research insights
Small But Mighty Firms Make
“Proactive CSR” Pay Off
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.
Defining Proactive CSR
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
which does not typically generate financial payoffs for
companies.
The 3 Necessary Conditions for Proactive CSR
Previous research (most of it dedicated to large firms)
reveals three capabilities predict a company’s ability to
conduct proactive CSR:
1. Shared Vision: Focusing everyone in the
organization on a common sustainability goal aids
organizational learning and encourages employee
creativity. It helps generate the motivation and
pressure that drive innovation and change.
2. Stakeholder Management: Building collaborative
relationships with suppliers, customers and
investors helps eliminate any negative effects
generated in the pursuit of competition, such as
bad publicity.
3. Strategic Proactivity: Careful scanning and
analysis of external information equips you to
anticipate and capitalize on emerging opportunities.
For example, you may pay close attention to policy
bills discussed by government leaders and foresee
higher energy prices in the coming years. By
investing now in new technologies that reduce your
energy usage, you’ll save on costs and get ahead
of your competitors.
The Findings
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.
“... SMEs are effective at
capitalizing on their unique
characteristics to overcome
their size limitations.”
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.
Methods and Future Research
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.
Source: Torugsa, N.A., O’Donohue, W., & Hecker, R. Forthcoming. Capabilities, Proactive CSR and Financial Performance in
SMEs: Empirical Evidence from an Australian Manufacturing Industry Sector. Journal of Business Ethics.
Summary: Thomas Long and the NBS team
August 2012