a closer look at Denmark, Italy, the UK and central and eastern Europe and the Baltic States.

The extant literature on CSR and ethics suggests that there is a need for a greater understanding about SMEs. The role of SMEs in the economic growth and development of emerging countries like India is significant. Given the geographical diversity of India and its high reliance on agriculture, MSMEs (medium, small and micro enterprises) are the lifeline of economic development and growth in future. However, the current state of knowledge and practice in the field of CSR and ethics in SMEs in the Indian context is limited. This paper attempts to outline the state of the SME sector in India, Ethics and CSR practices in MSMEs, and identify the knowledge gaps in the field of CSR and ethics in SMEs in India.

Considering the lack of substantive scientific or theoretical studies about ethics in small and medium sized enterprises (SMEs) in Latin America, this paper examines the context of an existent paradox, based upon the perspective of experts and academicians of Latin America and the Caribbean. These countries live different realities, due to their respective European cultural influences, as well as to racial and economic issues. Such facts impact the size and characteristics of their industries. On the other hand, the SMEs face more similarities in the region, so they will be treated as a group in the discussion of ethics and corporate social responsibility (CSR) in Latin American SMEs. As this topic has not been sufficiently investigated in this geographic area, the objective of this exploratory study is to offer a contribution for future research. It raises the main dilemmas and intends to explain how legislation and common practices enable and perhaps lead SMEs to choose unethical strategies to survive and compete in the market. These enterprises are growing in number and in job creation, but do not participate in the Gross National Product in the same proportion. Informality, tax evasion and corruption are gradually caused or erode morality in business, but can contribute to corporate social responsibility in the region. The paper tries to show positive and negative aspects of apparently unethical practices and discusses challenging ways to solve complex problems that are common in most Latin America.

There is a dearth of research on ethics and sustainability related to SMEs in New Zealand and Australia. This paper begins by giving a definition of SMEs in New Zealand and Australia, which both differ somewhat from international definitions. The role of SMEs in New Zealand and Australian society is discussed and a description of one study in each country covering SMEs and sustainability is presented. Both studies found that owner-managers undertake a number of triple bottom line activities, without overtly identifying these actions as sustainable practice. At the same time, both studies showed that an over-riding focus on the financial bottom-line may be a significant barrier to SMEs adopting further sustainability practices. The paper concludes with a call for additional research in the area of ethical and sustainable business practice in SMEs in Australia and New Zealand, identifying some promising areas of future investigation.

Scholars recognise that entrepreneurs may encounter different ethical issues and pressures than managers in larger corporations. This has fostered empirical research aimed at assessing ethics in entrepreneurial settings in the United States. Our emphasis on empirical research with little attention paid to purely conceptual papers allows us to highlight the narrow definition of entrepreneurship used in the US and how US researchers distinguish between entrepreneurship and other types of small businesses. This differs greatly from many other countries, especially those in which researchers equate entrepreneurship with the study of small and medium sized enterprises (SMEs). Researchers in the US often distinguish ethics from corporate social responsibility (CSR), corporate social performance (CSP), stakeholder theory and stakeholder management with different theoretical models proposed in each of these areas. After discussing these various definitional issues, we review the empirical research on ethics in entrepreneurial firms, discussing what the results tell us, identifying gaps in prior research and concluding with recommendations for future research that draws more heavily on theoretical frameworks in the field of ethics.

In this paper we scope the relationship between entrepreneurship and corporate social responsibility (CSR). Both entrepreneurship and CSR have attracted increased interest in the early 21st century and been positioned as offering solutions to economic, social and environmental challenges. Previous attempts to determine causal influence between the two concepts have been inconclusive. We clarify the difficult to define concepts of entrepreneurship and CSR by focusing on entrepreneurial process and positive social change in particular. We identify three distinct approaches to this relationship: ‘mainstream’, ‘counter-cultural/critical’ and ‘reformist’ and locate our contribution in relation to these streams of ideas. Building on the CSR definition of Aguilera et al. (2007), we define Entrepreneurial Social Responsibility (‘ESR’) as the dynamic consideration of, and response to, issues beyond the narrow economic, technical and legal requirements of the firm to accomplish social and environmental benefits along with traditional economic gains. We argue that the territory of ESR can best be explored through the use of a multi-level analysis approach to researching the entrepreneurial process. ESR is important both conceptually and in policy terms and is an advancement because it occupies an intellectual space neither fully revealed nor addressed in existing CSR or entrepreneurship research. In moving towards a response to the research question: In what circumstances is positive social contribution an outcome of the entrepreneurial process?, we present conceptual model of ESR which can accommodate a multi-level perspective. We enhance the CSR field by integrating a dynamic approach into the concept, and augment the entrepreneurship field by opening up to more systematic study, the social and environmental qualities of a social phenomenon that is often interpreted within an exclusively economic and instrumental frame of reference.

The author designs a comprehensive model to characterise and optimise small and medium sized companies SMEs – in the overall context of physical environment, society, economy and business. This model embraces issues of morality, management system and environment and a corresponding measurement tool and discusses the interplay of these issues with the intention of leading to continuous improvement. The model and the measurement tool are tested by a longitudinal survey of 27 SMEs in Switzerland and Germany (total: 214 people of all hierarchical levels). The survey illustrates that a standardised management system is not decisive for the implementation of an increasingly dynamic and circular system with intensive integration of people. The implementation merely depends on the (moral) attitudes and behaviours of owners or top managers and employees. But SMEs with standardised (especially environmental) management systems demonstrate generally more outcomes towards effectiveness as well as embedded morality, circularity and integration. By the design of a comprehensive SME model and measuring tool, the author broadens the gap of narrowing SME research on individual issues and positions of individual companies to an overall context of physical environment, society, economy and business.

This research project sought to identify the dynamics underlying the adoption of corporate social responsibility (CSR) practices by small and medium enterprises (SMEs) and particularly to set out a strategic framework. Results found that although SMEs do not present clear CSR trends, the “Strategy of Obligation” prevails. It was further concluded that informal practices, occasional in nature and unstructured, predominate given that CSR is above all perceived as a quest for better management. Secondarily, the concept is somewhat associated to ethical questions and good citizenship practices. Detailed analysis revealed that there is a statistically significant relationship between certification, company size, length of service and sector of activity.

Research on the CSR practice of SMEs suggests that the activities chosen by companies strongly reflect the political, social and economic environment in which they work. This chapter investigates CSR practices among SMEs in Brittany, France, and focuses in particular on the factors which help and hinder CSR engagement. A framework for analysis is developed which reveals the different perceptions of the drivers and brakes of CSR among both active SMEs and those which do not yet engage in CSR. We conclude that in France recent governmental policies encourage engagement in activities which mainly aim at environmental sustainability. It is also found that, managers who have not yet implemented CSR activities are more optimistic regarding their environment’s support for CSR than managers with CSR experience. In addition, SMEs lack information on best practices and funding for investments in CSR.

Small and medium-sized enterprises (SMEs) have not only their own way of understanding Corporate Social Responsibility (CSR), but also their own way of applying it. This paper explores the understanding of CSR by SME owners and analyses their corporate activities. The qualitative survey conducted among 33 SMEs in the metropolitan region of Hamburg reveals that owners of SMEs feel a strong responsibility towards their employees and – even further – towards their families. The fact that employees are the key stakeholders of SMEs is taken into account when applying Freeman’s stakeholder model on SMEs. Moreover, the survey reveals that the engagement of SMEs has a strong local focus and is done in an intuitive “hands-on” way. SMEs did not implement CSR strategies and they do not intend to do so. Their non-communication of CSR reflects this attitude. The challenge for SMEs seems to be the treatment of CSR as a competitive advantage by implementing it in the companies’ overall strategy.

In this study we empirically analyse the integration of Social Responsibility (SR) practices in business strategy and its effect over the creation of value for the business itself in the small and medium enterprise (SME context. We consider that SR must contribute to the firm’s core activities and help the firm to achieve its mission. Moreover, we believe that this strategic perspective of SR is crucial for the SME. Regarding these issues, an analysis of the SR behaviour in the SME is presented and, particularly, we study the existence of a significant relationship between the SR strategic alignment and the business value obtained from the SR behaviour. In order to measure all these concepts, we have developed and validated scales SR behaviour in the SME; the alignment of SR behaviour with the business strategy of the firm and finally, the business value created by SR activities, on a representative sample of 245 private SMEs located in Gipuzkoa, a province in the north of Spain. The present study shows how the alignment of SR behaviour with business strategy is significantly related to the generation of business value from SR activities; in the light of these results, the study concludes that SR needs to be embedded in the firm’s strategy in order to contribute to the company’s survival and competitiveness

This chapter opens with a short foreword in which the constitution of global business ethics is summarised as the basis for subsequent discussion. Our focus is business ethics in small to medium sized firms. Our principle contribution to this book will be the voices of a small sample of respondents in Thailand and Hong Kong drawn from qualitative research in those regions of Asia. We shall indicate some possible interpretations from these voices but any new knowledge will arise in the dialogue of the text and each reader reacting to these voices and drawing their own inferences. With the exception of work now being done by scholars in Thailand and Hong Kong (See, for example, the work of Richard Welford and others), very little evidence of such other voices ever comes to our attention. In doing so we aspire to contribute to the understanding of business ethics in the proportionally misrepresented context of small business in Asia.

In 2004 the Dutch Department of Economic Affairs inaugurated ‘MVO Nederland’, an independent knowledge centre and clearing house that initiates and supports corporate social responsibility policies especially on the level of small and medium seized enterprises (SMEs). The paper reports facts and figures, means and methods developed in the initial years, and reflects on experiences gathered in the founding period. Attention is raised particularly to the various motives to engage in corporate social responsibility, to the ‘institutional approach’ in fostering corporate social responsibility in small and medium sized enterprises, and to the political role of corporations.

The aim of the chapter is to investigate how Small- and Medium-sized Enterprises (SMEs) deal with Corporate Social Responsibility (CSR) along the supply chains to which they belong. The analysis is carried out by a literature review that aims at identifying: the role played by SMEs, both as buyers and suppliers; the practices implemented; drivers, risks, barriers to small business social responsibility in the supply chain, and the means to overcome such barriers. Most of the reviewed papers deal with small business social responsibility in general and investigate the role of SMEs only as suppliers of large customers. The most cited driver, risk, barrier, and means are: supply chain pressure, exclusion from supply chains, low power by SMEs, and partnership, respectively. The study also stresses questions that would benefit from further research, such as the effect of supply chain pressure on small business social responsibility. The study contributes to fill a gap in the literature as, to our knowledge, no literature reviews on small business social responsibility in supply chains have been developed.

Family companies are a special type of business (included in the Small and Medium Sized Enterprise classification) and its characteristics may not fit the usual indicators. Its relative importance within the countries’ economy, especially in the case of underdeveloped countries, justifies the research about its nature, behaviour and possible future. The object of the current study is the “agricultural family SME”, specifically a family business located in Argentina, whose origin can be traced back to the end of XIX century. It includes: importance of the foreign immigration in the development of small towns in Argentina; cultural contribution in the development of the new communities through mixed agricultural and stockbreeding activities; land possession as an element of immigrants participation in the politic life of the new country; and contribution of values for the management of their SMEs, creating a Corporate Social Responsibility that differs from that of the large companies, with a strong commitment with its employees and the environment. The existence of family businesses dedicated to land exploitation has a special meaning in a country such as Argentina, whose main income source is agricultural and stockbreeding activities. These companies are not only important because of the quantity, but also because of their cultural influence. The development of farming activities in Argentina was mostly carried out by this kind of companies. The land itself constitutes the main capital source.