CZECH MANAGEMENT INSTITUTE PRAHA

Faculty of Management

ESCUELA SUPERIOR DE MARKETING Y ADMINISTRACIN BARCELONA

Doctoral Thesis

Corporate Social Responsibility in Small and MediumSized Companies in the Czech Republic

Doctoral Thesis in the Doctor of Business Administration Programme

Doctoral Candidate: Doctoral Advisor:

David Polek, M.B.A. Dr. Cesar Duch, Ph.D.

2010

Table of Contents
LIST OF TABLES ............................................................................................................................ v LIST OF FIGURES ........................................................................................................................ viii ABSTRACT ...................................................................................................................................... x DECLARATION .............................................................................................................................. xi ACKNOWLEDGEMENTS .............................................................................................................. xii INTRODUCTION ........................................................................................................................... 1 CHAPTER 1. CORPORATE SOCIAL RESPONSIBILITY CONCEPT ................................... 4

1.1 DEFINITION OF CORPORATE SOCIAL RESPONSIBILITY ....................................................................... 4 1.1.1 Defining Corporate Social Responsibility ............................................................................... 4 1.1.2 Corporate Social Responsibility from Broader Perspective .................................................... 7 1.2 HISTORICAL DEVELOPMENT OF THE CORPORATE SOCIAL RESPONSIBILITY CONCEPT ....................... 8 1.2.1 Era Preceding Current Concept of Corporate Social Responsibility ...................................... 8 1.2.2 Modern History of Corporate Social Responsibility ............................................................. 10 1.3 WHAT CORPORATE SOCIAL RESPONSIBILITY IS NOT ....................................................................... 14 1.3.1 Corporate Social Irresponsibility .......................................................................................... 15 1.3.2 Misuse and Sole Usage of Some Corporate Social Responsibility Tools .............................. 16 1.4 DEFINITION OF THE STAKEHOLDER CONCEPT AND ITS RELATION TO CORPORATE SOCIAL RESPONSIBILITY............................................................................................................................... 17 1.5 CURRENT DEVELOPMENT IN CORPORATE SOCIAL RESPONSIBILITY................................................. 20 CHAPTER 2. PERSPECTIVES OF CORPORATE SOCIAL RESPONSIBILITY ................. 24

2.1 ROLE OF THE GOVERNMENT IN CORPORATE SOCIAL RESPONSIBILITY CONCEPT ............................. 24 2.2 CORPORATE SOCIAL RESPONSIBILITY IN GLOBAL DIMENSIONS ...................................................... 28 2.2.1 Role of Small and Medium-Sized Companies in Global Corporate Social Responsibility .... 30 2.3 CORPORATE SOCIAL RESPONSIBILITY IN EUROPE ............................................................................ 31 2.3.1 General Aspects of Sustainable Development and Corporate Social Responsibility in Europe ............................................................................................................................................. 31 2.3.2 Corporate Social Responsibility in Europe ........................................................................... 32 2.4 CORPORATE SOCIAL RESPONSIBILITY IN THE CZECH REPUBLIC ...................................................... 39 2.4.1 Situation in the Czech Republic Regarding Corporate Social Responsibility and Ethics in 1990s .................................................................................................................................... 39 2.4.2 Development of Corporate Social Responsibility in the Czech Republic .............................. 41 2.4.3 Latest Development of Corporate Social Responsibility in the Czech Republic ................... 43 2.5 CORPORATE SOCIAL RESPONSIBILITY FROM SMALL AND MEDIUM-SIZED COMPANIES PERSPECTIVE AND MAJOR DIFFERENCES BETWEEN SMES AND LARGE COMPANIES IN THE CONTEXT OF CSR ..... 45 2.5.1 Definition of Micro, Small and Medium-Sized Enterprises ................................................... 45 2.5.2 General Features and Statistics of Micro, Small and Medium-Sized Enterprises ................. 47 2.5.3 Corporate Social Responsibility in Small and Medium-Sized Enterprises ............................ 51 CHAPTER 3. ESSENTIAL ASPECTS OF CORPORATE SOCIAL RESPONSIBILITY ....... 55

3.1 LEVELS OF CORPORATE SOCIAL RESPONSIBILITY ............................................................................ 55 3.2 DIMENSIONS OF CORPORATE SOCIAL RESPONSIBILITY .................................................................... 56 3.2.1 Internal Dimension of Corporate Social Responsibility ........................................................ 56 3.2.2 External Dimension of Corporate Social Responsibility ....................................................... 61 3.3 SIX FORMS OF CORPORATE SOCIAL RESPONSIBILITY INITIATIVES ................................................... 65 3.3.1 Corporate Philanthropy ........................................................................................................ 66 3.3.2 Cause Promotions ................................................................................................................. 67 3.3.3 Cause Related Marketing ...................................................................................................... 68 3.3.4 Corporate Social Marketing .................................................................................................. 70 3.3.5 Community Volunteering ....................................................................................................... 72 3.3.6 Socially Responsible Business Practices ............................................................................... 73 3.4 MEASURING, EVALUATING AND REPORTING ON CORPORATE SOCIAL RESPONSIBILITY .................. 75 3.4.1 Measuring and Evaluating Corporate Social Responsibility ................................................ 75 3.4.2 Corporate Social Responsibility Reporting ........................................................................... 76

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CHAPTER 4.

SURVEYS ON CORPORATE SOCIAL RESPONSIBILITY CONDUCTED IN THE CZECH REPUBLIC, EUROPE AND WORLDWIDE .............................. 80

4.1 GLOBAL SURVEYS ........................................................................................................................... 80 4.1.1 Survey of Small and Medium Enterprises in the Global Compact (2004) ............................. 80 4.2 EUROPEAN SURVEYS ....................................................................................................................... 81 4.2.1 Survey on European SMEs and Social and Environmental Responsibility (2002) ................ 81 4.2.2 Study of Sustainable Competitiveness in Global Value Chains (2006) ................................. 83 4.2.3 Survey on Corporate Social Responsibility, Management Standards and Corporate Governance (2006) .............................................................................................................. 83 4.2.4 Survey on Corporate Social Responsibility in SMEs in Berlin (2007) .................................. 84 4.3 SURVEYS IN THE CZECH REPUBLIC .................................................................................................. 85 4.3.1 Corporate Social Responsibility Complete Guide of the Topic and Conclusion of the Survey in the Czech Republic (2004) ................................................................................... 85 4.3.2 Study of Social Responsibility as One of the Conditions for Entrepreneurial Success of the Company (2006) .................................................................................................................. 86 4.3.3 Survey on Utilization of Corporate Social Responsibility by Small and Medium-Sized Companies in the Czech Republic (2006) ............................................................................ 86 4.3.4 Study of Utilization of Corporate Social Responsibility by Small and Medium-Sized Companies in the Czech Republic (2007) ............................................................................ 87 4.3.5 Survey on Corporate Social Responsibility A New Factor of Corporate Competitiveness (2008)................................................................................................................................... 88 CHAPTER 5. METHODOLOGY AND GENERAL RESULTS OF OWN RESEARCH .......... 89

5.1 BASIC FACTS ABOUT RESEARCH AND METHODOLOGY .................................................................... 89 5.1.1 Objective of the Research ...................................................................................................... 89 5.1.2 Timing of the Research .......................................................................................................... 89 5.1.3 Methodology of the Research ................................................................................................ 90 5.1.4 Questionnaire Form .............................................................................................................. 91 5.1.5 Software Tools Used for Processing and Analysis ................................................................ 91 5.2 BASIC FACTS ABOUT SURVEYED SMES NUMBER, SIZE, REGION, AGE, OWNERSHIP STRUCTURE, LINE OF BUSINESS, AND HIERARCHICAL LEVEL OF RESPONDENTS .................................................. 92 5.2.1 Number of Surveyed SMEs and Their Division According to Size ........................................ 92 5.2.2 Region of the Seat of Surveyed SMEs .................................................................................... 93 5.2.3 Classification of Surveyed SMEs According to Years of Operation ...................................... 93 5.2.4 Ownership Structure of Surveyed SMEs ................................................................................ 94 5.2.5 Classification of Surveyed SMEs According to Their Line of Business ................................. 94 5.2.6 Hierarchical Level of Respondents ....................................................................................... 95 5.3 GENERAL RESULTS OF THE RESEARCH ............................................................................................ 96 5.3.1 General Awareness of Corporate Social Responsibility........................................................ 97 5.3.2 Acceptance of Corporate Social Responsibility Principles ................................................... 99 5.3.3 Measurement of Corporate Social Responsibility ............................................................... 103 5.3.4 Degree of Involvement of SMEs in Socially Responsible Activities towards Internal Community ......................................................................................................................... 104 5.3.5 Degree of Involvement of SMEs in Socially and Environmentally Responsible Activities towards External Community ............................................................................................ 106 CHAPTER 6. 6.1 6.2 6.3 6.4 6.5 SPECIFIC RESULTS OF OWN RESEARCH: INTERNAL DIMENSION OF CORPORATE SOCIAL RESPONSIBILITY .................................................. 112

DESCRIPTION OF INTERNAL DIMENSION OF SOCIALLY RESPONSIBLE ACTIVITIES USED BY SMES 113 CHARACTERISTICS OF SMES INTERNAL DIMENSION OF SOCIALLY RESPONSIBLE ACTIVITIES ..... 118 REASONS FOR INVOLVEMENT IN INTERNAL DIMENSION OF SOCIALLY RESPONSIBLE ACTIVITIES . 122 BENEFITS IDENTIFIED BY SMES FROM THEIR PARTICIPATION ON INTERNALLY TARGETED SOCIALLY RESPONSIBLE ACTIVITIES .............................................................................................................. 125 BARRIERS TO THE PARTICIPATION ON INTERNALLY TARGETED SOCIALLY RESPONSIBLE ACTIVITIES 126 SPECIFIC RESULTS OF OWN RESEARCH: EXTERNAL DIMENSION OF CORPORATE SOCIAL RESPONSIBILITY .................................................. 129

CHAPTER 7. 7.1

DESCRIPTION OF EXTERNAL DIMENSION OF SOCIALLY AND ENVIRONMENTALLY RESPONSIBLE ACTIVITIES USED BY SMES ........................................................................................................... 130

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Involvement in Wide-Ranging Activities of External Dimension of Corporate Social Responsibility ..................................................................................................................... 130 7.1.2 Forms of Support of Socially and Environmentally Responsible Activities......................... 131 7.1.3 Forms of Public Support of External Dimension of CSR Realized by SMEs ....................... 134 7.2 CHARACTERISTICS OF SMES EXTERNAL DIMENSION OF SOCIALLY AND ENVIRONMENTALLY RESPONSIBLE ACTIVITIES .............................................................................................................. 135 7.3 REASONS FOR INVOLVEMENT IN EXTERNAL DIMENSION OF SOCIALLY AND ENVIRONMENTALLY RESPONSIBLE ACTIVITIES .............................................................................................................. 143 7.4 BENEFITS IDENTIFIED BY SMES FROM THEIR PARTICIPATION ON EXTERNAL DIMENSION OF SOCIALLY AND ENVIRONMENTALLY RESPONSIBLE ACTIVITIES .................................................... 147 7.5 BARRIERS TO THE PARTICIPATION ON EXTERNALLY TARGETED SOCIALLY AND ENVIRONMENTALLY RESPONSIBLE ACTIVITIES .............................................................................................................. 151 7.6 FUTURE EXPECTATIONS ON INVOLVEMENT OF SMES IN EXTERNAL DIMENSION OF SOCIALLY AND ENVIRONMENTALLY RESPONSIBLE ACTIVITIES ............................................................................. 153 CHAPTER 8. RECOMMENDATIONS FOR SMALL AND MEDIUM-SIZED COMPANIES HOW TO IMPLEMENT CORPORATE SOCIAL RESPONSIBILITY CONCEPT ....................................................................................................................... 155

7.1.1

8.1 SCOPE OF CORPORATE SOCIAL RESPONSIBILITY INVOLVEMENT ................................................... 155 8.1.1 Marketplace ......................................................................................................................... 157 8.1.2 Workplace............................................................................................................................ 158 8.1.3 Community .......................................................................................................................... 159 8.1.4 Environment ........................................................................................................................ 160 8.2 TEN STEPS HOW TO ADOPT AND IMPLEMENT CORPORATE SOCIAL RESPONSIBILITY CONCEPT IN SMALL AND MEDIUM-SIZED COMPANIES ...................................................................................... 161 8.2.1 Planning Phase ................................................................................................................... 163 8.2.2 Execution Phase .................................................................................................................. 174 8.2.3 Evaluation Phase................................................................................................................. 175 8.2.4 Improvement Phase ............................................................................................................. 181 CHAPTER 9. CONCLUSIONS ............................................................................................ 182

9.1 CONCLUSIONS - THEORETICAL PART ............................................................................................. 182 9.1.1 Defining Corporate Social Responsibility ........................................................................... 182 9.1.2 Dimensions of Corporate Social Responsibility and Corporate Social Responsibility Initiatives ........................................................................................................................... 182 9.1.3 Aspects of Corporate Social Responsibility ......................................................................... 183 9.1.4 Corporate Social Responsibility in the Czech Republic ...................................................... 183 9.2 CONCLUSIONS - SUMMARY OF THE AUTHORS OWN RESEARCH.................................................... 184 9.2.1 General Aspects of Corporate Social Responsibility in Czech SMEs .................................. 184 9.2.2 Internal Dimension of Corporate Social Responsibility in Czech SMEs ............................. 186 9.2.3 External Dimension of Corporate Social Responsibility in Czech SMEs ............................ 188 9.3 CONCLUSIONS - GENERAL STEPS HOW TO IMPLEMENT CORPORATE SOCIAL RESPONSIBILITY IN CZECH SMES ................................................................................................................................. 191 9.3.1 Considering Strategic Approach to Corporate Social Responsibility in Czech SMEs ........ 191 9.3.2 Proposal of Ten Steps How to Implement Corporate Social Responsibility in Czech SMEs .... ........................................................................................................................................... 192 BIBLIOGRAPHY ....................................................................................................................... 193 APPENDIX ....................................................................................................................... 204

APPENDIX I: GLOSSARY OF TERMS ...................................................................................................... 204 APPENDIX II: EXAMPLE OF THE QUESTIONNAIRE ON CORPORATE SOCIAL RESPONSIBILITY DESIGNED FOR SMALL AND MEDIUM-SIZED COMPANIES ...................................................................................... 209 APPENDIX III: EXAMPLES OF COMPANY VALUES AND PRINCIPLES ........................................................ 216

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List of Tables

Table 2.1: Principal public sector roles in relation to Corporate Social Responsibility ................ 25 Table 2.2: Political development and milestones in CSR area at the European level................. 33 Table 2.3: Main indicators of European non-financial business economy broken down by size of a company (2004; % share of total) ............................................................................ 48 Table 2.4: Key indicators for enterprises in the non-financial business economy in the EU-27 .. 50 Table 2.5: Detail information on number and value added of SMEs in the Czech Republic ....... 50 Table 5.1: Absolute and relative number of surveyed companies in the analysed sample, sorted by size of the company ............................................................................................... 93 Table 5.2: Absolute and relative number of surveyed SMEs in the analysed sample, sorted by region of the seat and size of the company ................................................................ 93 Table 5.3: Absolute and relative number of surveyed SMEs in the analysed sample, sorted by age (years of operation) and size of the company ..................................................... 94 Table 5.4: Absolute and relative number of surveyed SMEs in the analysed sample, sorted by ownership structure and size of the company ............................................................ 94 Table 5.5: Absolute and relative number of surveyed SMEs in the analysed sample, sorted by line of business and size of the company ................................................................... 95 Table 5.6: Absolute and relative number of persons who filled out the questionnaire, sorted by hierarchical level and size of the company ................................................................. 96 Table 5.7: Knowledge of Corporate Social Responsibility concept by the company (respondent), sorted by size of the company .................................................................................... 97 Table 5.8: Knowledge of Corporate Social Responsibility concept by the company (respondent), sorted by hierarchical level of the person who filled out the questionnaire and size of the company ............................................................................................................... 98 Table 5.9: Knowledge of Corporate Social Responsibility concept by the company (respondent), sorted by region of the seat of the company .............................................................. 98 Table 5.10: Acceptance of basic idea of Corporate Social Responsibility concept by the company (respondent), sorted by size of the company ............................................................. 99 Table 5.11: Acceptance of basic idea of Corporate Social Responsibility concept by the company (respondent), sorted by region of the seat of the company ...................................... 100 Table 5.12: Acceptance of basic idea of Corporate Social Responsibility concept by the company (respondent), sorted by hierarchical level of the person who filled out the questionnaire ............................................................................................................ 100 Table 5.13: Acceptance of basic idea of Corporate Social Responsibility concept by the company (respondent), sorted by ownership structure of the company .................................. 101 Table 5.14: Knowledge of documents or organizations (particularly non-profit) dealing with CSR by the company (respondent), sorted by size of the company ................................. 101 Table 5.15: Need for generally accepted and transparent methodology how to implement CSR in the company, sorted by size of the company ........................................................... 102 Table 5.16: Overview of companys personnel authorized/responsible for the coordination of CSR activities, sorted by size of the company .................................................................. 103 Table 5.17: Measurement and evaluation of CSR by the company, sorted by size of the company .................................................................................................................................. 103 Table 6.1: Percentage of SMEs involved in wide-ranging activities of internal dimension of CSR in 2008, sorted by size of the company and including an average for all SMEs ...... 114

Table 6.2: Percentage of SMEs involved in supporting of employees and/or family members in various activities of internal dimension of CSR in 2008, sorted by size of the company and including an average for all SMEs ..................................................................... 116 Table 6.3: Forms of further education of employees supported by SMEs, sorted by size of the company and including an average for all SMEs ..................................................... 117 Table 6.4: Comparison of SMEs with/without strategy for internal dimension of CSR and with/without corporate strategy in 2008 including an average for all SMEs ............. 119 Table 6.5: Degree of importance of socially responsible and ethical behaviour towards employees for SMEs, sorted by size of the company and including an average for all SMEs ........................................................................................................................ 120 Table 6.6: Analysis of SMEs for which socially responsible and ethical behaviour towards employees was very important, sorted by ownership structure and line of business121 Table 6.7: Major drivers for implementing of socially responsible and ethical behaviour towards employees, sorted by size of the company and including an average for all SMEs 123 Table 6.8: Major benefits for SMEs arising from implementing socially responsible and ethical behaviour towards employees, sorted by size of the company and including an average for all SMEs ................................................................................................ 125 Table 6.9: Major barriers for SMEs for implementing socially responsible and ethical behaviour towards employees, sorted by size of the company and including an average for all SMEs ........................................................................................................................ 127 Table 7.1: Percentage of SMEs involved in wide-ranging activities of external dimension of CSR in 2008, sorted by size of the company and including an average for all SMEs ...... 130 Table 7.2: Forms of support of socially responsible activities used by SMEs in terms of external dimension of CSR, sorted by size of the company and including an average for all SMEs ........................................................................................................................ 132 Table 7.3: Forms of support of environmentally responsible activities used by SMEs in terms of external dimension of CSR, sorted by size of the company ..................................... 133 Table 7.4: Forms of public support the SMEs* have received during last 3 years (2005 2008) for their external dimension of CSR, sorted by size of the company ........................ 135 Table 7.5: Degree of importance of socially responsible and ethical behaviour towards environment and community for SMEs, sorted by size of the company and including an average for all SMEs ........................................................................................... 136 Table 7.6: SMEs strategic approach to socially and environmentally responsible activities (external dimension of CSR), sorted by size of the company and including an average for all SMEs ............................................................................................................... 136 Table 7.7: European SMEs strategic approach to socially and environmentally responsible activities (external dimension of CSR), sorted by size of the company and including an average for all SMEs ........................................................................................... 137 Table 7.8: Percentage of SMEs with and without strategy for external dimension of CSR* in 2008, sorted by size of the company and including an average for all SMEs .......... 138 Table 7.9: Manner, how SMEs carry out socially and environmentally responsible activities (external dimension of CSR), sorted by size of the company and including an average for all SMEs ............................................................................................................... 138 Table 7.10: Acceptance of idea that SMEs can more effectively apply CSR on a local level than large and multinational corporations, sorted by size of the company and including an average for all SMEs ................................................................................................ 140 Table 7.11: Awareness of local issues and willingness of SMEs to offer help in solving these issues, sorted by size of the company and including an average for all SMEs ........ 140 Table 7.12: The most influenced groups by SMEs CSR activities*, sorted by size of the company and including an average for all SMEs ..................................................................... 141

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Table 7.13: Degree how SMEs provide information about companys CSR activities*, sorted by size of the company and including an average for all SMEs .................................... 142 Table 7.14: Major drivers for implementing socially responsible activities* towards external community, sorted by size of the company and including an average for all SMEs 144 Table 7.15: Major drivers for implementing environmentally responsible activities* towards external community, sorted by size of the company and including an average for all SMEs ........................................................................................................................ 146 Table 7.16: Major benefits for SMEs arising from the support of socially responsible activities* aimed at external community, sorted by size of the company and including an average for all SMEs ................................................................................................ 148 Table 7.17: Major benefits for SMEs arising from the support of environmentally responsible activities* aimed at external community, sorted by size of the company and including an average for all SMEs ........................................................................................... 150 Table 7.18: Major barriers for SMEs for implementing CSR activities (both social and environmental) towards external communities, sorted by size of the company and including an average for all SMEs ............................................................................ 152 Table 7.19: Future involvement of SMEs in external dimension of socially and environmentally responsible activities, sorted by size of the company and including an average for all SMEs ........................................................................................................................ 154

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List of Figures

Figure 1.1: Pyramidal Structure of Corporate Social Responsibility ............................................. 12 Figure 1.2: The Continuum of Business Behaviour, from Corporate Social Irresponsibility to Corporate Social Responsibility .................................................................................. 15 Figure 1.3: Stakeholder Model ...................................................................................................... 19 Figure 2.1: Two contrasting models of Corporate Social Responsibility ...................................... 26 Figure 2.2: Division of enterprises in the EU according to their size (in % from total) .................. 47 Figure 2.3: Division of enterprises in the EU according to number of employed persons, sorted according to their size (in % from total) ...................................................................... 49 Figure 3.1: Three Fundamental Levels of Corporate Social Responsibility .................................. 55 Figure 3.2: Relations among cause related marketing, marketing, corporate community investment, philanthropy, and Corporate Social Responsibility ................................. 69 Figure 5.1: Hierarchical level of the person who filled out the questionnaire (in relative value) ... 96 Figure 5.2: Percentage of SMEs involved in internal dimension of CSR in 2008, sorted by size of the company including an average for all SMEs ...................................................... 105 Figure 5.3: Percentage of SMEs involved in internal dimension of CSR in 2008, sorted by region of the seat of the company including an average for all SMEs ................................ 105 Figure 5.4: Percentage of European SMEs involved in external dimension of CSR in 2001, sorted by size of the company including an average for all SMEs ...................................... 106 Figure 5.5: Percentage of SMEs involved in external dimension of CSR in 2008, sorted by size of the company including an average for all SMEs ...................................................... 107 Figure 5.6: Percentage of SMEs involved in external dimension of CSR in 2008, sorted by region of the seat of the company including an average for all SMEs ................................ 107 Figure 5.7: Percentage of SMEs involved in external dimension of CSR in 2008, sorted by sector of the company including an average for all SMEs .................................................. 108 Figure 5.8: Percentage of SMEs involved in external dimension of CSR in 2008, sorted by age/years of operation of the company including an average for all SMEs ............. 109 Figure 5.9: Percentage of SMEs involved in external dimension of CSR in 2008, sorted by ownership structure of the company including an average for all SMEs .................. 109 Figure 5.10: Percentage of SMEs involved in external dimension of CSR in 2008 based on ISO Certification, sorted by size of the company and including an average for all SMEs 110 Figure 5.11: Percentage of SMEs involved in external dimension of CSR in 2008 based on defined corporate strategy and including an average for all SMEs ....................................... 111 Figure 6.1: Percentage of SMEs with and without strategy for internal dimension of CSR in 2008, sorted by size of the company and including an average for all SMEs .................... 118 Figure 7.1: Percentage of SMEs that have received public support (incentive/subsidy) for their external dimension of CSR during last 3 years, sorted by size of the company ...... 134 Figure 7.2: SMEs plans regarding participation in external dimension of CSR for the next three years, percentage of all SMEs .................................................................................. 154 Figure 8.1: Three levels and four areas of corporate social responsibility ................................. 156 Figure 8.2: Diagram how to implement corporate social responsibility concept in SMEs in ten steps ......................................................................................................................... 162

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Figure 8.3: Example of a list of stakeholders associated with four different areas of corporate social responsibility ................................................................................................... 164 Figure 8.4: An explanation and overview of the roles played by the stakeholders throughout the four stages of the CSR implementation process ...................................................... 166 Figure 8.5: Stakeholder influence and dependency matrix (the so-called Stakeholder Matrix) . 167 Figure 8.6: Examples of interests of different types of key stakeholders in corporate social responsibility key issues ........................................................................................... 169 Figure 8.7: Examples of tools and techniques a company can use for stakeholders engagement .................................................................................................................................. 170 Figure 8.8: Examples of key company (corporate) values .......................................................... 172 Figure 8.9: Examples of companys corporate social responsibility objectives categorized into four CSR areas ......................................................................................................... 173 Figure 8.10: Examples of specific corporate social responsibility activities that are related to the accomplishment of planned corporate social responsibility objectives .................... 174 Figure 8.11: Examples of indicators used for the evaluation of results of a companys corporate social responsibility activities .................................................................................... 175 Figure 8.12: Examples of reported results of the companys corporate social r esponsibility activities .................................................................................................................... 177 Figure 8.13: Examples of improvement measures for the companys corporate social responsibility activities .................................................................................................................... 181

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Corporate Social Responsibility in Small and Medium-Sized Companies in the Czech Republic

Doctoral Candidate: David Polek Doctoral Advisor: Dr. Cesar Duch, Ph.D. CZECH MANAGEMENT INSTITUTE PRAHA Faculty of Management of ESCUELA SUPERIOR DE MARKETING Y ADMINISTRACIN BARCELONA

Abstract
This dissertation paper focuses on corporate social responsibility (CSR) in small and medium-sized enterprises (SMEs) operating in the Czech Republic. Theoretical part provides an overview on CSR including definition of CSR, history and development of CSR in the Czech Republic, Europe, and in other parts of the World, characteristics of CSR in SMEs, levels and dimensions of CSR, CSR initiatives, and essentials of measurement and reporting on CSR. This part also summarizes recent global, European and Czech surveys on CSR. Practical part was motivated by the ambition to extend the present research outcomes on CSR through the authors own survey exclusively oriented on SMEs operating in the Czech Republic. Authors own research explores specifics of internal and external dimensions of CSR in SMEs operating in the Czech Republic and presents interesting and valuable conclusions. The paper concludes that CSR in SMEs operating in the Czech Republic has been well rooted, nevertheless it lacks strategic dimension. The practical part also provides a general guide to responsible business (introduction of engagement concept, how to implement CSR in Czech SMEs), which includes steps, how to identify and apply principles of corporate social responsibility in micro, small, and medium-sized companies.

Key words:

corporate social responsibility (CSR), external dimension of corporate social responsibility, internal dimension of corporate social responsibility, small and medium-sized company (SME), stakeholders

Declaration
I declare that this thesis is my own work and has not been submitted in any form for another degree or diploma at any university or other institute of tertiary education. Information derived from the published and unpublished work of others has been acknowledged in the text, and a list of references is given. Used information sources and background materials are quoted in the enclosed list of bibliography.

_______________________________ David Polek, M.B.A. 10 October, 2009

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Acknowledgements

At the beginning, I would like to express my appreciation to Dr. Cesar Duch, PhD. for his great advice during my doctoral research endeavour for the past one and a half year. As my doctoral advisor and supervisor, he has constantly forced me to remain focused on achieving my goal. His observations and comments helped me to establish the overall direction of the doctoral paper and to move forward with investigation in depth. Sincerely I would like to thank to Prof. Ing. Ji Dvoek, CSc., a former dean of the Czech Management Institute Praha - Faculty of Management of Escuela Superior de Marketing y Administracin Barcelona, who helped me to start my doctoral dissertation and provided me with insight into managerial finance and business management during his courses of these subjects.

I also thank to all teachers and staff from the Czech Management Institute Praha for their support during my doctoral study.

Last, but not least, I would like to dedicate this thesis to my family, my fiance Jaroslava Pibilov and son Adam, for their love, patience, understanding, and for allowing me to spend most of the time on this thesis.

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Introduction
Businesses worldwide are increasingly worried about the impact of their business activities on society. They also recognize that the world they live in presents a growing array of demands, pressures and risks that are not signalled through markets or the traditional political processes on which they have relied for a very long time. Thus, many have implemented into their operation the so-called corporate social responsibility (hereinafter also CSR) that aim to balance their operations with the concerns of internal and external stakeholders such as employees, customers, suppliers and business partners, labour unions, local communities, non-governmental organizations (hereinafter also NGOs) and governments. By its very nature CSR is a complex, multiform phenomenon emerging as the interface between enterprises and society. Social and environmental consequences have started to being weighed against economic gains and short-term profit against long-term prosperity by the businesses in order to maintain longterm sustainable growth and development. With growing sensitivity towards social and environmental issues and shareholder and owner concerns that can be effectively addressed through internal and external dimension of CSR, businesses are increasingly striving to become better corporate citizens, i.e. appropriately grasping and implementing CSR concept. But whilst many agree that CSR is the right thing for businesses to implement and follow, proponents often grow uncomfortable when explaining the business case for doing good. The costs associated with CSR programmes are clear but the positive correlation with better financial performance is often hard to prove. In any case, proponents may argue and are finding a solid ground that the objectives of CSR go beyond short-term economic gains and are mainly focused on a long-term prosperity and sustainability of enterprises. It is also important to mention a significant role of governments in fostering social justice and environmental protection and ensuring social development. Hence, we have to avoid a tendency to replace role of the government with role of companies. In this respect CSR should be seen as extra opportunity for companies in competitive markets. On the other hand also companies can, and in the authors opinion should, undeniably complement and supplement the efforts of governments at social and environmental development because these matters concern all citizens, governments, entrepreneurs, companies, and all kinds of organizations. For Czech people as well as Czech companies, ethical and corporate social responsibility issues are relatively new, when as less than two decades ago Czechs

made the first half-hearted attempts in order to set up their own private businesses and build their own careers as entrepreneurs after a fall of the communist regime at the end of the year 1989. Since then corporate social responsibility has made a great progress and found a solid ground amongst Czech companies and entrepreneurs. This doctoral paper is focused on issues of corporate social responsibility in micro, small, and medium-sized companies (hereinafter also SMEs) operating in the Czech Republic. SMEs took the center of attention in this study since they form a backbone of the European Unions economy, employ 67 % of European employees and create 57 % of European value added. According to the Eurostat, there was registered around 23 million enterprises in the European Union in 2005, of which 91,4 % formed micro, 7,3 % small, 1,1 % medium, and only 0,2 % large companies. According to the CEVRO Institute1, SMEs in the Czech Republic employed more than 62 % of all employees and made more than 53 % of value added in 2007. Despite SMEs eminent position in the European economy, a majority of research and professional literature were focused on CSR concept as such and on activities and relations of large and multinational companies. This paper was motivated by the ambition to extend the present research outcomes on CSR through an own survey exclusively oriented on SMEs operating in the Czech Republic. The investigations into the practice of SMEs utilizing to various degrees CSR concept may serve, among others, as a rich source of information and suggestions for other, in this respect, less developed SMEs that might decide to adopt or increase their involvement in CSR. The paper did not attempt to provide SMEs with a detailed and guaranteed list of CSR activities that would suit to each and every individual SME company, since it is almost impossible to comprehend all specifics of each and every company. Rather the paper concentrates on general principles and tried-and-true approaches to CSR concept that can be grasped and used by Czech SMEs as a springboard towards excellence in CSR. The paper also provides a guide to responsible business, which includes ten steps how to identify and apply principles of corporate social responsibility in micro, small, and medium-sized companies. The author believes the introduced CSR implementation concept can enrich Czech SME business community and bring also competitive advantages for those SMEs, which would like to engage themselves strategically in CSR or have already been involved. The paper is divided into eight main chapters and each of them is further divided into several subchapters. The theoretical background of CSR including a summary of recent
1

CEVRO Institute is part of the CEVRO - Liberal Conservative Academy, officially registered in Prague in 1999. The Institute is focused on education and lifelong enhancement of the knowledge and skills, free exchange of experience and knowledge on domestic and international levels, breaking through the barriers between political, academic, entrepreneurial, media and civil spheres as well as among various groups of the population.

surveys on this topic forms the content of the first four chapters. The following four chapters are focused on summarizing results of the authors own research and introduction of engagement concept how to implement CSR in Czech SMEs. The more detail structure of the paper is as follows. Chapter 1 consists of five main subchapters and it defines concept of CSR including its historical and current development, defines stakeholder concept and its relation to CSR and tries to explain what CSR is not. Chapter 2 is divided into five main subchapters and it elaborates on perspectives of CSR, particularly role of government in CSR, global dimension of CSR, characteristics of CSR in Europe and Czech Republic, and corporate social responsibility from SMEs perspective. Chapter 3 is composed of four principal subchapters, which deal with three fundamental levels of CSR, internal and external dimension of CSR, and six forms of corporate social responsibility initiatives, and provide general information on evaluating and reporting on CSR. Chapter 4 consists of three main subchapters and it presents a brief overview of surveys on CSR that were conducted in the Czech Republic, Europe and worldwide between years 2002 and 2008. It has to be stressed that this overview is not exhaustive and does not include all surveys that were executed in these years. Chapter 5 is composed of three main subchapters, which describe methodology of the authors own research on corporate social responsibility in Czech SMEs that forms the pivotal part of this paper, and present general results of this research. Chapter 6 is divided into five principal subchapters and it provides specific results of the authors own research focused on internal dimension of CSR. Chapter 7 consists of six key subchapters and it provides specific results of the authors own research focused on external dimension of CSR. Chapter 8 is divided into two main subchapters and provides a guide to responsible business including steps how to identify and apply principles of corporate social responsibility in micro, small, and medium-sized companies. Finally, Chapter 9 provides conclusions of the whole dissertation paper. At the end of the dissertation paper part Bibliography offers a review of used information sources and enclosed Appendix provides necessary supporting materials and information including a glossary of selected terminology.

Chapter 1.

Corporate Social Responsibility Concept

1.1 Definition of Corporate Social Responsibility

1.1.1 Defining Corporate Social Responsibility
Defining Corporate Social Responsibility (hereinafter also CSR) has not been and will not be an easy task as there the most likely will not be a generally agreed definition. There seems to be an infinite number of definitions of CSR, ranging from the simplistic to the complex ones, and a range of associated terms and ideas. In some cases the definition has been distorted by researchers so much that the concept becomes morally vacuous, conceptually meaningless, and utterly unrecognizable or CSR may be regarded as the panacea, which will solve the global poverty gap, social exclusion and environmental degradation.2 One of the key challenges in studying and implementing responsible business practices has been the lack of commonly agreed definition of CSR. The term CSR is often used interchangeably with others, including corporate responsibility, corporate citizenship, business in society, social enterprise, sustainability, sustainable development, triple bottom line, societal value-added, strategic philanthropy, corporate ethics, and in some cases also corporate governance.3 There are also clear links between these terms and those relating to socially responsible investments, community investing, social capital, and collaborative governance. In the business community, CSR is alternatively referred to as corporate citizenship, which essentially means that a company should be a good neighbour within its host community. The experts in each of these areas can offer sound reasons, why their term is different from the others. However, it is not within the scope of this dissertation to review all these different definitions and their mutual connections, but to provide a summarized opinion on CSRs definition and its synonyms. A solid ground for a modern definition of CSR can provide the United Nations Global Compact's ten principles in the areas of human rights, labour, the environment and anticorruption. These principles enjoy universal consensus and basically have been derived from the Universal Declaration of Human Rights, the International Labour Organization's Declaration on Fundamental Principles and Rights at Work, the Rio Declaration on Environment and Development4, and the United Nations Convention against Corruption.
2

Thomas, G., Nowak, M. (2006), GSB Working Paper No.62, Corporate Social Responsibility: A definition, available at: http://www.cbs.curtin.edu.au/files/GSB_Working_Paper_No._62_Corp_Social_Resp_A_definition_Thomas___Nowak.pdf 3 Nelson, J. (2004), The Public Role of Private Enterprise: Risks, Opportunities, and New Models of Engagement , available at: http://www.hks.harvard.edu/m-rcbg/CSRI/publications/workingpaper_1_nelson.pd 4 A short document produced at the 1992 United Nations Conference on Environment and Development and informally known as the Earth Summit. The Rio Declaration consisted of 27 principles intended to guide future sustainable development around the world.

The Global Compact asks companies to embrace, support and enact, within their sphere of influence, a set of following core values in the following areas: Human Rights: o o o o o o Principle 1: Businesses should support and respect the protection of

internationally proclaimed human rights; and Principle 2: make sure that they are not complicit in human rights abuses.

Labour Standards: Principle 3: Businesses should uphold the freedom of association and the

effective recognition of the right to collective bargaining; Principle 4: Principle 5: Principle 6: occupation. The Environment: o o o Principle 7: Businesses should support a precautionary approach to the elimination of all forms of forced and compulsory labour; the effective abolition of child labour; and the elimination of discrimination in respect of employment and

environmental challenges; Principle 8: undertake initiatives to promote greater environmental

responsibility; and Principle 9: encourage the development and diffusion of environmentally

friendly technologies. Anti-Corruption: o Principle 10: Businesses should work against corruption in all its forms, including extortion and bribery.5 Often quoted definition of CSR provides Philip Kotler. In his view, CSR is a commitment to improve community well-being through discretionary business practices and contributions of corporate resources6. A key element in his definition is the word discretionary, which refers to a voluntary commitment a business makes in choosing and implementing socially and environmentally responsible practices and making

contributions. The term community well-being, according to Kotler, includes human conditions as well as environmental issues. Kotler also uses the term corporate social initiatives to describe efforts under the CSR umbrella and offers the following definition: Corporate social initiatives are major activities undertaken by a corporation to support social causes and to fulfil commitments to corporate social responsibility.6 Causes that

The United Nations Global Compact Office (2008), Corporate Citizenship in the World Economy , available at: http://www.unglobalcompact.org/docs/news_events/8.1/GC_brochure_FINAL.pdf 6 Kotler, P., Lee, N. (2005), Corporate Social Responsibility Doing the Most Good for Your Company and Your Cause, New Jersey, USA, page 3-4

can be supported through these initiatives are those that contribute to: (a) community health, safety, education, and employment; (b) the environment; (c) community and economic development and other basic human needs. Sir Geoffrey Chandler, a former Shell executive, defined CSR as transparent business practices that are based on ethical values, compliance with legal requirements, and respect for people, communities, and the environment.7 Thus, beyond making profits, companies are responsible for the totality of their impact on people and the planet. People in Chandlers definition constitute the companys stakeholders. The International Labour Organization (ILO) described on its website CSR as a way in which enterprises give consideration to the impact of their operations on society and affirm their principles and values both in their own internal methods and processes and in their interaction with other actors and further specified CSR as a voluntary, enterprisedriven initiative, which refers to activities that are considered to exceed compliance with law8. The European Union drew up its own definition of CSR. The Green Paper of the European Commission published in 2001 provides basically two definitions of CSR. In the introduction it is stated that corporate social responsibility is essentially a concept whereby companies decide voluntarily to contribute to a better society and a cleaner environment. Further in the Paper CSR is described as a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis.9 Whereas moral philosophers such as for instance Scot David Hume, Immanuel Kant, A. J. Ayer tend to approach term responsibility as a quality of human conduct, the EUs concept of CSR can be understood as an attempt to reconcile the freedom of companies with the quest for social, economic and environmental welfare. This approach is supposed to contribute to sustainable development as defined by the Brundtland Commission. In European perspective CSR strengthens mutual trust and confidence between business and society. The relationship between both can be qualified as a symbiotic. Moreover, being socially responsible means not only fulfilling legal expectations, but also going beyond compliance and investing more into human capital, the environment and the relations with stakeholders.9
7

U.S. Agency for International Development (2002), What is Corporate Social Responsibility? 8 Questions and Answers, available at: http://www.rhcatalyst.org/site/DocServer/CSRQ_A.pdf?docID=103 8 International Labour organization (2007), Corporate Social Responsibility, available at: http://www.ilo.org/public/english /employment/multi/corporate/index.htm 9 European Commission Directorate General for Employment and Social Affairs (2001), Promoting a European framework for corporate social responsibility, Green Paper (COM(2001) 366 final), available at: http://ec.europa.eu/employment_ social/soc-dial/csr/greenpaper_en.pdf

The European approach finds ground in real life. The experience with investment in environmentally responsible technologies and business practice has suggested that going beyond legal compliance can contribute to companies competitiveness. Going beyond basic legal obligations in the social area, e.g. training, working conditions, management-employee relations, can also have a direct impact on productivity. It opens a way of managing change and of reconciling social development with improved competitiveness. Nevertheless, CSR should not be seen as a substitute to regulation or legislation concerning social rights or environmental standards, including the development of new and appropriate legislation.

1.1.2 Corporate Social Responsibility from Broader Perspective

Closely related to corporate social responsibility and often quoted as its final objective is the idea of sustainable development. The principle of sustainable development isnt too old. In 1987 the Brundtland Commission10 offered its initial definition of Sustainable Development, which is: "Development that meets the needs of the present, without compromising the ability of future generations to meet their needs."11 In general terms, sustainable development refers to large global problems, like population control, global climate change, pollution of the environment, water shortage, and human rights issues. Essentially, it's about systems and limits. Sustainability in the corporate context refers to what corporations can contribute to solving these global problems. And one of the most important means that a company can utilize in fighting global issues and directing company to sustainable development is CSR concept. Shortly after the idea of sustainable development became more rooted in the business environment, the idea of sustainable growth has emerged. Today business world does not speak about quantitative or qualitative growth, but rather about sustainable growth. Lets quote Chad Hollidays, former Chairman and CEO of DuPont corporation, definition of sustainable growth: As we think about the new century, we have determined that our central focus must be on sustainable growth. By this I mean, we must create both shareholder and societal value while we reduce our environmental footprint. And, this must be viewed along the entire value chains in which we operate. Sustainable growth is our operational definition of sustainable development. However, we believe business

10

The Brundtland Commission, formally the World Commission on Environment and Development, named by its Chair Gro Harlem Brundtland, was convened by the United Nations in 1983. The Commission was created to address growing concern about the accelerating deterioration of the human environment and natural resources and the consequences of that deterioration for economic and social development. In establishing the Commission, the UN General Assembly recognized that environmental problems were global in nature and determined that it was in the common interest of all nations to establish policies for sustainable development. 11 World Commission on Environment and Development (1987), Report of the World Commission on Environment and Development: Our Common Future, available at: http://www.un-documents.net/ocf-02.htm

growth is every bit as essential in this equation as is sustainability. In the 21st century, we will not have one without the other. Economic growth will remain a central element of successful corporations and successful societies, but the environmental aspect of growth in the future must be different than in the past.12 Anthony Corsano, holder of the Ernst & Young Metro New York Entrepreneur of the Year 2008 Award, sees corporate responsibility in part of every business decision the company makes. Corsano argues, Whether its analyzing energy consumption to reduce carbon footprint, or simply improving the communities in which employees work, behaving like a good corporate citizen is critical to creating a sustainable business model. Regarding benefits, he adds: It saves money, it engenders employee loyalty, it attracts better employees and in every way it makes us a better business.13 According to Corsano, business managers have to include into their decision-making process CSR aspects as well in order to make their business sustainable, i.e. survive in constantly changing, developing and sometimes hostile business environment. Some authors use instead of the term Corporate Social Responsibility the collocation triple bottom line to describe CSR from a broader perspective. However, in my opinion and in opinion of other authors, the phrase triple bottom line relates more or less to reporting only than to the whole CSR agenda. According to John Elkington, author of the book Cannibals With Forks and the inventor of the term, triple bottom line (or in other words "People, Planet, Profit") captures an expanded spectrum of values and criteria for measuring organizational (and societal) success: economic, environmental and social. In practical terms, triple bottom line accounting means expanding the traditional reporting framework to take into account environmental and social performance in addition to financial performance.14

1.2 Historical Development Responsibility Concept

1.2.1 Era Preceding Responsibility Current

of

the
of

Corporate
Corporate

Social
Social

Concept

The desire to create positive social change in the corporate world is not necessarily a new phenomenon, although current social, political, economic, and ideological conditions inflect it in specific ways today. Questions regarding the nature, scope, and impact of
12

Chad Holliday (2000), Business Growth and Sustainability Challenges for the New Century, Chairman and CEO of DuPont, at the Nikkei Ecology Magazine Anniversary Symposium of the Global Roundtable on Environment and Business, Tokyo, available at: http://www.wbcsd.ch/includes/getTarget.asp?type=d&id=ODg5NQ 13 Anthony Corsano (2008), Speech: On the Right Thing to Do, CEO of Anvil Knitwear, Inc., Available at: http://www.bsr.org/resources/BW_2008CSRSection.pdf 14 Brown, D., at al. (2006), Triple Bottom Line: A business metaphor for a social construct, Document de Treball nm. 06/2, available at: http://www.recercat.net/bitstream/2072/2223/1/UABDT06-2.pdf

organizations have been present in various forms for centuries, ranging across the classical, medieval, mercantile, industrial, and corporate eras. Although seldom acknowledged, the corporate form and the modern labour union both grew out of late medieval guilds.15 An important milestone in the history of CSR was an Industrial Revolution (late 18th and 19th centuries) and industrialization in 19th and 20th century generally. In that time largescale corporations began to emerge with their activities increasingly affecting their communities, society, and environment. This fact evocated and intensified debates on the appropriateness of their actions. As the result of these debates new legislations became enacted regulating formation of trusts, use of child labour, labour safety, etc. As the reaction to the public critics on system of factory labour, industrialists developed industrial welfare programmes that provided education, recreation, and socialization of workers, and were seeking to produce simultaneously good workers and good citizens. One such pioneer was Robert Owen, who in the early 1800s set up a series of social villages around his textile mills in Scotland. These villages catered for the education of employees and their children as well as providing health care, food cooperatives, banking facilities and leisure activities. The doctrine of Owenism became so popular that it was soon exported across the Atlantic to the USA where similar practices were introduced in a number of cotton farms.16 Together with origins of CSR was also striving for its place in everyday business the philosophical study of moral values and rules - ethics. The idea of ethics in business is not new. It can be traced back to 19th century philanthropists, such as the early socialist entrepreneur Robert Owen, as already mentioned, and various Quaker-owned businesses.17, 18 In 1920s Henry Ford believed he ought to pay his workers enough to afford to buy the cars they produced. That policy appeared to place him at disadvantage, since the wages and job security at his plants were well in excess of the norm in the auto industry at the time. But his decision ultimately benefited Ford Motor Company by making it an attractive employer and by stimulating demand for its products.19 Nevertheless, what is more important, at the same time, Fords move benefited wider society by raising the bar for

15

May S., Cheney G., Roper J., (2007), The debate over corporate social responsibility , Oxford University Press, Oxford, page 4 16 Kreis, S. (2004), Lectures on Modern European Intellectual History (Robert Owen), available at: http://www.historyguide.org/intellect/owen.html 17 The Religious Society of Friends is a movement that began in England in the 17th century. Members of this movement are informally known as Quakers. 18 Hopkins, M. (2003), The Planetary Bargain Corporate Social Responsibility Matters, Earthscan Publications, Ltd., London, page 24 19 Martin, R. (2002), The Virtue Matrix: Calculating the return on Corporate Responsibility , in Harvard Business Review on Corporate Responsibility (2003), Boston, page 89

pay and labour practices across the auto industry. Thus, perhaps unwittingly, Henry Ford used simple CSR tools without ever knowing anything about CSR concept. Hand in hand with the above mentioned development, economic theories also moved forward from Adam Smiths rule of invisible hand of the market and preference of profit above people via the Alfred Marshalls theory categorizing economics as a moral science enrooted in ethics20 to Elton Mayo emphasizing social and psychological factors and their impact on work and also to Peter Drucker stating that profit is not the primary goal, but rather an essential condition for the company's continued existence. The business theorist of Norwegian origin, Thorsten Veblen, wrote about the concept of enterprise accountability back in the 1920s in his widely quoted book, The Engineers and The Price System.21 Another father of early corporate social responsibility theory was the German economist Karl William Kapp who published his most acclaimed work, The Social Costs of Private Enterprises in the 1950s, in which he openly criticised the lack of social and environmental conscience of American enterprises.22

1.2.2 Modern History of Corporate Social Responsibility

Even though CSR has to be understood and explained as a compact complex encompassing both internal and external dimensions and social and environmental aspects, for a better understanding this subchapter is divided into two streams social and environmental. Such separation finds also support in an underlying fact that social and environmental issues had a little different historical development and they were not always seen as two sides of the same coin. 1.2.2.1 Social Aspects of Corporate Social Responsibility The 1950s saw the start of the modern era of CSR when it was more commonly known as social responsibility. In 1953, Howard Bowen published his book, Social Responsibilities of the Businessman, and is largely credited with coining the phrase corporate social responsibility and is perhaps the father of modern CSR. Bowen advocated that CSR was industrys obligation to pursue those policies, to make those decisions, or to follow those lines of actions which are desirable in terms of objectives and values of society.23 Bowen took a broad approach to business responsibilities,

20

Perrieni F., et al., (2006), Developing Corporate Social Responsibility A European Perspective, Edward Elgar Publishing, Inc., Northampton, page 1-2 21 Metrovi, S.G. (2003), Thorstein Veblen on Culture and Society, e-book by Google, available at: http://books.google.com/books?id=-EcqVNbTfIEC&hl=cs 22 On-line (2008), Biographical Information K. William Kapp, available at: http://www.kwilliam-kapp.de/index.html
23

Bowd, R., et al. (2003), CSR A Schools Approach to an Inclusive Definition: Setting the Scene for Future Public Relations and Communications Research, Centre for Corporate and Public Affairs, Manchester Metropolitan University, available at: http://www.cipr.co.uk/groups/special/csrnetwork/special16e_3.htm

10

including

responsiveness,

stewardship,
24

social

audit,

corporate

citizenship

and

fundamental stakeholder theory.

Another thinker, management guru Peter Drucker was one of the first to explicitly address CSR, including public responsibility as one of the eight key areas for business objectives developed in his 1954 book, The Practice of Management. While Drucker believed that managements first responsibility to society involved making a profit, he felt it was also most important that management consider the impact of every business policy and action upon society.25 Bowens and Duckers as well as others conceptions were based on classical Greek philosophy represented by Socrates and Plato. Particularly relevant is Socrates opinion that managers should treat with entrusted property, as it was their own.26 A landmark in modern CSR was 1971 when the Committee for Economic Development27 (hereinafter also CED) in the USA published the report Social Responsibilities of Business Corporations. As a code of conduct, the CED outlined a three-tiered model of CSR: The inner circle: the basic responsibilities an organisation has for creating profit and growth; The intermediate circle: an organisation must be sensitive to the changing social contract that exists between business and society when it pursues its economic interests; and The outer circle: the responsibilities and activities an organisation needs to pursue towards actively improving the social environment.28 Theoretical improvement of CSR concept ensured economist Carroll. He categorised CSR along four layers, which he labelled economic, legal, ethical and discretionary responsibilities. The four classes reflect that the history of business suggests an early emphasis on the economic and then legal aspects and a later concern for the ethical and discretionary aspects. In 1991, Carroll first presented his CSR model as a pyramid, as shown in Figure 1.1: Pyramidal Structure of Corporate Social Responsibility on the following page. It was suggested that, although the components are not mutually exclusive, it helps the manager to see that the different types of obligations are in a
24

Thomas, G., Nowak, M. (2006), GSB Working Paper No.62, Corporate Social Responsibility: A definition , available at: http://www.cbs.curtin.edu.au/files/GSB_Working_Paper_No._62_Corp_Social_Resp_A_definition_Thomas___Nowak.pdf
25

Thomas, G., Nowak, M. (2006), GSB Working Paper No.62, Corporate Social Responsibility: A definition , available at: http://www.cbs.curtin.edu.au/files/GSB_Working_Paper_No._62_Corp_Social_Resp_A_definition_Thomas___Nowak.pdf
26

Xenophon (380 BC), Economics, available at: http://www.perseus.tufts.edu/cgi-bin/ptext?doc=Perseus%3Aabo%3Atlg% 2C0032%2C003&query=init.

27

The Research and Policy Committee of the Committee for Economic Development was a consortium of business leaders, academics, consultants, and government leaders who called for re-examination of businesss role in society.
28

Sbarcea, K. (2007), The evolution of CSR, available at: http://thinkingshift.wordpress.com/2007/03/27/the-evolution-ofcsr/

11

constant tension with one another.29 Very important is that the model has been empirically tested and largely supported by the findings and that it incorporates and gives top priority to the economic dimension as an aspect of CSR. Even though CSR is well rooted in todays business environment, CSR had in its modern history and still has opponents. One of the most influential opponents was famous economist Milton Friedman who advocated that there is one and only one social responsibility of business - to use its resources and engage in activities designed to increase its profits, so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.30
Figure 1.1: Pyramidal Structure of Corporate Social Responsibility

Source: Figure based on lecture of Bakhsheshy, A. (2007), Corporate Citizenship, Social Responsibility, Responsiveness, and Performance, available at: http://home.business.utah.edu/mgtab/BS-02.ppt

Even though Friedman was a strongly against CSR concept, today, we can extend his famous opinion on CSR and in this way transform his disapproving view. Important words in his definition of staying within the rules of the game in 1970 extended only to the basic free market principles, but nowadays the list of rules of the game would be much longer. Societys expectations of business increase every year, and no firm can hope to be successful without taking into account of those expectations - whether it is a reduction in pollution, detailed contents labelling, or additional health benefits.31 The frameworks that have built up around CSR can help companies to make sense of these

29

Visser, W. (2005), Revisiting Carrolls CSR Pyramid: An African Perspective, available at: http://www.waynevisser. com/chapter_wvisser_africa_csr_pyramid.pdf 30 Friedman, M. (1970), The Social Responsibility of Business is to Increase its Profits, The New York Times Magazine, available at: http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html 31 Cooper, S. (2007), CSR Milton Friedman was right, available at: http://www.bathconsultancygroup.com/documents /CSR%20-%20Milton%20Friedman%20was%20right.pdf

12

expectations, and achieve a balanced approach to their responsibilities. A lot has changed since Friedman wrote his article. Today, companies are learning they can increase profits as a result of their CSR efforts, not despite them. 1.2.2.2 Environmental Aspects of Corporate Social Responsibility Human beings do not only assimilate with their surroundings but actively adjust them according to their needs. The intensity and kind of such an influence followed the development of civilization (e.g. invention of iron enabled to make tools enabling agriculture in less convenient areas). These human beings actions had both positive and negative impact. Thomas Robert Malthus (1766-1834) ranks among the pioneers investigating the disproportion between the growth of population and available natural sources. With growth of pollution, extinction of some species, and appearance of other environmental problems more scientists and politicians started paying attention to the problematic and realized, the problems are not only on the local level but have global character (e.g. R. Carson in book Silent Spring (1962), General Secretary of the United Nations U Thant). The establishment and work of the association called the Club of Rome in 1968 meant a significant step in the environmental problematic, crossing boundaries by including more than 30 scientists from 10 countries into the project. Foundation stone to the environmental politics was laid in 1972 in Stockholm at the 1st United Nations Conference on the Human Environment (also known as the Stockholm Conference).32 The formulation of the idea of sustainable development is considered as the most important conclusion of United Nations activities in 1970th and 1980th. The United Nations was aware that the global progress cannot be stopped but must meet the needs of the present without compromising the ability of future generations to meet their own needs.33 Sustainable development can be conceptually broken into three constituent parts: environmental sustainability, economic sustainability and socio-political

sustainability. Further United Nations summits concluding in more or less successful results followed: Earth Summit in Rio de Janeiro in 1992 concluding Rio Declaration on Environment and Development, Agenda 21, Convention on Biological Diversity, Forest Principles, Framework Convention on Climate Change.34

32

United Nations Environment Programme (1972), Report of the United Nations Conference on the Human Environment , available at: http://www.unep.org/Documents.Multilingual/Default.asp?DocumentID=97
33

United Nations General Assembly Resolution 42/187 (1987), Report of the World Commission on Environment and Development, available at: http://www.un.org/documents/ga/res/42/ares42-187.htm
34

Kvasnikov, D., et al. (1998), Environment, Complementary Text to Basics of Ecology , Fragment, Havlkv Brod, page 6-7

13

Earth Summit in Johannesburg in 2002 adopting the Johannesburg Declaration that built on earlier declarations made at Stockholm in 1972, and in Rio de Janeiro in 1992.

Traditionally, environmental protection has been considered to be in the public interest and external to private life. Governments have assumed principal responsibility for assuring environmental management, and have focused on creating and preserving a safe environment. They have directed the private sector to adopt environmentally sound behaviour through regulations, sanctions and occasionally, incentives. When

environmental problems have arisen, the public sector has generally born the responsibility for mitigation of environmental damage. In this approach, some have contended that unrestricted private sector behaviour has been considered as presenting the environmental problem. However, the roles of sectors have been changing, with the private sector becoming an active partner in environmental protection. Many governments and businesses are now realizing that environmental protection and economic growth are not always in conflict. An earlier emphasis on strict governmental regulations has ceded ground to corporate self-regulation and voluntary initiatives. As a result the environmental aspect of CSR can be defined as duty to cover the environmental implications of the companys operations, products and facilities; duty to eliminate waste and emissions; duty to maximize the efficiency and productivity of used resources; and duty to minimize practices that might adversely affect the enjoyment of the countrys resources by future generations.35 Today in the global economy, where the Internet, the news media and the information revolution shine light on business practices around the World, companies are more frequently judged on the basis of their environmental stewardship. Increasingly business partners, governments and consumers want to know what is inside a company. This transparency of business practices means that for many companies, environmental aspects of CSR, are no longer a luxury but a requirement.

1.3 What Corporate Social Responsibility Is Not

What CSR is has already been stated above and in a more detail is further elaborated in subsequent chapters. However, sometimes CSR is misconstrued or wrongly understood or mistaken for sole corporate philanthropy or elementary compliance with the law. An important question in this respect is what CSR is not. What CSR is not can be grouped

35

Mazurkiewicz, P. (2004), Corporate Environmental Responsibility: Is a common CSR framework possible? , available at: http://siteresources.worldbank.org/EXTDEVCOMSUSDEVT/Resources/csrframework.pdf

14

into two main areas or clusters: social irresponsibility and misuse or sole usage of some CSR tools (or initiatives).

1.3.1 Corporate Social Irresponsibility

As CSR is sometimes difficult to define, business managers some while looked at the problem in terms of what companies should not to do, i.e. corporate social irresponsibility. According to J. S. Armstrongs definition, a socially irresponsible act is a decision to accept an alternative that is thought by the decision maker to be inferior to another alternative when the effects upon all parties are considered. Generally this involves a gain by one party at the expense of the total system.36 As Armstrong suggested, a key element of corporate social irresponsibility is the exploitation of negative externalities. The externality is situation in which the private costs or benefits to the producers or purchasers of a good or service differs from the total social costs or benefits entailed in its production and consumption. An externality exists whenever one individual's actions affect the well-being of another individual, and can be either positive or negative.37 Innovation is an example of a positive externality, fitting within notions of CSR that focus on benefits of commercial activity accruing to society. But negative externalities are also an inevitable reality of commercial activity. Negative externalities effectively transfer companys costs to unwilling or unwitting recipients, benefiting the company at the expense of the total system.
Figure 1.2: The Continuum of Business Behaviour, from Corporate Social Irresponsibility to Corporate Social Responsibility

Source: Based on Clark, T. S. (2008), What CSR is not: Corporate Social Irresponsibility, Critical Management Studies Conference of University of Southern California, available at: http://group.aomonline.org/cms/Meetings/Los_Angeles /Workshop08/tsc.doc

36

Armstrong, J. S. (1977), Social Irresponsibility in Management, Journal of Business Research, (September, 1977), available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=649087# 37 Johnson, P. M. (2005), Externality, A Glossary of Political Economy Terms, available at: http://www.auburn.edu/~johnspm/gloss/externality

15

It has to be stressed that a border between CSR and corporate social irresponsibility is vague. On the other hand a border between legal and illegal actions and behaviour can be defined usually precisely. However, as Figure 1.2: The Continuum of Business Behaviour, from Corporate Social Irresponsibility to Corporate Social Responsibility on the previous page depicts, behaving in accordance with the law does not necessarily mean behaving responsibly. It only means behaving legally. Corporate social responsibility is more as it goes beyond the common framework of the law. Another example of social irresponsibility is insistently sticking to stockholder model without considering any other interest groups and environment. The stockholder role advocates that the manager distributes rewards to maximize the returns to the stockholder. Since the market is generally imperfect, decisions to maximize the benefits to the stockholder can often be accomplished at the expense of the other interest groups. Consider the case of air pollution; the local community provides a resource (clean air) to the company and, in return, it receives dirty air. The stockholder gains in this transaction, and the local community loses. As a result, the manager following the stockholder role is encouraged to take action that will reduce the effectiveness of the free market. The stockholder role encourages the manager to create situations where one party gains at the expense of another. In contrast to the stockholder role, the stakeholder role suggests that the manager serves more masters, more interest groups. The manager is responsible not only to shareholders but to more interest groups. Thus market imperfections can be overcome and a company can behave responsibly not only to shareholders but to a specific set of interest groups and environment.

1.3.2 Misuse and Sole Responsibility Tools

Usage

of

Some

Corporate

Social

Similarly as irresponsible behaviour pure philanthropy is not CSR. Corporate philanthropy is an integral part of CSR but definitely not CSR as such. Companies that are generous in their giving, in their philanthropic activities do not necessarily have to be also socially responsible. CSR goes beyond philanthropy as it is a part of corporate strategy defined by the top management and implemented throughout the whole company. Even sometimes corporate philanthropy can be considered as irresponsible when it is misused by the management to tax evasion purposes. Similar applies to commercial sponsorship it is a tool but not CSR itself. Even more difficult is to distinguish CSR from public relations (hereinafter also PR). Public relations are a type of marketing communication that is used to project the

16

companys image to the outside world. The objective of a PR campaign is to represent the company in the media and to communicate the companys perspective. Effective PR is a less way to popularize a company as compared to other marketing methods such as advertising. Importantly, CSR is not an element of PR even though there exists a certain overlapping of these two. PR can and should be used as a tool for providing stakeholders with the true information about a company and its CSR activities. Thats all. Spending more money on publishing a great CSR report than on CSR itself can be regarded as irresponsible and counterproductive. According to Alan VanderMolen, President of Edelman Asia Pacific, CSR is not a good PR. Mistaking CSR for good PR can actually be counterproductive and potentially damaging for a company's reputation.38 Also using CSR cynically as a smokescreen to avoid having to take serious actions to improve the social and environmental performance of companys operations or mask its lobbying activities does not have anything common with true CSR. CSR is not a one-size-fits-all policy. Companies have to assess how vulnerable they are to customer criticism before deciding which CSR measures to adopt. Usually companies that sell to the general public tend to be more vulnerable if they are not being socially responsible. These companies that do rely on custom of the general public to make a profit, have to think hard about their impact on society and the environment.39 CSR will not save the world as there are limitations of CSR. Basically, there are no material incentives for companies, either legal or financial, to go more than marginally beyond competitors in their CSR activities. The CSR framework does not address those who breach principles. And, current legal systems do not give stakeholders the right to enforce CSR. Finally, CSR is not and never has been about making money. It is about treating the people who work for a company, the community within which it operates, and other stakeholders with respect. Money only comes into it because businesses have, by definition, to be able to cover their costs. So CSR should not result in a company making a loss. That is different to CSR making a profit.

1.4 Definition of the Stakeholder Concept and its Relation to Corporate Social Responsibility
The stakeholder concept is a theory of organizational management and business ethics that addresses morals and values in managing an organization. It was originally detailed

38 39

Writer, S. (2008), CSR is not good PR: study, available at: http://www.marketing-interactive.com/news/5441 Martin, K. (2008), CSR is not one-size-fits-all, available at: http://www.edie.net/news/news_story.asp?id=14526

17

by R. Edward Freeman in the book Strategic Management: A Stakeholder Approach.40 The concept identifies and models the groups, which are stakeholders of a company and describes and recommends methods by which management can give due regard to the interests of those groups. According to Freemans definition a stakeholder in an organization is any group or individual who can affect or is affected by the achievement of the organizations objectives. 41 In the traditional view of the company, the shareholder view (usually the only one recognized in business law in most countries), the shareholders or stockholders are the owners of the company. The company has a binding fiduciary duty to put their needs first - to increase value for them. In older models of the company, the enterprise converts the inputs of investors, employees, and suppliers into usable outputs which customers buy, thereby returning some capital benefit to the enterprise. By this model, companies only address the needs and wishes of those four parties: investors, employees, suppliers, and customers. However, stakeholder theory argues that there are other parties involved, including governmental bodies, political groups, trade associations, trade unions, communities, various interest groups (e.g. non-profit organizations), associated companies, prospective employees, prospective customers, and the public at large. Sometimes even competitors are counted as stakeholders. Companys stakeholders can be grouped, for example, in the following four categories, as portrayed in Figure 1.3: Authorizers Stakeholder Model on the following page: group includes government, regulatory authorities,

this

shareholders, and the Board of Directors. These are the stakeholders who have authority over the company and authorize its decisions; Business partners employees, suppliers, trade associations, and service providers are all business partners. These stakeholders help company in reaching its objectives; Customer groups all kind of customers fall within this stakeholder group; and External influences community members, media, and issue advocates also influence companys decision-making process. The stakeholder concept is highly relevant for CSR, as without it would be difficult to identify various groups (stakeholders) that can be, and actually in practice are, highly influential for companys success. Further, also many modern definitions of CSR

40

Walsh, J.P. (2004), Taking Stock of Stakeholder Management, University of Michigan, available at: http://www.si.umich.edu/ICOS/Jim%20WalshICOS.pdf 41 Mitchell, R., et al. (1997), Toward a Theory of Stakeholder Identification and Salience: Defining the Principle of Who and What Really Counts, available at: http://www.solvaymba.com/FR/Programmes/Desmap/documents/police/docs/maw97.pdf

18

incorporate stakeholder theory (e.g. Chandler, the European Commission), for detail see subchapter Defining Corporate Social Responsibility. Also, using stakeholder concept can help in measuring CSR. Clarkson proposed that corporate social performance can be analysed and evaluated more effectively by using a framework based on the management of a corporations relationships with its stakeholders than by using models and methodologies based on concepts concerning CSR.42
Figure 1.3: Stakeholder Model

Source: Based on Dell (2007), Dell's Sustainability Report for fiscal year 2006, available at: http://www.dell.com/downloads /global/corporate/environ/2006_sustainability_report.pdf

Relationships with stakeholders are not static but evolve over time. These relationships often go through the following stages: Awareness at this stage stakeholders know that the company exists; Knowledge stakeholders have begun to understand what the company does, its values, strategy, and mission. During this stage companies provide stakeholders with relevant information to make knowledgeable decisions; Admiration in this stage trust between companies and stakeholders is being developed; and

42

Clarkson, M. B.E. (1995), A Stakeholder Framework for Analyzing and Evaluating Corporate Social Performance, available at: http://www.gsb.tt/academic/uploads/A_stakeholder_framework_for_analysing_and_evaluating_CSP.pdf

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Action companies collaborate further with stakeholders. Customers refer business, investors recommend the stock, and employees are willing to take greater responsibility.43

Similarly as CSR, stakeholder concept has also its critics. One of their arguments is that stakeholderism aims to take rights away from the owners, who can be assumed to constitute a single body with a common purpose, and to give those rights to a plurality of groups, which would include shareholders but in a much diminished role.44 Surely, this claim has a lot true in it, but stakeholder concept does not want to take rights away from shareholders, only to increase a number of groups, which has to be taken into account when making decisions in the company.

1.5 Current Development in Corporate Social Responsibility

Recent theories of CSR assert that firms engage in profit -maximizing CSR.45 That is, companies are assumed to be socially responsible because they anticipate a benefit from these actions. Examples of such benefits might include reputation enhancement, the ability to charge a premium price for its output, or the use of CSR to recruit and retain high quality workers. These benefits are presumed to offset the higher costs associated with CSR, since resources must be allocated to allow the company to achieve adequate CSR status, i.e. adequate level of CSR. Despite the lack of a commonly agreed definition of CSR, as has already been mentioned in the subchapter Definition of Corporate Social Responsibility, there can be identified a consensus among academics and business professionals about key trends in the CSR area. Three key trends are the following: Beyond philanthropy to more integrated approaches in the mainstream business. For a growing number of companies, the concept of CSR has moved beyond traditional philanthropy, although philanthropy remains important. Also philanthropy became more strategic, i.e. aligned with the companys strategy and operation. Beyond public relations to a greater accountability and stakeholder engagement. For more than a decade there exists a growth in demands by stakeholders, including shareholders, for companies to demonstrate greater accountability,

43

Epstein, M.J. (2008), Making Sustainability Work Best Practices in managing and Measuring Corporate Social, Environmental and Economic Impacts, Greenleaf Publishing, page 42-43
44

Barry, N. (2002), The Stakeholder Concept of Corporate Control is Illogical and Impractical, The Independent Review, volume VI, no. 4, Spring 2002, available at: http://www.independent.org/pdf/tir/tir_06_4_barry.pdf
45

Baron, D. (2001), Private politics, corporate social responsibility and integrated strategy , Journal of Economics and Management Strategy, 10, page 7-45; and McWilliams, A., Siegel, D. (2001), Corporate social responsibility: A theory of the firm perspective, Academy of Management Review, 26, page 117-127

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transparency and integrity and not only in terms of their financial accounts and statements, but also in terms of their wider social, economic and environmental impacts. Beyond legal compliance to a greater clarity of principles and values. There has been a growing recognition of the need to balance rules with values and for companies to have greater clarity, both internally and externally, in terms of their purpose, principles and values, backed up by penalties and remediation when these are not met.46 Effective CSR is more than a response to external stakeholder expectations, or an effort to manage social and environmental risks and harness new business opportunities. It is a statement about what a company stands for and would stand by, even if this sometimes incurs additional costs or results in a lost business opportunity. It requires that business owners, business managers, and employees not only comply with the law, or undertake actions that they can directly link to financial gain, but also aim to do the right thing. Since the last decade of 20th century a great number of manufactures, retailers and service companies all around the World, but particularly in developed countries, has adopted voluntary standards for labour conditions, environmental practices and human rights. Often these new commitments have been incorporated into corporate and industry codes, multi-stakeholders initiatives and private standard setting bodies, frequently with reporting and monitoring requirements. This complex of soft laws has helped to create new social and environmental norms for several important dimensions of business conduct. Globally, civil regulation represented by CSR movement has produced important changes in business practices, including: Reduction in the employment of child labour and improvement in health and safety conditions in many companies;47 An increase in the prices some agricultural producers in developing countries notably coffee growers received for their products;48 A reduction in the quantity of wood products sold in the United States and Europe produced from tropical, oldgrowth, and endangered forests; A decrease in greenhouse gas emissions or in their rate of growth; The withdraw of many companies from countries, where exist strong violation of human rights, where local government are corrupt and impoverish its citizens;49
46

Nelson, J. (2004), The Public Role of Private Enterprise: Risks, Opportunities, and New Models of Engagement , available at: http://www.hks.harvard.edu/m-rcbg/CSRI/publications/workingpaper_1_nelson.pdf 47 Robins, N., Humphrey, L. (2000), Sustaining the Rug Trade, International Institute for Environment and Development, available at: http://www.iied.org//bookshop 48 Zadek, S., et al. (1998), Social Labels: Tools for Ethical Trade, New Economics Foundation for the European Commission, available at: http://www.oit.org/dyn/basi/docs/F126/social_labels_tools.pdf

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An improvement of some of the negative environmental and social impacts of natural resource development in the developing countries.

Even though CSR movement has done a lot of good things and still is developing further, some academics predict its decline; and not because of the financial crisis or recession. Stefan Stern has claimed, In the inevitable life cycle of management, CSR is now heading for the exit. Customers are generally unconvinced by the hype. And social responsibility was always too flimsy concept to gain serious traction with business leaders. That gives us a clue as to the identity of the next Big Thing in management: sustainability. Unlike CSR, this concept has some meat and commercial potential to it. Innovations that make money while helping to reduce carbon emissions are actually worth pursuing.50 Personally, I disagree with Mr. Stern. Sustainability cannot replace CSR concept, as sustainability actually is part of CSR. Sustainability is only a small part in much bigger CSR mosaic. On my side is also the European Commission, which commends companies to go beyond minimum legal requirements to address societal needs. Also CSR concept has been strongly supported by Patrick Cescau, Unilevers Chief Executive. He said, Companies commitment should go further than philanthropy, although that still had its place. He also said that companies and non-governmental organisations were no longer automatic adversaries. In many cases, they worked together. Most important, Mr. Cescau said, CSR involved understanding that many of the big social and environmental challenges of our age, once seen as obstacles to progress, have become opportunities for innovation and business development.51 These days CSR field is becoming more crowded. The early lead in CSR enjoyed by Europe based companies is now being challenged both by US businesses and by enterprises in China and India. Sustainable and ethical practices are fast becoming basic requirements for doing business, nationally and globally. This reality means the question is no longer about whether a business case can be made for CSR it's about how to maximize the return on the investment. There are many ways to look at returns from CSR but the most significant result from the power of CSR is an improvement in companys performance. Here is one example from real life by Tim Smart, President of BT Global Services UK: Action to cut waste and consumption may reduce carbon emissions, but in the process can also deliver significant cost savings. These savings

49

Vogel, D. (2006), The Market for Virtue, The Potential and Limits of Corporate Social responsibility , Washington, D.C., Brookings Institution Press, page 150-152 50 Stern, S. (2008), Goodbye to corporate social responsibility?, available at: http://www.johnelkington.com /activities/ideas.asp 51 Skapinker, M. (2008), Corporate responsibility is not quite dead, available at: http://www.ft.com/cms/s/0/7990a3ec-d8a911dc-8b22-0000779fd2ac.html?nclick_check=1

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can be immediate for instance, in the form of reduced energy costs or they can result from subtler, longer-term improvements in human resource management.52 Finally, eminent role in current development of CSR, similarly as in its history, plays profit. Profit, in good times and bad, is where any discussion of companies responsibilities should start. Without profit, there is no future for shareholders, employees, customers, business partners or in other words for stakeholders. Without profit, there is no future for CSR.

52

Smart, T. (2007), Accelerating commercial performance through CSR, available at: http://www.businessgreen.com /business-green/comment/2203823/accelerating-commercial

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Chapter 2.

Perspectives of Responsibility

Corporate

Social

2.1 Role of the Government in Corporate Social Responsibility Concept

From the industrial revolution to recent years, social objectives have been almost entirely the responsibility of government. Social movements, non-profit organizations activities and pressure groups during the 1970s and 1980s led to the mobilisation of public opinion demanding from corporations to demonstrate a socially responsible stance. Since the earlier twentieth century, European as well as other countries all around the globe have developed legislation to control the relationship between employee and the company, health and safety at work, issues of environmental interest, discrimination and equal opportunities at workplace. In Europe, state owned companies were created to pursue commercial and social objectives, whereas private sector companies were allowed to pursue their commercial objectives almost exclusively. Legislation, regulation and taxation have been the favourable tools employed by governments to promote and protect social objectives. In the area of the environment, command and control techniques have been favoured by the European countries since the 1970s whereas a shift towards shared responsibility between government and industry is another favourable policy approach since the mid 1990s. For instance in the United Kingdom, the governments privatisation programme of the 1980s shifted public expectation of the private sector. Whilst until then, social objectives had been mainly the responsibility of government, the privatisation of gas, water and electricity introduced a new paradigm. It created public companies owned by shareholders pursuing the same kind of financial returns as in any other public company, but the companies had also clear social objectives. In the case of the privatised utilities, these social objectives were managed through the regulatory regime, but the existence of the companies as stock market vehicles demonstrated that financial and non-financial objectives could co-exist.53 A question of interest therefore is, whether government should assist business to exceed its legal obligations and hence commit itself to socially responsible behaviour, as defined in current terms. Interestingly, recently published studies [Fox 2002, Bichta 2003], suggested that government might play a role to encourage and promote the social

53

Bichta, C. (2003), Corporate Social Responsibility - A Role in Government Policy and Regulation?, Research Report No. 16, University of Bath School of Management, available at: http://www.bath.ac.uk/cri/pubpdf/Research_Reports /16_Bichta.pdf

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responsibility of business. As Table 2.1:

Principal public sector roles in relation to

Corporate Social Responsibility shows, researchers from the World Bank have identified four principal public sector roles in relation to CSR that are mandating, facilitating, partnering and endorsing roles.
Table 2.1: Principal public sector roles in relation to Corporate Social Responsibility Defining command and control legislation Enabling legislation Funding support Partnering role Endorsing role Combining resources Political support activities Establishing regulators and inspectorates Creating incentives Raising awareness Promoting and supporting stakeholder engagement Defining and enforcing legal and fiscal penalties and awarding rewards Capacity building Stimulating markets Supporting and mediating constructive dialogue Publicity and praise of achievements

Mandating role

Facilitating role

Source: Based on Fox, T., Ward, H., Howard, B. (2002), Public Sector Roles in Strengthening Corporate Social Responsibility: A Baseline Study, Corporate Responsibility for Environment and Development Programme - International Institute for Environment and Development, available at: http://www.fias.net/ifcext/economics.nsf/AttachmentsByTitle/CSRCSR_interior.pdf/$FILE/CSR-CSR_interior.pdf

Four principal public sector roles in strengthening CSR are the following: Mandating role: In their mandating role, governments at different levels define minimum standards for business performance embedded within the legal framework. Examples include establishment of emission limit values for particular categories of industrial installations, or requirements for company directors to take particular factors into account in their decision-making. Even mandating activity can drive industrial innovation and best practice. For example, the familiar notions that enterprises should apply the best available techniques, best available technology, or the best practicable environmental option to manage industrial emissions allow for the fact that what is best will change over time with technological innovation and technology transfer. Facilitating role: Setting clear overall policy frameworks and positions to guide business investment in CSR, development of nonbinding guidance and labels or codes for application in the marketplace, laws and regulations that facilitate and provide incentives for business investment in CSR by mandating transparency or disclosure on various issues, tax incentives, investment in awareness raising and research, and facilitating processes of stakeholder dialogue. Partnering role: Combining public resources with those of business and other actors to leverage complementary skills and resources to tackle issues within the CSR agenda, whether as participants, convenors, or catalysts.

25

Endorsing role: Showing public political support for particular kinds of CSR practice in the marketplace or for individual companies; endorsing specific award schemes or non-governmental metrics, indicators, guidelines, and standards; and leading by example, such as through public procurement practices.54

The theoretical debates and the political discussions around the notion of governments role in CSR suggest that there are two prevailing perspectives of CSR, which consequently facilitate the development of two competing CSR models. Figure 2.1: Two contrasting models of Corporate Social Responsibility provides a schematic overview of the two models.
Figure 2.1: Two contrasting models of Corporate Social Responsibility

Stakeholder Model Principle Avoid undertaking socially unacceptable practices Stakeholder interests to be represented at company level Practice CSR is integral part of decision-making Proactive approach that goes beyond the law

Revised corporate law

Government

Company

Business Case Model Principle Self-interest, commercial priorities Practice Voluntary action, CSR best practice, compliance with and beyond legal standards

Minimum legal standards, tax incentives Corporate law

Government
Company

Source: Bichta, C. (2003), Corporate Social Responsibility - A Role in Government Policy and Regulation?, Research Report No. 16, University of Bath School of Management, available at: http://www.bath.ac.uk/cri/pubpdf/Research_Reports /16_Bichta.pdf

The first perspective of CSR is derived from the stakeholder model and contains the commitment of the firm not to undertake socially unacceptable practices e.g. using suppliers who employ child labour. This approach is more in line with the ethical and social norms of the rest of society and of individual managers. Corporate responsibility is interpreted proactively; the company has a positive responsibility to adopt, rather than avoid, certain norms of behaviour in relation to communities. This approach also assumes that this proactive behaviour will not be static. As social trends and attitudes evolve, so will the proactiveness of the company. CSR issues correspond to the mission and vision of the company and hence become an integral part of daily decision-making.
54

Ward, H. (2004), Public Sector Roles in Strengthening Corporate Social Responsibility: Taking Stock, International Institute for Environment and Development, available at: http://www.iied.org/pubs/pdfs/16014IIED.pdf

26

The second perspective supports the widely cited business case for developing and monitoring sustainable relationships with key stakeholders including employees, suppliers and local communities. These relationships are used to provide companies with legitimacy and trust, which constitutes a source of competitive advantage. Consequently, there is no long-run trade-off between the interests of stakeholders and shareholders.55 The first approach requires firms to practice CSR proactively as CSR is embedded in organisational values, and firms are required to demonstrate behaviour that goes beyond legal requirements. The second approach expects companies to adhere to best practice standards developed either voluntarily by industry or jointly developed by industry and government. There is a place and role for government under both perspectives in that the stakeholder model of the company expects government to revise corporate law and make it obligatory for firms to have the interests of stakeholders represented in board meetings and the decision-making of the company. The business case for CSR recognises two sets of corporate legal standards: the corporate law i.e. the promotion of interests of the companys shareholders and the setting of legal standards e.g. environmental protection, labour practices, human rights, discrimination etc. Government may also intervene through tax incentives and subsidies under the business case for CSR.56 According to Cowe and Porritt, the important thing for business and society at large is to understand the limit to voluntary action, which is the point where government need to intervene. If humankind is to live within the Earths capacity and share its resources equitably, economies must be transformed. And that cannot be done by business alone.57 Finally, according to the author of the dissertation, governments all around the globe should play an important and active role in promoting and mainstreaming CSR. Governments should be helping business to achieve corporate social responsibility through regulation (i.e. setting appropriate legal framework), control and enforcement environment, subsidies and tax incentives. Especially governments should be the first to apply CSR standards within their operations, e.g. within their procurement policies, and in this way also promote CSR practices. Substantial progress in this respect have made European countries, which are today at the forefront of CSR movement.

55

Grayson, D. (1996), The Community as a Stakeholder, Corporate Governance and Competitiveness, Institute for Public Research, London, in Bichta, C. (2003), Corporate Social Responsibility - A Role in Government Policy and Regulation?, Research Report No. 16, University of Bath School of Management, available at: http://www.bath.ac.uk/cri/pubpdf /Research_Reports/16_Bichta.pdf
56

Reich, R. B. (1998), The New Meaning of Corporate Social Responsibility, California Management Review, Volume 40, page 8-17
57

Cowe, R, Porritt, J. (2002), Governments Business Enabling Corporate Sustainability, Forum for the Future, page 3

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2.2 Corporate Social Responsibility in Global Dimensions

21st centurys world is more interconnected, more globalized than ever. It has to be noted that ongoing globalization will not cease but it is expected the globalization will go forward as well as national borders will slowly be pushed to the background as free movement of capital, persons, information and liberalization of trade take a step forward. It would be foolish to think the CSR concept and CSR movement will stay aside this global trend. Recent history of CSR proved the CSR is as globalized as all other areas of human activity. Globalization of CSR has been further driven by global problems and issues such as for example global climate change, lack and contamination of fresh and drinking water, pollution of environment, decrease of biodiversity, decrease of arable land, and hunger and extreme poverty. As solving of these highly complex issues would be inefficient at a local level, global approach and involvement of profit and non-profit sectors and governments all around the world is needed. Similarly global approach in CSR and carried out at a global level is more efficient than CSR conducted only locally; and CSR can and as recent history has already proved is helping tackle above-mentioned issues. Due to these and also various other reasons global CSR is growing and should not be overlooked. To say that much of the world differs from the Europe in this area is like saying that there is one set of rules for the world and one for the Europe. Actually, it is more a question of global harmonization. A company's social behaviour at home and abroad should be a reflection of itself no matter what. If a company behaves well as a good corporate citizen in its parent company but is guilty of social misbehaviour in other countries then there is a corporate hypocrisy that could come back to haunt this company. A reputable company operating in more countries should have a code of ethics and CSR policy that govern its employees and subsidiaries world-wide. To say that at home country a company will do things one way, but in a third world country the same company will do something else because the laws are less stringent is simply wrong. For CSR to add positive value it must be practiced everywhere, regardless of jurisdiction or national borders. If an enterprise operates in more countries, to simply write a CSR policy for the home country is not sufficient.58 The recent movement of CSR to a proactive orientation is not only a result of increased knowledge but also mirrors and works within a context of evolving global standards of human rights and the increased collaboration of corporate, non-governmental and governmental organizations in the development, monitoring, and implementation of

58

Thomas, C. (2001), Global governance, development and human security: exploring the links, Third World Quarterly, Volume 22, page 159175, available at: http://people.cas.sc.edu/coate/Readings/Thomas.pdf

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human rights and environmental protection standards. Especially practical connections between human rights and CSR are very powerful. Both human rights and CSR are concerned, among other freedoms, with the freedom of speech, freedom of movement and the right to earn a living wage for a days work. The emerging generation of CSR carries with it the recognition that a global framework is important for all organizations, both large and small. A global CSR is responsive to the multiple cultures, value sets, and communicative practices of different nations while recognizing that organizational contexts are no longer bounded by the nation state. Fundamental changes are emerging within the new generation of CSR. This transformation is strongly associated with dynamic processes of globalization including: The intensification and deepening of material, political, and cultural exchange; The development of global consciousness thorough processes of reflexivity; The disembedding of events and institutions which permits new realignments and restructuring of social interaction across time and space; Compression of time and space; and The rapid diffusion of ideas and knowledge enabled through new information technologies.59 Globalized CSR no longer distinguishes out there from in here. One of the most important features is that it embodies dynamic, intense, and extensive communicative, economic, cultural, and political exchanges and practices. In its early conceptualizations, CSR represented an individuals freedom from organizational wrongdoing by virtue of the corporation not violating the legal mandates of a particular society at a particular time. Those who fell outside the purview of a particular law or context were not included within the corporations responsibilities. Boundaries between nation states were strictly adhered to, and acceptable corporate behaviours were widely variable. On the other hand today, modern corporations with operations scattered around the globe are different animals from its predecessors. Principles of CSR and sustainable development have become more widely recognized by corporations around the world and increasing numbers of them are publicly discussing their activities.60 As already has been stated above, the growth of CSR also has an important global dimension frequently reflecting perceived governance shortcomings. The growth of private, market-based, non-state regulation that has emerged to govern a number of

59

Stohl, M., Stohl, C. (2006), A New Generation of Global Corporate Social Responsibility , Department of Communication University of California Santa Barbara, available at: http://www.allacademic.com//meta/p_mla_apa_research_citation /0/9/2/4/3/pages92436/p92436-3.php
60

Rondinelli, A. D. (2006), Globalization of Sustainable Development: Principles and Practices in Transnational Corporations, Center for International Business Education and Research Georgia Tech, available at: http://www.ciber.gatech.edu/workingpaper/2007/023-07-08.pdf

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sectors, most notably forestry, energy, minerals and mining, and textiles, is that global CSR standards represent a response to the failures of national and international business regulation. According to Moon and Vogels analysis, economic globalization, as measured by the growth of international trade and the expansion of international investment, has created a governance deficit. Much of the growth of global civil regulation is rooted in the perception that economic globalization has created a structural imbalance between the size and power of global firms and markets, and the capacity, willingness, and ability of governments to regulate them. Transnational corporations appear to wield power without responsibility. They are often as powerful as states and yet unaccountable.61 Non-governmental organizations have sought to step into the regulatory vacuum created by the inadequacies of both national governments and international institutions to regulate multinational corporations by forging alliances with consumers, institutional investors and companies. While they cannot replace the role of the state, these social movements have created new mechanisms of global business regulation.62
63

Professor Lipschutz from the University of California argues that global

CSR represents an effort to counter or challenge the increasing reluctance or unwillingness of national governments to impose regulations on global firms due to their fear that such regulations will discourage domestic investment and make their economies less competitive. Accounts of the origins of various mechanisms of global private governance often specifically situate them in the context of the shortcomings of international business regulation.64

2.2.1 Role of Small and Medium-Sized Companies in Global Corporate Social Responsibility
Regarding a role of SMEs in global CSR, SMEs are similarly as large companies involved in global CSR. However, they are usually not the key players but rather they are followers and those who are influenced by large and multinational companies as a consequence of them being incorporated into global production and value chains of these corporate giants. Because of great number of SMEs in national economies, their

61

Moon, J., Vogel, D. (2008), Corporate Social Responsibility, Government, and Civil Society , Oxford University Press, page 309-311, available at: http://www.haas.berkeley.edu/faculty/pdf/vogel_oxford_chapter.pdf
62

Newell, P. (2001), Environmental NGOs, TNCs, and the Question of Governance, in Stevis, D., Assetto, J. V. (2001), The International Political Economy of the Environment: Critical Perspectives , Lynne Rienner Publishers, page 85-106, available at: http://books.google.com/books?hl=cs&lr=&id=FlaA0HpxkZoC&oi=fnd&pg=PA85&dq=environmental+ngos+ and+globalization+%22Newell%22&ots=DMQIyll8Wl&sig=v6gyb3RQRC3hx1timh5ZjG4ZnX0#PPA104,M1
63

Weyzig, F. (2006), Local and global dimensions of corporate social responsibility in Mexico, Journal of Corporate Citizenship, available at: http://goliath.ecnext.com/coms2/gi_0199-6339646/Local-and-global-dimensions-of.html
64

Lipschutz, R. D., Rowe, K. J. (2005), Globalization, Governmentality and Global Politics: Regulation for the Rest of Us?, Routledge Publishing, page 44-46, available at: http://books.google.com/books?id=4zobBSphdYcC&hl=cs

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role in global CSR is also significant. Nevertheless, as stated below, their role in global CSR does not have to be always a positive one. According to findings of Danish researchers SMEs are less likely than larger companies to act as change agents for sustainable production in global value chains. Hence, the increased presence of SMEs in global supply chains is likely to have a negative effect on the pervasiveness of sustainability requirements in the value chain.65 This may have implications for both businesses and policy for two reasons. First, if SMEs fail to pass on social and environmental requirements to sub-suppliers in low-wage countries, lead firms may in turn face increasing risks of supplier failure in the subordinate tiers of the value chain. If SMEs lack the ability to perform rule-keeping functions66 in relation to sustainable supply chain management they may in time face rising barriers to entry into global value chains. Second, from a policy perspective, SMEs are important as change agents in global value chains in order to ensure the pervasiveness of sustainability standards. Increasing numbers of SMEs trade in global business-to-business markets for semi-manufactured goods. It is therefore important that SMEs are able to perform governance functions associated with sustainable production in global value chains.

2.3 Corporate Social Responsibility in Europe

2.3.1 General Aspects of Sustainable Development and Corporate Social Responsibility in Europe
Over the recent years the debate about CSR has spread very rapidly across Europe, particularly as a part of the intense discussion about sustainability and globalization. Discussion on sustainability and sustainable development to a certain degree preceded debate about CSR nevertheless today both these immensely important topics are discussed and dealt with hand-in-hand. As far as sustainable development is concerned, it has been a fundamental objective of the European Union since 1997 and also it was enshrined as article 2 of the EU Treaty67.
65

Jorgensen, A., Knudsen, J. (2006), Sustainable competitiveness in global value chains: how do small Danish firms behave?, The Copenhagen Centre for Corporate Responsibility, available at: http://ec.europa.eu/enterprise/csr/documents /mainstreaming/ms_sme_topic6_jorgensen.pdf 66 Rule keeping in sustainable supply chain management: once standards are adopted, they have to be implemented and enforced throughout the value chain. Rule keeping may entail applying sanctions against suppliers that do not comply with the standards that have been adopted. Sanctions may range from fines to a termination of business. However, rule keeping may also involve more positive steps such as capacity building, including transfer of technology and technical assistance to suppliers, in order to raise standards. 67 Treaty on European Union, Article 2, The Community shall have as its task, by establishing a common market and an economic and monetary union and by implementing common policies or activities referred to in Articles 3 and 4, to promote throughout the Community a harmonious, balanced and sustainable development of economic activities, a high level of employment and of social protection, equality between men and women, sustainable and non-inflationary growth, a high degree of competitiveness and convergence of economic performance, a high level of protection and improvement of the quality of the environment, the raising of the standard of living and quality of life, and economic and social cohesion and solidarity among Member States. Available at: http://eur-lex.europa.eu/en/treaties/dat/11992M/htm/11992M.html#0001 000001

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It is supposed to underpin all EU policies and actions as an over-arching principle. The EU first formulated its Sustainable Development Strategy during the 2001 Gothenburg European Council. Although sustainable development was embedded in the EU Treaty, its implementation remained a problem.68 In February 2005, the EU Commission took stock and confirmed that a number of unsustainable trends continue to worsen. The updated EU Sustainable Development Strategy was adopted by the European Council in June 2006. It is an overarching strategy for all EU policies which sets out how can be met the needs of present generations without compromising the ability of future generations to meet their needs. The Sustainable Development Strategy deals in an integrated way with economic, environmental and social issues and lists the following seven key challenges: Climate change and clean energy; Sustainable transport; Sustainable consumption and production; Conservation and management of natural resources; Public health; Social inclusion, demography and migration; and Global poverty.69

It is not accidental that above-mentioned seven key challenges of sustainable development are also challenges for CSR. Despite the fact that CSR is not the same as sustainable development and cannot be used interchangeably, they are so mutually interconnected that achieving one without involvement of the other is impossible and would certainly fail. That is also the reason why the EU put the accent on both sustainable development as an objective to be achieved and a way of life and CSR as an appropriate tool and standard for entrepreneurs and organizations.

2.3.2 Corporate Social Responsibility in Europe

When in 1992 unemployment rate in Europe exceeded average of 10% in different countries, Europe was under pressure of advises by different multinationals to reduce the social safety net benefits, to reduce employer social security contributions, and strict employment-protection rules.70 These actions did not contribute to CSR as it treated CSR as an inefficient tool in global market and a limit to survival of European
68

European Commission, The European Portal on Sustainable Development (2008), Sustainable Development, available at: http://ec.europa.eu/sustainable/welcome/index_en.htm
69

EurActive Web Portal of the EU (2008), Sustainable Development: EU Strategy, http://www.euractiv.com/en/sustainability/sustainable-development-eu-strategy/article-117544 70 Korten, C. D. (1995), When Corporations Rule the World, Kumarian Press, Inc., USA, page 57-59

available

at:

32

businesses. This provoked the affected groups to respond. The approach was slightly different. Role of corporation was examined in terms of their importance for society and future Europe as economic power. Accordingly, governments in Europe contributed to CSR more than any non-governmental and civil society organizations. At European level, various policy initiatives related to CSR were undertaken either by European Commission or by some other body. In December 1999, the European Commission published its Communication on Fair Trade focusing on trade liberalization and protection for social and environmental standards. Then, European Commission organized two symposia in collaboration with US Department of Labour and the European Commission Directorate General for Employment held a workshop for monitoring codes of conduct and social labels. All these events were organized and initiatives were launched with an intention to promote the EU as sensitive and highly aware of social and environmental concerns. From the very beginning CSR has been seen in the EU as a key element of sustainable development.71 In July 2001 the European Commission issued a Green Paper entitled Promoting a European Framework for Corporate Social Responsibility. The Paper was prepared by the Directorate General for Employment and Social Affairs. It focused on companies responsibilities in the social fields. The term Corporate Social Responsibility (CSR) emerged from talks and statements delivered by companies reflecting upon, even praising, their own functioning. The EUs concern with the topic has been rooted in the expressed conviction that CSR can be a positive contribution to the strategic objective set in Lisbon72 to become the most competitive and dynamic knowledge-based economy in the world, capable of sustainable growth with more and better jobs and greater social cohesion.73 The following Table 2.2: Political development and milestones in CSR area at the European level provides a summarized overview of political development and milestones that have been reached in the field of corporate social responsibility at the European level from the year 1993 to the year 2008.
Table 2.2: Year June 1993 Political development and milestones in CSR area at the European level Name of the document or event The Appeal of President Jacques Delors to business on CSR Summarized description In June 1993, President of the European Commission Jacques Delors made an appeal to businesses' talents and solutions to address Europe's structural problems of unemployment, restructuration and social exclusion. He

71

European Commission (2005), CSR Europe response to the European Commission, Green Paper For a European Framework on CSR, available at: http://europa.eu.int/comm/employment_social/soc-dial/csr/csr_europe_eu_ en011218.htm 72 The European Council Summit in Lisbon, March 2000. 73 Dorssemont, F. (2004), Corporate social responsibility, whats in a name? A critical appraisal of the Green Paper, Utrecht University, available at: http://trade-unions.org/research_fr/content/download/798/5291/version/1/file/DORSSEM ONT.pdf

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Year

Name of the document or event

Summarized description invited enterprises to adopt a European Declaration against Social Exclusion.

January 1995

European Business Declaration against Social Exclusion

October 1998

Launch of CSR Europe's Online Resource Centre

On 10 January 1995, 20 business leaders and European Commission President Jacques Delors adopt and announce the European Business Declaration against Social Exclusion. Signatories call for the development of a European network for the exchange of information and experience. In October 1998, business leaders together with the President of the European Commission Jacques Santer launched the European Resource Centre on CSR (now CSR Europe's website). At the European level, the High Level Group on the economic and social consequences of industrial change, the Gyllenhammar Group (set up as a result of the Luxembourg Jobs Summit in November 1997), suggested in its final report that enterprises with more than 1.000 employees should publish a report on the management of change on an annual basis in order to give an account of the impact of their social activities. Top European business leaders meet with Prime Minister Antonio Guterres on 8 March 2000. Twenty CEOs address to all Heads of State and Governments and propose 12 concrete ways to: build an entrepreneurial and inclusive knowledge society; develop a culture of communication and multiplication of best practices; expand teaching of corporate social responsibility, corporate citizenship and business ethics; invest in public-private partnerships for effective responses to economic and social challenges. For business leaders, the Lisbon Summit is the right moment for governments and the European Commission to recognise that businesses can successfully combine economic competitiveness and social responsibility. At the European Council Summit in Lisbon, March 2000, the European Union set itself a new strategic goal for the next decade: to become the most competitive and dynamic knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion. Underlining the important contribution of the private sector in achieving this goal, for the first time the European Council addressed businesses directly in a special appeal to companies' corporate sense of social responsibility regarding best practices on lifelong learning, work organisation, equal opportunities, social inclusion and sustainable development. The European Council in Feira, June 2000, re-iterated the appeal made in Lisbon, applauded the ongoing follow-up and welcomed the initiation of a process to establish a network for European dialogue encouraging companies' corporate sense of social responsibility. Adopted in June 2000, the Social Policy Agenda stresses the importance of Corporate Social Responsibility essentially in terms of the employment and social consequences of economic and market integration and the adaptation of working conditions to the new economy. Consequently, the Commission will be issuing a communication in 2001 to support initiatives related to corporate social responsibility and the management of

November 1998

Gyllenhammar Report

March 2000

European business leaders present plans for promoting CSR

March 2000

European Summit in Lisbon

June 2000

European Council in Feira

June 2000

European Social Policy Agenda

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Year

Name of the document or event change. European Council in Stockholm

Summarized description

March 2001

The European Council in Stockholm in March 2001 welcomed the initiatives taken by businesses to promote corporate social responsibility and made reference to its Green Paper in preparation to encourage a wide exchange of ideas with a view to promoting further initiatives in this area. The Green Paper aimed to launch a wide debate on how the European Union could promote corporate social responsibility at both the European and international level, in particular on how to make the most of existing experiences, to encourage the development of innovative practices, to bring greater transparency and to increase the reliability of evaluation and validation. It suggested an approach based on the deepening of partnerships in which all actors (stakeholders) have an active role to play. In the closing debate of the Belgian EU Presidency Conference on CSR, and in reply to the European Trade Union Confederation's request to negotiate a European Directive on CSR Transparency, was proposed to set up a European Multi-Stakeholder Platform on CSR and to implement supportive tools and activities. Those included: preparation of managers through the European Academy of Business in Society; helping SMEs to evaluate and strengthen their social responsibility by using the SME toolkit; equipping the European investment community with an online reference guide to all 285 green and ethical funds in Europe. In response to the Lisbon Appeal on CSR and on the basis of a wide consultation (Green Paper), the European Commission released its first Communication on CSR (Commissions White Paper: Corporate Social Responsibility). Highlights include: a European definition of CSR (CSR is a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with stakeholders on a voluntary basis); the principle of a European Multistakeholder Forum on CSR; and the way in which the European Commission relates CSR to specific European policies. The European Multi-Stakeholder Forum on Corporate Social Responsibility (CSR EMS Forum), chaired by the Commission, brings together European representative organisations of employers, business networks trade unions and NGOs, to promote innovation, convergence, and transparency in existing CSR practices and tools. The Council Resolution of 3 December 2001 on follow-up to the Commission's Green Paper, which recognised that CSR can contribute to reaching the objectives laid down by the European Council in Lisbon, for the European Union to become the most competitive and dynamic knowledgebased economy in the world fostering social integration and sustainable development. A Final Report was presented and agreed at the final meeting of the Multistakeholder Forum including common principles and values. The Forum made a number of

July 2001

Green Paper Promoting a European framework for Corporate Social Responsibility

November 2001

CSR on the EU social policy agenda

July 2002

First European Commission Communication on CSR

October 2002

EU Forum on CSR

December 2002

Resolution of the Employment and Social Policy Council on CSR

June 2004

Final results and recommendations of the European Multistakeholder

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Year

Name of the document or event Forum on CSR

Summarized description recommendations in the areas of raising awareness and improving knowledge of CSR, developing the capacities and competences to help mainstreaming CSR, and ensuring an enabling environment for CSR. Building upon the outcomes of the European Multistakeholder Forum and further consultations with business leaders, the European Commission renews its policy on CSR through a communication to the European Parliament, the Council and the European Economic and Social Committee. The communication entitled "Implementing the partnership for growth and jobs: making Europe a pole of excellence on CSR" proposed: the integration of CSR within relevant European policies with a strong focus on development and trade. The Communication appealed to enterprises to undertake socially and environmentally-responsible activity voluntarily, and to place CSR at the centre of their business strategies. The Communication revitalised support for the European Alliance for CSR. The objectives of the meetings were the following: to review progress of the Alliance and to have an open debate on the linkages between CSR and competitiveness, in support of the European Strategy for Growth and Jobs; together explore how to better link some CSR priority issues - as set in the Alliance in 2006 and currently being addressed in CSR Laboratories with specific European policies and initiatives. The Conference aimed to: contribute at the European level to the current debate on CSR principles and instruments at the global level; outline the achievements and challenges in promoting sustainable production, consumption and decent work; and to consider perspectives which would ensure the value added of European action in CSR at the global level. A conference organised jointly by the European Commission, the European Economic and Social Committee, and the French Economic, Social and Environmental Council addressed the following questions: the transparency and reliability of information on the responsible actions of European companies (this mainly concerned reporting); performance evaluation and measurement requirements; and capacity of the stakeholders.

March 2006

Commission's Communication Implementing the Partnership for Growth and Jobs: Making Europe a Pole of Excellence on Corporate Social Responsibility

2007

Three high level meetings in light of the European Alliance for CSR

December 2007

Conference on Corporate Social Responsibility: CSR at the global level: what role for the EU?

October 2008

Conference on corporate social responsibility Partnership and transparency at the heart of European Corporate Social Responsibility

Source: The table is based on available public information from the following sources: CSR Europe (2008), Milestones: 15 Years of Business-Policy Interaction Driving the Corporate Social Responsibility Movement , available at: http://www.csreurope.org/pages/en/history.html; CSR Europe (2008), Political Milestones at EU Level, available at: http://ec.europa.eu/employment_social/soc-dial/csr/csr_commissionsact.htm; web pages of the European Commission's Directorate General for Employment, Social Affairs and Equal Opportunities, available at: http://ec.europa.eu/social/main.jsp?catId=331&langId=en&furtherEvents=yes; (2008), European Industrial Relations Observatory: CSR Basic Search Results, available at: http://search.eurofound.europa.eu /search?q=csr&site=EIRO&btnG=Search&ie=&output=xml_no_dtd&client=default_frontend&lr=&proxystyles heet=default_frontend&oe=UTF-8&getfields=DC%252EDate%252Emodified&curent_date=2008-12-14; Perrini, F.,Pogutz, S., Tencati, A. (2006), Developing Corporate Social Responsibility A European Perspective, Edward Elgar Publishing Limited, Cheltenham, UK, page 14-15

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Halfway through the ten-year plan, the European Commission reviewed and relaunched the Lisbon strategy in 2005 in a new partnership for Growth and Jobs. It stressed that Europe needed a dynamic economy to preserve and develop its social and environmental model in the context of a growing global economy. As the EU approaches the 2010 target, the consensus in Europe remains that, in the long term, economic growth, social cohesion and sustainable development must go hand in hand. In terms of CSR, the focus is on implementing partnership for Growth and Jobs and making Europe a pole of excellence. In its 2006 Communication, the EU Commission proposed actions to promote the further uptake of CSR practices, underlining the importance of cooperation between EU Member States.74 There exists a broad agreement in the EU on the definition of CSR as a concept whereby companies integrate social and environmental concerns on a voluntary basis into their business operations as well as their interaction with stakeholders. Nevertheless, the precise nature and characteristics of CSR vary between different national and cultural contexts. In some countries, it is more and more integrated into a wide range of policies whereas in others, awareness raising initiatives are mostly being developed.74 Generally, objectives of the European Commission and individual European

Governments regarding CSR can be summarized as follows: Promote CSR as a business opportunity creating win-win situations for companies through forming new partnerships among CSR promoters and establishing a basis for mobilizing the resources and capacities of businesses and stakeholders; Raising awareness and improving knowledge on CSR through exchange and dissemination of best practices and tools, promotion of multi-disciplinary research on CSR at European level, and integration of CSR related topics in the university curricula; Ensuring an enabling environment for CSR through taking advantage of alliances developed at national level and supporting the organization of review meetings with all stakeholders to evaluate the progress on CSR and of other trends, developments and innovations in that respect; Mainstreaming CSR and developing coalitions of cooperation through: o Fostering innovation and entrepreneurship in sustainable technologies, products and services addressing societal needs;

74

European Commissions Directorate General for Employment, Social Affairs and Equal Opportunities (2007), Corporate Social Responsibility: National public policies in the European Union, Luxembourg, Office for Official Publications of the European Communities, available at: http://ec.europa.eu/employment_social/soc-dial/csr/pdf/csrnationalpolicies 2007_en.pdf

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o Assisting enterprises to integrate social and environmental considerations in their business operations in supply chains; o Improving working conditions; o Promoting innovation in the environmental field; o Enhancing pro-active dialogue; o Addressing the transparency and communication challenges; o Operating outside the borders of the European Union; Promoting CSR amongst SMEs75 as one of the priority areas of EU policy on CSR.76 Today, Europe stands at the forefront of promoting and implementing CSR into everyday life of enterprises and the whole European society. It can be said that CSR is more rooted into the real life through help of various European institutions, reasonable legislation, the European Commission, national governments and non-profit

organizations than in the USA and other non-European states. However when discussing CSR in the USA and Europe, it is important to consider the aspects of American individualism versus European collectivism. In the USA, a culture of individualism suggests that individuals are responsible for their own success and, hence, if there is demand for solving ethical questions, it is the individual who is responsible for making the right choices (Trevino and Nelson in Managing Business Ethics, 1999).77 In Europe, however, it is traditionally not the individual businessperson, nor even the single company, that is seen as primarily responsible for solving ethical dilemmas. Rather, it is a collective and overarching institution, nominally the state.78 As CSR concept is also based on good and well-balanced relations among government, profit and non-profit organizations and public, thus it is not surprising a fast, intensive, and more-or-less smooth implementation of CSR in Europe. Nonetheless it is just the beginning, and hopefully, much more of CSR will come in the future.

75

The European Commissions Green Paper on CSR highlighted the need to involve SMEs in the debate and to promote CSR among those enterprises throughout Europe. This strategic direction has also been important to countries that are interested in joining the EU.
76

Boesenh, M. (2007), CSR in the European Union, Recent http://www.unido.org/fileadmin/import/68791_4_CSR_SMEs_EU_Ms.Minic.pdf

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Developments

and

Future

Plans,

Husted, W. B. (2001), The Impact of Individualism and Collectivism on Ethical Decision Making by Individuals in Organizations, Instituto Tecnolgico y de Estudios Superiores de Monterrey and Instituto de Empresa, Mexico, available at: http://egade.itesm.mx/investigacion/documentos/documentos/4egade_husted.pdf
78

Matten, D., Moon, J. (2005), Implicit and Explicit CSR: A conceptual framework for understanding CSR in Europe , Royal Holloway University of London - School of Management, available at: www.rhul.ac.uk/Management/News-and-Events

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2.4 Corporate Social Responsibility in the Czech Republic

2.4.1 Situation in the Czech Republic Regarding Corporate Social Responsibility and Ethics in 1990s
In comparison with old Western democracies such as states of Western Europe or the United States of America, the Czech Republic has been an open democracy for less than 20 years since the end of 1989 when so-called Velvet Revolution took place. However, a free market economy with standard market mechanisms the Czech Republic became yet for a few years later after implementation of fundamental structural economic reforms and privatization of majority of to that time state owned enterprises. For these and various other reasons CSR has not been an issue in the Czech Republic until the end of the second millennium, when the Czech Republic more strategically and systematically started its preparation for joining the European Union. During early nineteen-ninetieth, sometimes appropriately called time of gold rush for its sometimes savage and unscrupulous privatization, both the general public and companies were very critical when expressing their opinion on morals and ethics in the country. Many entrepreneurs sought to get rich quickly and to take advantage of new opportunities while they lasted. But the underdeveloped markets that would provide profits also brought with them a lot of bureaucracy (red tape), outdated laws and lack of personnel with experience in a market economy. To make the path to profit smoother, many businessmen were willing to pay bribes. While cases of bribery were quite clear, opinion about corruption varied. Prosecutors and judges emphasized that they knew a lot of cases, but none was willing to come forward and testify. With law enforcement slow in coming, entrepreneurs who accepted bribery as a part of doing regular business, and politicians who, for the most part, considered corruption as a small price for a fast transition to market economy, corruption was likely to continue. The phenomena of bribe seeking and racketeering were viewed by some as side effects of the implementation of capitalism into a situation of economic underdevelopment. At that time people and entrepreneurs saw the severest ethical problems in the field of legislation, jurisdiction, political life, the functioning of police, and state administration. CSR agenda and sustainable development were not fashionable at that time as they were not directly associated with quick profit maximization, which was the prevailing topic for new businessmen then. People as well as companies were convinced that current ethical problems would not disappear automatically with growing market experience, but would necessitate governmental action. Unfortunately, the more strategic action in this respect came slowly and too late came after the Czech Social Democratic Party

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strengthen its position in the Czech Parliament and got posts in the Czech Government at the end of 1990s. On the other hand a broad survey conducted by the Czech Statistical Office in 1994 clearly revealed economic motivation to behave ethically. Unethical practices were seen as a source of significant or substantial problems by 71 % of companies. Additional company costs due to these problems were reported by 68 % of companies. The importance of business ethics in the company strategy was stressed by 97 % of companies, of which 76 % saw this as very important.79 The severest problems at company level revealed by entrepreneurs in the abovementioned survey were: Maintaining payments; Maintaining quality of products and services; Fair negotiation and bidding processes; and Adhering to verbal promises and contracts.

However, the challenges to enhance ethical behaviour were seen not only in business but also in public administration. Public sector issues, due to their impact on the society as a whole, were viewed by some people as even more urgent. Two problems were considered crucial at that time: Transparency in public procurement; and Political party funding.80

There were many debates on the public service, its quality, prestige and requirements, but no special laws on public service were passed until the year 2000. Unfortunately in the first half of the 1990s many people in the Czech Republic, particularly government politicians who had a real influence on future development and legislation, as well as in other post-communist countries did not realize that a well functioning market economy required: Appropriate forms of legal regulation; Substantial level of trust between contractors and economic agents; A constituted and solid system of moral values; Guarantee of physical protection; and A framework, which assumes a certain level of responsible autonomy among social actors - entrepreneurs, citizens, trade unions and public and state authorities.
79

Bohat, M. (2005), Discovering a New Concept of Authority, in Habisch, A. et al. (2005), Corporate Social Responsibility Across Europe, Springer Berlin Publishing, Berlin, page 151-152
80

Bohat, M. (2005), Discovering a New Concept of Authority, in Habisch, A. et al. (2005), Corporate Social Responsibility Across Europe, Springer Berlin Publishing, Berlin, page 153-154

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2.4.2 Development of Corporate Social Responsibility in the Czech Republic

Despite belated start of more proactive, systematic and government-supported CSR initiatives, the first pioneers in the field of CSR emerged relatively very soon after the Velvet Revolution. Civic organizations, which faced many obstacles and little support, have developed in many cases particularly due to various international resources. Tradition also played an important positive role, however, faster dissemination of CSR and corporate philanthropy as one of its part was hampered by expectations of some people and entrepreneurs that the state was there to take care of these activities.81 Perhaps the most important non-governmental organization almost entirely focused on CSR has been the Business Leaders Forum. The Business Leaders Forum, which has been operating in the Czech Republic since 1992, started from scrap and over the time has become influential. It is the Czech affiliate of the Prince of Wales Business Leaders Forum, which among others, acts as a National Partner of CSR Europe. This initiative commenced with a small handful of companies in the Czech Republic aiming at creating a business culture that subscribed to responsible business practices to benefit business and society. At the beginning the impulse of most companies involved was to focus purely on philanthropic donations. Over the time, a number of companies has steadily been growing and companies are engaged in a remarkable range of activities, for instance from the protection of the environment to the promotion of equal opportunities, from building the capacity of small and medium-sized companies to creating business and education linkage programmes and employee engagement in the community. Today, Business Leaders Forums mission is promotion and enforcement of CSR in line with European methodology and best standards. In this respect the Forum closely cooperates with the European Commission and European Commission's DirectorateGeneral for Employment, Social Affairs and Equal Opportunities. 82 In 1996 a National Contact Point (hereinafter also NCP) for the Implementation of the Organization for Economic Cooperation and Development (hereinafter also OECD) Directive for Supranational Companies was established, with the aim of monitoring the conduct of these companies and resolving any disputes that may arise, especially in employment relations, collective bargaining and consumer protection. Several years later the NCP organized national seminars about CSR. In 1997, the Czech Council for Economic and Social Accord was established as an institutional platform for social dialogue between the government, the unions and

81 82

Bartoov, Z. (2006), Guidebook of Corporate Philanthropy (Prvodce firemn filantropi), Frum drc, Praha Business Leaders Forum (2008), History and General Information, available at: http://www.blf.cz/about.htm

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employers. Its goal is to achieve agreement on central issues of economic and social development, and in the preparation of legislative measures and relevant norms. The establishment of tripartite structures in the regions can be seen as beneficial for creating the sound and responsible relations of a social partnership. The government has paid special attention to overseeing adherence to the applicable norms in employment relations, and in the protection of the work environment and the environment in general, including customer and consumer protection. Another positive development was initiated by some enlightened companies in 1999. The Czech Institute of Directors was set up to enhance local standards of corporate governance. In cooperation with the Czech Securities Commission and referring to the OECD Principles of Corporate Governance, a code of conduct for listed companies was elaborated and enforced in 2001. A definition of best practice as well as training programmes for board members have also been developed.83 The harmonisation of Czech law with EU legislation, and the Czech Republic's accession to the European Union, contributed to major advances in the promotion of CSR. As long ago as 1998 the Czech Republic adopted, among other things, rules for the introduction of Eco-Management and Audit Scheme (hereinafter also EMAS), and prepared the first National EMAS Programme. The programme was updated in 2002 and is currently governed by EC Regulation no. 761/2001. In order to fully participate in this programme, companies must, among other things, introduce an environmental management system which contributes to the continuous improvement of their environmental conduct. In 2007 there were 17 Czech organisations registered in the EMAS Registry, and another 1.500 in the EMS system (ISO 14001).84 Important milestone in building foundations of CSR was August 2003, when the Sustainable Development Council of the Czech Government (hereinafter also SDCG) was established as a standing advisory body of the Government for sustainable development and strategic management. Its main tasks include the coordination and implementation of the overarching strategic plan for sustainable development - the Sustainable Development Strategy of the Czech Republic. This strategy was approved by the Czech Government in December 2004. The SDCG elaborates, coordinates and monitors the application of the principles of sustainable development, while maintaining a dynamic balance of its economic, social and environmental aspects. The general objective of the Strategy is to ensure as high a quality of life as possible for the country's inhabitants, while creating favourable conditions for a good quality of life for future
83

The Czech Institute of Directors (2008), About the Czech Institute of Directors (O Institutu len sprvnch orgn, o.s.), available at: http://www.ciod.cz/o-ciod/
84

Czech Environmental Information Agency CENIA (2008), http://www.cenia.cz/__C12571B20041E945.nsf/$pid/MZPMSFGSEV4B

About

EMAS

(O

EMAS),

available

at:

42

generations. The strategy responds to the need for coordinated development, and a balance of the social, economic and environmental pillars of sustainable development. The Strategy also includes programmes to support SMEs in implementing CSR and programmes to support the development of entrepreneurial activities by women. These programmes should be deployed especially in areas with greater unemployment rates, in the industry, trade and services sectors. The programmes comprise, above all, advisory services, assistance in putting together business plans and financial subsidies.85 Even though CSR and debate about it was not in the Czech Republic as popular as in older Western democracies, CSR topic has steadily becoming more and more popular and also a group of involved companies has been growing. Today many companies, particularly the large ones, present their achievements in CSR and other related documents on their web pages as well as on pages of organizations promoting CSR. Increasing interest in CSR and a trend in implementation of CSR reflect also surveys of the Business Leaders Forum. In 2004 in the survey 76 % of surveyed companies claimed to be involved at least in one CSR activity (the most frequently towards employees); in 2007 it was almost 90 %. CSR awareness has also been increasing thanks to international corporations operating in the country as they belong among main supporters of CSR and have brought essential know-how from their homelands.

2.4.3 Latest Development of Corporate Social Responsibility in the Czech Republic

As CSR gaining its popularity among entrepreneurs, some non-governmental organizations have been focusing on building partnership between profit and non-profit organizations in the area of corporate philanthropy, corporate volunteerism, social marketing, environmental protection and others (e.g. HESTIA86, AISIS87, Czech Donors Forum88, Environmental Law Service89, Business Leaders Forum, etc). These non85

European Commissions Directorate General for Employment, Social Affairs and Equal Opportunities (2007), Corporate Social Responsibility: National public policies in the European Union, Luxembourg, Office for Official Publications of the European Communities, available at: http://ec.europa.eu/employment_social/soc-dial/csr/pdf/csrnationalpolicies 2007_en.pdf 86 The mission of HESTIA is to support and further develop positive interpersonal relationships. HESTIA actively engages in research, training, and educational programmes for non-profit organizations, organizes and hosts international and national conferences, and also works as a broker for international and local businesses by organizing corporate volunteering projects. 87 The mission of AISIS is to create, further develop and realize publicly beneficial programmes, which enable people to develop key social skills, help building equal opportunities and support sustainable development of organizations. 88 Czech Donors Forum (CDF) is a civil association of corporate donors, foundations and non-endowed foundations. It was established in 1996 and provides support and leadership to the donor community in the Czech Republic. Its mission is to support the development of organized philanthropy and to serve the Czech donor community. It acts as a platform for the regular exchange of ideas, information and expertise. CDF activities are aimed at creating favourable conditions for giving on individual, institutional, community and company levels. 89 The Environmental Law Service (EPS) is a non-governmental, non-profit, and non-political public interest law organization that gathers together lawyers and law students. The EPS contributes to the protection of the public interest and human rights. The main aim of its GARDE Program is to make multinational corporations behave responsibly and it tries to achieve this mainly through strategic litigation. It is thanks to such missions that it not only provide legal aid to

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governmental organizations also developed and have been operating interesting web portals full of information on CSR and some of them publish their own newsletters. The promotion of CSR is aided by the country's cooperation with international organisations, especially the International Labour Organization (hereinafter also ILO) and OECD. The new Employment Act, which took effect in October 2004, and the new Labour Code enabled the ratification of the eight so-called basic ILO principles, which contain foundational principles and rights for the workplace. In March 2007 the Ministry of Labour and Social Affairs created a new website on CSR, to inform users about the concept of CSR in the European Union. The website also provides references to different projects and activities concerning the promotion of CSR.90 Despite of non-profit and profit organizations and governments efforts in promoting CSR, there still is a lot of companies, which consider as satisfactory CSR involvement only providing financial and non-financial means for philanthropy and do not concentrate on more deeper integration of CSR into companys structure and operation. According to the Environmental Law Service also majority of people in the Czech Republic thinks that CSR is the same as corporate philanthropy.91 In spite of state and governments effort in promoting CSR, conducted surveys discovered that this effort was not efficient and probably missed its target. According to the respondents of the Business Leaders Forums survey among entrepreneurs in 2004, the state has not been playing any important role in promoting CSR. The only governmental body paying some attention to CSR has been the Council for Sustainable Development. Entrepreneurs would welcome communication of the CSR concept and strategies how to achieve and implement it by the state to the general public, awards to socially responsible companies, and information directed to consumers, who on all accounts play an important role in adopting CSR practices. Lack of CSR information has been manifested in other surveys as well. For example, the STEM92 survey in 2003 for Philip Morris conducted among Czech citizens revealed that information about companies CSR activities was hardly accessible. Only one fifth of the population was sufficiently informed about social, environmental and ethical aspects of corporate behaviour.93 94

citizens who suffer from the irresponsible and reckless behaviour of corporations who cooperate with state institutions, but it also open social debates over such issues.
90

Czech Ministry of Labour and Social Affairs (2008), Corporate social responsibility (Sociln odpovdnost podnik), available at: http://www.mpsv.cz/cs/3893 91 Franc, P. (2008), Debate on Corporate Social Responsibility (Spoleensk zodpovdnost korporac rozhovor s Pavlem Francem z EPS), available at: http://zpravodajstvi.ecn.cz/index.stm?x=1963939 92 STEM is the Czech Centre for empirical research. 93 Based on Bohat, M. (2005), Discovering a New Concept of Authority, in Habisch, A. et al. (2005), Corporate Social Responsibility Across Europe, Springer Berlin Publishing, Berlin, page 164 and web pages of the Business Leaders Forum, available at: http://www.csr-online.cz/NewsDetail.aspx?p=3&id=584

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In authors opinion, CSR is seen as a viable concept in the Czech Republic. However, some important factors fostering this modern philosophy of doing business as well as an appropriate institutional framework are still not sufficient. Among these factors, pressure of investors and banks may be considered crucial. Socially responsible investments are not yet an option for Czech citizens, as there has not been a tradition in investing in stock market. But pension and other funds may play some role in this respect. Also the role of the media should increase. Last but not least governmental incentives, mainly fiscal, but also various other tools and awards should be developed to promote CSR in an organized and systemic way. Organizations promoting CSR should also be more supported.

2.5 Corporate Social Responsibility from Small and MediumSized Companies Perspective and Major Differences between SMEs and Large Companies in the Context of CSR
2.5.1 Definition of Micro, Small and Medium-Sized Enterprises
Definition of an Enterprise According to a European definition, an enterprise is considered to be any entity engaged in an economic activity, irrespective of its legal form. This includes, in particular, selfemployed persons and family businesses engaged in craft or other activities, and partnerships or associations regularly engaged in an economic activity.95 Definition of Micro, Small and Medium-Sized Enterprises What exactly an SME or small to medium-sized enterprise is, depends on whos doing the defining. For example Canada uses the term SME to refer to businesses with fewer than 500 employees, while classifying firms with 500 or more employees as large businesses. Breaking down the SME definition, Canada defines a small business as one that has fewer than 100 employees (if the business is a goods-producing business) or fewer than 50 employees (if the business is a service-based business). A firm that has more employees than these cut-offs but fewer than 500 employees is classified as a medium-sized business. A micro business is defined as a business with fewer than five employees.96

94

Pavl, D. et al. (2002), Final Paper on Research of Corporate Social Responsibility in the Czech Republic (Zvren zprva z vzkumu spoleensk odpovdnost firem v esk Republice) , available at: http://www.amasia.cz/sluzby /data/spolecenska-odpovednost-firem-2002.pdf 95 Commission of the European Communities (2003), Commission Recommendation of 6 May 2003, concerning the definition of micro, small and medium-sized enterprises, (2003/361/EC), available at: http://www.euresearch.ethz.ch /docs/SME.pdf 96 Ward, S. (2008), Definition of SME, Small business in Canada, available at: http://sbinfocanada.about. com/od/businessinfo/g/SME.htm

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There are no standard United States definitions for small or medium enterprises, although a small business generally is described as one with fewer than 100 employees. An enterprise with fewer than 10 employees is generally classified as a small office/home office or a micro business. A large business enterprise is larger than a medium enterprise, which is defined as having less than 500 employees.97 However for the purposes of this dissertation and probably the best available definition of European businesses, the author of this paper decided for a definition of the European Commission. According to this definition the category of micro, small and medium-sized enterprises (SMEs) is made up of enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding EUR 50 million, and/or an annual balance sheet total not exceeding EUR 43 million. A small enterprise is defined as an enterprise which employs fewer than 50 persons and whose annual turnover and/or annual balance sheet total does not exceed EUR 10 million. And finally a micro enterprise is defined as an enterprise which employs fewer than 10 persons and whose annual turnover and/or annual balance sheet total does not exceed EUR 2 million.98 Validity of the European definition of SMEs verified in his research H-E. Hauser, who came to the conclusion that the size limits of SMEs as defined in the Commission Recommendation of 6 May 2003 concerning the definition of micro, small and mediumsized enterprises correspond to the relations in reality.99 Nevertheless, Hauser also pointed some issues that slightly undermine European definition. In his opinion in many Business Registers enterprise groups links are still not fully implemented100 and thus: when a legal unit is part of an enterprise, or when an enterprise is controlled by another enterprise

and has for e.g. less than 250 employees, European SME statistics assigns such units to the group of small and medium sized enterprises. Main problem of such a politics is not only those legal units are counted as enterprises but also that enterprises are treated equal even if they have completely different types of ownership and arising from that are of completely different character. Main difference between independent enterprises and

97 98

Your Dictionary.Com (2008), SME Definition, available at: http://www.yourdictionary.com/sme The Commission of the European Communities (2003), Commission Recommendation of 6 May 2003, concerning the definition of micro, small and medium-sized enterprises, (2003/361/EC), available at: http://www.euresearch.ethz.ch /docs/SME.pdf 99 Hauser, H-E. (2005), A qualitative definition of SME, Institute fr Mittelstandsforschung, Bonn, Germany, in OECD, Statistics Directorate (2005), SBS Expert Meeting Towards better Structural Business and SME Statistics, available at: http://www.oecd.org/dataoecd/32/14/35501496.pdf 100 In many European Business Registers enterprise groups links are still not fully implemented and the groups are not profiled. Thus it is not possible to find out, which legal units form together an enterprise.

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enterprises belonging to an enterprise group is the way of decision making, in particular when strategic issues are decided. 101

2.5.2 General Features and Statistics of Micro, Small and MediumSized Enterprises
Number of Micro, Small and Medium-Sized Enterprises in Europe SMEs account for a large proportion of Europes economic and professional activity. In practice in 2007, more than 99 % of businesses in the European Union were SMEs, and they provided two-thirds of all private sector jobs. So, SMEs have been, in fact, the real giants of the European economy. Micro-businesses (those with fewer than 10 employees) have been dominating employment in countries such as Italy (47 %) and Poland (41 %). In real numbers, there were around 23 million SMEs in the EU, which provided over 125 million jobs, and in some sectors accounted for more than three quarters of all jobs. SMEs therefore make up the backbone of Europes economy. 102 Their relative importance was, however, lower in terms of their contribution to providing jobs and wealth, as 67,1 % of the non-financial business economy workforce in the EU27 was employed in SMEs, while 57,6 % of the non-financial business economys value added was generated by SMEs (see Table 2.3 and Table 2.4).
Figure 2.2: Division of enterprises in the EU according to their size (in % from total)

Medium 1,1% Small 7,3%

Large 0,2%

Micro 91,4%

Source: Eurostat (2005), Introduction to annual structural business statistics (SBS), available at: http://epp.eurostat.ec. europa.eu/portal/page?_pageid=2293,59872848,2293_68195486&_dad=portal&_schema=PORTAL#first

101

Hauser, H-E. (2005), A qualitative definition of SME, Institute fr Mittelstandsforschung, Bonn, Germany, in OECD, Statistics Directorate (2005), SBS Expert Meeting Towards better Structural Business and SME Statistics, available at: http://www.oecd.org/dataoecd/32/14/35501496.pdf
102

European Union SME Portal (2008), Facts and figures SMEs in Europe, available at: http://ec.europa.eu/enterprise /entrepreneurship/facts_figures.htm

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SMEs in the EU-27 employed, on average, 4,3 persons in 2005. This figure varied considerably between Member States from highs of 12 persons per SME in Slovakia and upwards of 7 in Estonia, Ireland, Latvia and Germany, to less than 3 in the Czech Republic (2004) or Greece.103 According to the Eurostat, from the total of around 23 million enterprises in the European Union in 2005, 91,4 % formed micro, 7,3 % small, 1,1 % medium, and only 0,2 % large companies (please, see, .Figure 2.2 on the previous page). Table 2.3 highlights principal indicators of the EUs non-financial business economy broken down by enterprise size into SMEs and large enterprises. Comparing the Czech Republic with the European average, all three indicators number of enterprises, value added, and number of persons employed almost identically copy European average.
Table 2.3: Main indicators of European non-financial business economy broken down by size of a company (2004; % share of total)
Number of enterprises SMEs Large enterprises SMEs Value added Large enterprises Number of persons employed SMEs Large enterprises

EU-27(1)
BE BG

99,8
: 99,7

0,2
: 0,3

56,9
: 49,5

43,1
: 50,5

66,7
: 71,7

33,0
: 28,3

CZ
DK DE EE IE EL ES FR IT CY LV LT LU HU MT NL AT PL PT RO SI SK

99,8
99,7 99,5 99,6 : : 99,9 99,8 99,9 : 99,7 99,4 : 99,9 : 99,7 99,7 99,8 : 99,5 99,7 98,6

0,2
0,3 0,5 0,4 : : 0,1 0,2 0,1 : 0,3 0,6 : 0,1 : 0,3 0,3 0,2 : 0,5 0,3 1,4

56,7
: : : : : 68,1 53,7 70,3 : : 56,7 : 51,9 : 60,4 : 47,8 : 44,5 : 42,4

43,3
: : : : : 31,9 46,3 29,7 : : 43,3 : 48,1 : 39,6 : 52,2 : 55,5 : 57,6

68,9
: 60,1 : : : 79,1 60,9 81,2 : 75,0 71,3 : 72,2 : 67,4 : 70,3 : 58,2 : 51,2

31,1
: 39,9 : : : 20,9 39,1 18,8 : 25,0 28,7 : 27,8 : 32,6 : 29,7 : 41,8 : 48,8

103

Eurostat, Schmiemann, M. (2008), Industry, trade and services: Enterprises by size class - overview of SMEs in the EU, Statistics in focus 31/2008, available at: http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-SF-08-031/EN/KSSF-08-031-EN.PDF

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Number of enterprises SMEs FI SE UK 99,7 99,8 99,6 Large enterprises 0,3 0,2 0,4 SMEs : 56,5 50,7

Value added Large enterprises : 43,5 49,3

Number of persons employed SMEs : 64,2 53,9 Large enterprises : 35,8 46,1

(1) Rounded estimates based on non-confidential data. Source: Eurostat (2008), Small and medium-sized enterprises (SMEs), available at: http://epp.eurostat.ec.europa.eu /portal/page?_pageid=2293,59872848,2293_68195655&_dad=portal&_schema=PORTAL

The only more visible deviation from the European average in the Table 2.3 represents Italy and Spain, where both the value added by SMEs and the number of employed persons by SMEs is approximately 15 % greater than EU-27 average. The following Figure 2.3 provides an overview of allocation of private sector employees sorted according to the size of a company they were engaged in. Generally, about 67% of EUs private sector jobs were in SMEs in 2005 and the remaining 33 % were in large companies.
Figure 2.3: Division of enterprises in the EU according to number of employed persons, sorted according to their size (in % from total)

Large 32,9%

Micro 29,6%

Medium 16,8%

Small 20,7%

Source: Eurostat (2005), Introduction to annual structural business statistics (SBS) , available at: http://epp.eurostat.ec.europa.eu/portal/page?_pageid=2293,59872848,2293_68195486&_dad=portal&_schema=PORTAL #first

Table 2.4 on the following page provides additional information on key indicators for companies in the EU non-financial business economy. From the table is apparent that even though large companies form minority of total companies (0,2 %), their proportionate value added and apparent labour productivity are much higher than those of SMEs.

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Table 2.4:

Key indicators for enterprises in the non-financial business economy in the EU-27

Indicator Number of enterprises (millions) Share in total (%) Persons employed (millions) Share in total (%) Value added (EUR billion) Share in total (%) Apparent labour productivity (EUR 1 000 per person employed) Relative to total (%)

Total 19.65 100.0 126.7 100.0 5 360 100.0 42.3 100.0

SMEs 19.60 99.8 85.0 67.1 3 090 57.6 36.4 86.1

Micro 18.04 91.8 37.5 29.6 1 120 20.9 29.9 70.7

Small 1.35 6.9 26.1 20.6 1 011 18.9 38.7 91.5

Medium 0.21 1.1 21.3 16.8 954 17.8 44.8 105.9

Large 0.04 0.2 41.7 32.9 2 270 42.4 54.4 128.6

Note: Including rounded estimates based on non-confidential data; 2005. Source: Schmiemann, M.(2008), Industry, trade and services: Enterprises by size class - overview of SMEs in the EU, Eurostat Statistics in Focus 31/2008, available at: http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-SF-08031/EN/KS-SF-08-031-EN.PDF

The following Table 2.5 provides some perspective on number of enterprises and value added in SMEs and large companies in the Czech Republic broken down into individual lines of business. In SMEs category, the biggest number of companies is in Other Services (32 %) and in Trade (25 %). The greatest value added on one employee generates Financial Services and Other Services, while in large company category it is Financial Services and Industry. According to Professor Veber, financial performance and value added have recorded positive development for last five years.
Table 2.5: Detail information on number and value added of SMEs in the Czech Republic
SME Individual SMEs Company Entrepreneur Total Number of Entities in Ths Industry Building Industry Trade Hotel and Catering Industry Transportation Financial Services Other Services Agriculture Total 26 7 55 5 5 1 47 4 149 132 89 195 48 41 29 269 39 840 157 95 250 52 46 30 316 43 989 Proportion of SMEs on Total (%) 16% 10% 25% 5% 5% 3% 32% 4% 100% Value Added on an Employee in SMEs (Ths) 389 369 479 215 496 1 232 524 247 422 (Average) Value Added on an Employee in Large Company (Ths) 640 566 397 343 596 1 734 539 294 641 (Average)

Line of Business

Note: Based on Ministry of Trade and Industry data for the year 2003. Source: Veber, J., Srpov, J., et al. (2005), Entrepreneurship and Small and Medium-Sized Companies (Podnikn mal a stedn firmy), Grada Publishing, Praha, page 23-24

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2.5.3 Corporate Social Responsibility in Small and Medium-Sized Enterprises

General Aspects of CSR in SMEs It is sometimes argued that CSR is difficult for small and medium-sized enterprises. It needs to be clarified that a socially responsible approach to business is not difficult for SMEs with an interest in long-term profitability and sustainability. However, reporting such approaches can be for SMEs more problematic than for large players. This is because it can be costly to capture and provide the relevant information to demonstrate a companys responsible approach towards its society and environment, especially if that company is not already capturing such information for its management purposes. SMEs are less able to apply dedicated internal resources to the reporting of any responsible approaches they may take than large organisations. Usually SMEs owner-managers are already participating in responsible approaches, although they may not describe them as being part of CSR. Ongoing public discussion of the CSR concept, mentioned in the subchapter 1.1 Definition of Corporate Social Responsibility, should lead in turn to greater familiarity with the concept and can be seen as useful to assist owners, managers and employees in all sizes of enterprise to clarify what constitutes CSR. Such clarity assists SMEs to make informed decisions as to which approaches they believe to be most appropriate to them and in communication with key stakeholders using a shared language. Important role in spreading CSR agenda in life of SMEs play also large companies as they are beginning to encourage SME suppliers, through their supply chains, to become more active in CSR. Specifics of CSR in SMEs and Differences Compared to Large Companies It is said that SMEs often think locally and act locally and also seek to develop and foster their own approaches to CSR. The question of whether the particular sector or industry in which an organisation operates has implications for companies CSR approaches goes to the heart of the need to maintain choice in socially responsible approaches. This is because different industry sectors face unique sustainability issues. For example, while the extractive industry is more likely to have a far greater impact on the environment than the financial services sector, the latter does have an environmental impact and must consider the sustainability issues it faces in that regard. Looking at what the extractive industry is doing on this front will not necessarily assist the financial services sector to devise CSR approaches suitable to it.104

104

Sheehy, T. (2006), Corporate Social Responsibility, Chartered Secretaries Australia, available at: http://www.csaust.com/AM/Template.cfm?Section=Submissions&Template=/CM/ContentDisplay.cfm&ContentID=5881

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The nature of CSR in SMEs can be significantly different from CSR in large companies. For example, many multinational companies report against variety of international reporting initiatives that were developed specifically for large organisations with a global footprint. A large organisation operating in multiple jurisdictions is concerned with the organisations impact, both direct and indirect, on the economic resources of its stakeholders and on economic systems at the local, national, and global levels, including such matters as employee wages, financial arrangements with customers and suppliers, and taxes. Environmental impacts include the organisations products and services; energy, material and water use; greenhouse gas and other emissions; waste generation; impacts on biodiversity; use of hazardous materials; recycling, pollution, waste reduction and other environmental programmes; and the cost of non-compliance with environmental regulation. Social indicators concern an organisations impacts on the social systems within which it operates, which can include labour practices (for example, diversity, employee health and safety), human rights (for example, child labour, compliance issues), and broader social issues affecting consumers, communities, and other stakeholders (for example bribery and corruption, community relations). It has to be stressed that it is a challenge for SMEs to adapt and narrow the broad CSR concept used by large and multinational companies and incorporated in the global reporting initiatives so that it has relevance for the CSR agenda of those SMEs with either a less significant global operation or none at all. According to the Forum of Private Businesses105 the relationships between SMEs and their key stakeholders notably employees and customers are qualitatively different from those of large businesses, characterized by a high level of informality. Customer relationships are often based on personal knowledge of the customers needs, while employee relationships are more family-like, with greater cordiality and social integration. Such relationships, by virtue of their intimate nature, are seen as inherently more responsible as the more impersonal relationships associated with big businesses. Therefore, SMEs may consider themselves to be responsible businesses, even though it may not be formally recognized.106 This opinion was reinforced by the research project107, which showed that 96 percent of SMEs felt they have responsible business practices.
105

The Forum of Private Business (FPB) was established in 1977. It is a non-party political organisation and represents 25,000 UK-based private businesses, which in turn employ more than 600,000 people. The FPB fights for fair treatment of private businesses by decision-makers and supports the profitable growth of its members.
106

Southwell, C. (2004), Engaging SMEs in Community and Social Issues, in Spence, J. L., Habisch, A., Schmidpeter, R. (2004), Responsibility and Social Capital The World of Small and Medium Sized Enterprises, Palgrave Macmillan Publishing, New York, page 97 - 98
107

The Research Project Engaging SMEs in Community and Social Issues was a consortium research study on behalf of the UK Department of Trade and Industry, led by Business in the Community, with the British Chamber of Commerce, and the Institute of Directors and Accountability conducted in 2002.

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Uniqueness of SMEs in their approach to CSR agenda and difference of their approach from large companies can also be demonstrated on their inherent strengths and weaknesses. Strengths of SMEs that should facilitate CSR implementation and reinforce their CSR can be found in the following: Lean organization structure that brings lower costs on management of the company, lower level of internal bureaucracy, and in this way more can be spend on CSR activities. Flexibility that can improve action time in individual CSR activities (SME can quickly act in urgent situations e.g. can provide help to citizens after natural disasters). SMEs generate great number of innovations of lower rank, which can significantly improve their CSR either directly or indirectly. Personal and informal relationship of owner-managers or managers with employees and customers can both foster CSR in the company and assure credibility of CSR activities in the eyes of customers and employees. Usually SMEs represent local capital and local proprietary relations and results of undertaking often stay in respective community or region. Entrepreneurs are less anonymous to their community and quite frequently have personal, sometimes emotional, relationship to the community they live in and operate. These factors can positively influence implementation of CSR in the company and attitude of community towards the respective company. Despite many strong points, there are also weaknesses that can hamper SMEs efforts in implementing of CSR into their operation. They can be following: Lack of financial resources that can be invested in CSR. Due to the financial constraints SMEs cannot employ top professionals who in turn could bring to the company unique and valuable know-how, e.g. also in the field of CSR. SMEs are often excessively burdened with state bureaucracy and frequent changes in legislation and do not have spare time and resources for engagement in CSR. SMEs have worse access to information and consultancy services than large companies, which can play important role when implementing CSR in the company for the first time without previous experience. One of the reasons, one of the stimuli for SMEs in engaging in CSR can be scarcity of an appropriate workforce. According to the Czech business server Podnikatel more than half of SME managers said that they have recruitment problems. A primary problem is

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the availability of an appropriate workforce, while excessive wage demands are a relatively distant second issue. Finding and hiring the appropriate workforce is a challenge for many SMEs in the EU. Especially in the new Member States, a significant number of jobs remain unfilled.108 Reasons for this vary, however two of them are lower prestige being employed in an SME and lower level of social benefits SMEs provide. Remedy against this disadvantage could be implementation of CSR in SMEs. Another reason for CSR engagement is energy efficiency and environmental protection. According to the Observatory of European SMEs comprehensive systems for energy efficiency are much less in place in SMEs (4 % of total) than in large enterprises (19 % of total). The same applies for simple measures to save energy, which are used by 30 % of SMEs but 46 % of large enterprises.109 Again, implementation of CSR could improve above-mentioned shortcomings of SMEs and achieve cost savings via energy efficiency.

108

Business Server Podnikatel (2008), SMEs (Mal a stedn podniky (MSP)), available at: http://www.podnikatel.cz /start/zacinajici-podnikatel/male-a-stredni-podniky-msp/
109

The Observatory of European SMEs (2007), Analysis of Competitiveness, available at: http://ec.europa.eu/enterprise /enterprise_policy/analysis/observatory_en.htm

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Chapter 3.

Essential Aspects of Corporate Social Responsibility

3.1 Levels of Corporate Social Responsibility

One of the approaches how to review in a more detail CSR is based on division of CSR into three mutually interrelated levels. According to the approach CSR can be understood in terms of different stakeholders and the issues that they are concerned with. These issues relate to the overlapping levels of social, environmental and economic impact. Composition of each level provides the following Figure 3.1.
Figure 3.1: Three Fundamental Levels of Corporate Social Responsibility
Economic Level Principles of Corporate Governance Code of Ethics Transparency and Mitigation of Corruption Intellectual Property Safeguarding Investor Relations Business Relations Customer Relations Product and Services Quality and Safety

Social Level Corporate Philanthropy and Volunteering Employment Policy, Health and Safety of Employees, Education and Trainings Employment of Disadvantaged Group of People Gender Equality Human Rights

Environmental Level Ecological Production, Products and Services Natural Resources Protection Investments into Green Technologies Environmental Friendly Corporate Culture (Recycling, Energy Conservation, etc.)

Source: Based on Placet, M. A., Flower, R., Kimberly, M. (2005), Strategies For Sustainability, available at: http://www.allbusiness.com/environment-natural-resources/pollution-monitoring/10575494-1.html and Blaek, L., Dolealov, K., Klapkov, A.(2005), Corporate Social Responsibility (Spoleensk odpovdnost podnik) , Centrum vzkumu konkurenn schopnosti esk ekonomiky, Working paper no. 9/2005, available at: http://www.econ.muni.cz /centrum/papers/wp2005-09.pdf

The economic level concerns not simply with the basics of financial returns but elements, which contribute to long-term financial success such as reputation and relationships and the broad economic impact of a company in terms of the multiplier effects of wages, investment and sourcing. Environmental level involves protecting air, water, land, and ecosystems, as well as effectively managing the earth's natural resources including fossil fuels. Social level means improving the quality of life and equity for employees of the

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company and for society as a whole. In a successful sustainability focused business strategy, these three levels are inter-related and support each other.110 It is not accidental that the three levels of CSR are in fact the same as elements of sustainable development and triple bottom line (or "people, planet, profit).

3.2 Dimensions of Corporate Social Responsibility

Dividing CSR framework into two dimensions, as was already proposed by the European Union in the document Promoting a European framework for corporate social responsibility in 2001, is helping better understand the different elements of CSR. According to this approach, CSR has an internal and external dimension. The internal dimension of CSR encompasses human resources management, occupational health and safety management, business restructuring, and management of environmental impact and natural resources. The external dimension of CSR, which goes beyond the doors of the company and involves many stakeholders, affects local communities, business partners and suppliers, customers and consumers, protection of human rights along the whole supply chain, and global environmental concerns. The following subchapters provide more details on both dimensions.

3.2.1 Internal Dimension of Corporate Social Responsibility

Internal dimension of CSR, i.e. socially responsible practices within the company, primarily involve employees and relate to issues such as investing in human capital, health and safety, and managing change, while environmentally responsible practices relate mainly to the management of natural resources used in the production. These practices open a way of managing change and reconciling social development with improved competitiveness. 3.2.1.1 Human Resources Management A major challenge for enterprises today is to attract and retain skilled and highly motivated workers. The statement supports recent research by the Czech Economic School in Prague focused on SME companies operating in the Czech Republic. According to the results of the research, the second biggest problem for the companies in the stage of maturity was lack and difficult recruitment of competent and skilled employees, a major problem for companies in the stage of growth was hiring and

110

Placet, M. A., Flower, R., Kimberly, M. (2005), Strategies For Sustainability, available at: http://www.allbusiness.com /environment-natural-resources/pollution-monitoring/10575494-1.html

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fostering of competent managers, recruitment, job-switching of skilled employees, and lower working morale or esprit de corps of regular employees.111 In this context, relevant measures that can help companies resolve above-mentioned troubles include lifelong learning, empowerment of employees, better information flow throughout the company, better balance between work, family, and leisure, greater work force diversity, equal pay and career prospects for women, profit sharing and share ownership schemes, and job security. Active follow up and management of employees who are temporarily off work due to disabilities or injuries can also result in increased employee loyalty and cost saving. Responsible recruitment practices, involving in particular non discriminatory practices, can facilitate companies the recruitment of people from ethnic minorities, older workers, and women and the long-term unemployed and people at disadvantage. Such practices are essential in relation to reducing unemployment particularly of disadvantaged people such as gipsies or people in pre-retirement age, raising the employment rate, and fighting against social exclusion. In another area of human resources management, life-long learning, enterprises have an essential role to play at several levels: They contribute to a better definition of training needs through close partnership with local actors who design education and training programmes; They support the transition from school to work for young people, for example by providing apprenticeship places; and They provide an environment, which encourages lifelong learning by all employees, particularly by the less educated, the less skilled and older workers. 3.2.1.2 Health and Safety at Work Health and safety at work has traditionally been approached mainly by means of legislation and enforcement measures. However, the recent and popular trend of outsourcing work to contractors and suppliers makes enterprises more dependent on the safety and health performance of their contractors, especially those who are working within their own premises. Today companies, governments and sector organisations are increasingly looking at additional ways of promoting health and safety, by using them as criteria in procuring products and services from other companies and as a marketing element for promoting their products or services. These voluntary schemes can be seen as complementary to

111

Kublkov, M. (2006), Growth Models of SMEs (Model stdi rstu malch a stednch podnik), Vysok kola ekonomick v Praze, available at: http://nb.vse.cz/~kubalm/Vyzkum/vyzkum2006.htm

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legislation and control activities by public authorities as they similarly aim at promoting a preventive culture, i.e. higher levels of occupational safety and health.112 As the focus on occupational health and safety performance and qualities of products and services is increasing, there is also an increasing demand for measuring, documenting and communicating these qualities in the marketing and promotional material. Occupational safety and health criteria have been included to varying degrees into existing certification schemes and labelling schemes for products and equipment. Certification schemes of management systems and subcontractors focusing primarily on occupational safety and health have also been launched. The Swedish TCO Labelling Scheme can serve as an example. The Swedish TCO113 Labelling Scheme for office equipment is a voluntary label that intends to stimulate the manufacturers to develop more occupational and environmentally safe office equipment; assist purchasers to choose office equipment less problematic for the users and the external environment; and to provide purchasers and the vendor with a clearly defined label, thereby saving time, work and costs in the purchasing process.114 On top of that, the tendency of companies and organisations to include occupational safety and health criteria into their procurement schemes has supported the development of generic procurement schemes based on uniform requirements for contractor occupational safety and health training or management systems, which allow for a third party to carry out the certification or initial approval of the contractors as well as overseeing the continuous improvement of the scheme. 3.2.1.3 Management of Environmental Impacts and Natural Resources In general, reducing the consumption of resources or reducing polluting emissions and waste can reduce environmental impact. It can also be good for the business by reducing energy and waste disposal bills and lowering input and de-pollution costs. Individual enterprises have found that less use can lead to increased profitability and competitiveness and compliance with CSR practices. In the environmental field, environmental investments are usually referred to as "win-win" opportunities - good for business and good for the environment. This principle has been established for a number of years and in 2002 was recognised in the European Commission's 6th Environment Action Programme. It explains how the EU and Member State governments can fulfil their role to help business to identify market opportunities

112

European Agency for Safety and Health at Work (2008), EU-OSHA Annual report 2007: bringing safety and health closer to European workers, available at: http://osha.europa.eu/en/publications/annual_report/2007full
113 114

TCO - The Swedish Confederation for Professional Employees comprises 16 affiliated trade unions.

The Swedish Confederation for Professional Employees (2008), "Go Beyond Green" with the TCO certification!, available at: http://www.tcodevelopment.com/

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and undertake "win-win" investments. It set out a number of other measures aimed at business: establishment of a compliance assistance programme to help business understand environmental requirements; development of national, but harmonised, company environmental performance reward schemes that identify and reward good performers and encouraging voluntary commitments and agreements.115 A good example of an approach that allows various stakeholders to work together with companies on reduction of environmental impacts is the European Unions Integrated Product Policy (hereinafter also IPP). IPP is founded on the consideration of products' impacts throughout their life cycle, and involves businesses and other stakeholders in dialogue to find the most cost-effective approach. In the environmental field, it can therefore be seen as a strong existing framework for promotion of CSR.116 Another approach that facilitates CSR is the EU's Eco-Management and Audit Scheme (EMAS) ISO 19000. This encourages companies voluntarily to set up site or company-wide environmental management and audit systems that promote continuous environmental performance improvements. The environmental statement is public and is validated by accredited environmental verifiers. Very positive on EMAS is also the fact that it can be implemented in SMEs. The EU for this purpose developed the EMAS Toolkit for small organisations.117 In current time enterprises are well aware of the opportunities associated with improved environmental performance, and are working to systematically take advantage of it. The European Eco-Efficiency Initiative, an initiative of the World Business Council for Sustainable Development and the European Partners for the Environment in partnership with the European Commission, has been aiming to integrate eco-efficiency throughout European businesses, and in the EUs industrial and economic policies. According to this Initiative, eco-efficiency is a management philosophy which encourages business to search for environmental improvements that yield parallel economic benefits. It focuses on business opportunities and allows companies to become more environmentally responsible and more profitable. It fosters innovation and therefore growth and competitiveness. Eco-efficiency is achieved by the delivery of competitively-priced goods and services that satisfy human needs and bring quality of life, while progressively reducing ecological impacts and resource intensity throughout the life-cycle to a level at

115

The European Parliament and the Council (2002), Decision No 1600/2002/EC of the European Parliament and of the Council of 22 July 2002 laying down the Sixth Community Environment Action Programme, available at: http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2002:242:0001:0015:EN:PDF
116

Commission of the European Communities (2001), Green Paper on Integrated Product Policy, COM(2001)68, Brussels, available at: http://www.iwoe.unisg.ch/org/iwo/web.nsf/SysWebRessources/EU_IPP.pdf/$FILE/EU_IPP.pdf
117

Institute of Environmental Management & Assessment (2009), Environmental Management Systems Your A Z Guide, available at: http://www.iema.net/ems/emas

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least in line with the Earths estimated carrying capacity. In short, it is concerned with creating more value with less impact.118 3.2.1.4 Adaptation to Change The last but not least sub-dimension of the internal dimension of CSR is adaptation to change. The widespread restructuring and incipient global economic recession that taking place all around the world raises concerns for all of the employees and other stakeholders as the closure of a factory or a heavy cut in its workforce may involve a serious economic, social or political crisis in local communities. In turbulent times, few companies escape the need to restructure, often through downsizing and temporary layoffs. It is often questionable whether objectives of reducing costs, increasing productivity and improving quality and customer service as they are closely related to the motivation, loyalty, creativity and productivity of the employees, are achieved through restructuring operations and mergers. However, restructuring and mergers can be done without breaking CSR rules. Restructuring in a socially responsible manner means to balance and take into consideration the interests and concerns of all those who are affected by the changes and decisions. In practice the process is often as important as the substance to the success of restructuring. In particular this involves seeking the participation and involvement of those affected through open information, consultation, and

communication. Furthermore, restructuring needs to be well prepared by identifying major risks, calculating all the costs associated with alternative strategies, and evaluating all of the alternatives which could reduce the need for redundancies. The process should seek to safeguard employees' rights and enable them to undergo vocational retraining where necessary, to modernise production tools and processes in order to develop onsite activities, to mobilise public and private financing and to establish procedures for information, dialogue, cooperation and partnership. Companies, by all means, should take up their share of responsibility to ensure the employability of their staff.119 Experience of the major restructuring operations carried out in Europe in the steel, coal and shipbuilding industries has shown that successful restructuring can be better achieved through joint efforts of relevant stakeholders - involving the public authorities, companies, employees' representatives, and local communities. By engaging in local development and active labour market strategies through involvement in local

118

The World Business Council for Sustainable Development (2000), Eco-Efficiency: Creating more value with less impact, available at: http://www.wbcsd.ch/web/publications/eco_efficiency_creating_more_value.pdf
119

The European Commission (2006), European Social Dialogue and Restructuring, available at: http://ec.europa.eu /employment_social/restructuring/docs/social_dialogue_and_restructuturing_en.pdf

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employment and social inclusion partnerships, companies can lessen the social and local impact of large scale restructuring.120

3.2.2 External Dimension of Corporate Social Responsibility

CSR extends beyond the doors of the company into the local community and involves a wide range of stakeholders in addition to employees and shareholders, particularly business partners and suppliers, customers, public authorities and non-governmental organizations representing local communities, as well as the global environment. In a world of multinational investments and global supply chains, CSR must also extend beyond the national borders. Rapid globalisation has encouraged discussion of the role and development of global governance. The development of voluntary CSR practices can be seen as contributing to this. 3.2.2.1 Communities The first external sub-dimension relates to communities as CSR is also about the integration of enterprises in their local settings. Enterprises contribute to their communities, especially to local ones, by providing jobs, wages and benefits, and tax revenues. On the other hand businesses depend on the health, stability, and prosperity of the communities in which they operate. For instance, they recruit a majority of their employees from the local labour markets, and therefore have a direct interest in the local availability of the skills and competencies they need for their operation. Furthermore, SMEs often also find most of their customers and business partners in the surrounding area. The reputation of a company at its location, its image as an employer and producer, but also as an actor in the local scene, certainly influences its competitiveness. Companies also interact with the local physical environment. Some almost entirely rely on a clean local environment for their production or offering of services, e.g. clean air, clean water, uncontaminated soil or on various other factors. There can also be a relationship between the local physical environment and the ability of business to attract workers to the region they are located in. On the other hand, business can also be responsible for a number of polluting activities, for example noise, light, and water pollution, air emissions, contamination of soil, and the environmental problems associated with transport and waste disposal. Many companies in order to be socially responsible, competitive and to develop sustainably become involved in community causes, notably by means of provision of

120

European Commission Directorate General for Employment and Social Affairs (2001), Promoting a European framework for corporate social responsibility, Green Paper (COM(2001) 366 final), available at: http://ec.europa.eu/ employment_social/soc-dial/csr/greenpaper_en.pdf

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additional vocational training places, assisting environmental charities, recruitment of socially excluded people, provision of child-care facilities for employees, partnerships with communities, sponsoring of local sports and cultural events or donations to charitable activities. The development of positive relations with the local community and thereby the accumulation of social capital121 is particularly relevant for non-local companies. Multinational companies increasingly use these relations to support the integration of their affiliates into various markets in which they are present. The familiarity of companies with the local actors, the local environment traditions and strengths is an asset from which they can capitalise. 3.2.2.2 Business Partners, Stakeholders Suppliers, Consumers, and Other External

It is an old truth that by working closely with business partners companies can reduce complexity and costs and increase quality of their products or services. Selection of suppliers is not always exclusively through competitive bidding. Relationships with alliance and joint venture partners and with franchisees are equally important. In the long run building relationships may result in fair prices, terms and expectations along with quality and reliable delivery. In adopting socially and environmentally responsible practices all enterprises, however, have to respect the relevant national and supranational competition laws. Large and multinational companies are at the same time business partners of the smaller ones, be it as their customers, suppliers, subcontractors or competitors. Companies should be aware that their social performance can be affected as a result of the practices of their partners and suppliers throughout the whole supply chain. The effect of CSR activities does not remain limited to the company itself, but also concerns their economic partners. This is particularly the true for large companies, which have outsourced part of their production or services and, therefore, may have acquired additional CSR with regard to these suppliers and their staffs. It has to be born in mind that sometimes economic welfare of these suppliers depends primarily or entirely on one large company. Large companies can demonstrate CSR by promoting entrepreneurial initiatives in the region of their location. Examples for such practices include various mentoring schemes offered by large companies to start-ups and local SMEs, or assistance to smaller firms on CSR reporting and communication of their CSR activities.
121

Social capital refers to networks, norms and institutions that enable collective action among the individual players of society including authorities, companies, non-governmental organizations and interest groups. Social capital can be seen as an economically credible way of discussing issues of social responsibility and contributions made by business or other groups to society. There is increasing evidence that social capital is critical for societies to prosper economically and for development to be sustainable. Source: Spence, J. L., Habisch, A., Schmidpeter, R. (2004), Responsibility and Social Capital The World of Small and Medium Sized Enterprises, Palgrave Macmillan Publishing, New York, page 3)

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Corporate venturing constitutes a further way for large companies to facilitate the development of new innovative enterprises. Corporate venturing means that the large company takes a minority stake in a promising start-up and promotes its development. This offers various advantages to both partners, including a better grip on innovative developments for the large company and easier access to financial resources and to the market for the small company.122 Today, companies are increasingly expected to provide products and services, which consumers need and want in an efficient, ethical and environmentally aware manner in order to be considered as socially and environmentally responsible. Companies, which build lasting relationships with customers by focusing their whole organisation on understanding what the customers need and want, and providing them with superior quality, safety, reliability and service can also expect to be more profitable. Applying the principle of design for all, i.e. making products and services usable by as many people as possible including disabled consumers, is also an important example of CSR. 3.2.2.3 Human Rights Human rights inseparably belong under the CSR umbrella. CSR has a strong human rights dimension, particularly in relation to international operations and global supply chains. Human rights are a very complex issue presenting political, legal and moral dilemmas. Companies face challenging questions, including how to identify where their areas of responsibility lie, how to monitor whether their business partners are complying with their core values, and how to approach and operate in countries where human rights violations are widespread. Under increasing pressure from various non-governmental organizations and consumer groups, companies and business sectors have been increasingly adopting codes of conduct covering working conditions, human rights and environmental aspects (covering also subcontractors and business partners). Companies have been doing so for various reasons, notably to improve their corporate image and reduce the risk of negative consumer reaction. Voluntary codes of conduct however are not an alternative to national, EU and international laws and binding rules - binding rules ensure minimum standards applicable to all, while codes of conduct and other voluntary initiatives can

122

Block, Z., MacMillan, C. I. (1995), Corporate Venturing: Creating New Businesses within the Firm, Harvard Business School Press, USA, page 13-15

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only complement these and promote higher standards for those who subscribe to them.123 While voluntary codes of conduct can contribute to promote international labour standards, their effectiveness however depends on proper implementation and verification. Codes of conduct may for instance face subcontractors producing for a number of different multinational companies with the need to fulfil many different criteria regarding wages, working hours and other social conditions. Codes of conduct should therefore be based on common standards such as the International Labour Organizations Declaration on Fundamental Principles and Rights at Work. Full disclosure of information by companies is important, including to local communities, as part of an ongoing dialogue with them. Furthermore, the emphasis must be on a developmental approach - one which stresses continuing gradual improvements to standards, and to the code itself. In the case of child labour, companies should not just respect conventions by dismissing contractors who use child labour, but should also, for example, help to tackle child poverty by assisting children into education. 3.2.2.4 Global Environmental Concerns Global environmental concerns are last but not least external sub-dimension of CSR. Through the transboundary effect of many business-related environmental problems, and steadily increasing consumption of resources from across the world, companies are also actors in the global environment. Enterprises, therefore, have to pursue CSR internationally as well as in their home countries. For example, companies can encourage better environmental performance throughout their supply chain within the Integrated Product Policy124 approach and make larger use of their environmental knowhow, particularly when suppliers and business partners are from developing countries. Investment and activities of the companies on the ground in third countries can have a direct impact on social and economic development in these countries. The debate on the role of business in achieving sustainable development is gaining importance on the global stage. The UN Secretary General has launched a Global Compact initiative which seeks to make business a partner in achieving social and environmental improvements globally. The EU and the OECD Guidelines for multinational enterprises also promote sustainable development as the only way for further growth.
123

European Commission Directorate General for Employment and Social Affairs (2001), Promoting a European framework for corporate social responsibility , Green Paper (COM(2001) 366 final), available at: http://ec.europa.eu /employment_social/soc-dial/csr/greenpaper_en.pdf 124 The integrated product policy (IPP) aims to minimise the negative effects a product can cause during its life cycle by incorporating all phases of a product and including all players, and by implementing measures in areas where they are most effective. Thus the IPP stands in contrary to the so far used end of pipe environment protection, which has dealed with the disposal of harmful substances not until they emerged, what resulted in a considerable effort.

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In this respect it is sad and simultaneously alarming that the Czech Republic ranked 68 th from the total of 149 surveyed countries according to the Environmental Performance Index (EPI)125 in 2008, which evaluates sanitation, greenhouse gas emissions, agricultural policies, air pollution and 20 other measures to formulate an overall score, with 100 the best possible.126 The ranking of environmental performance put the United States at the bottom of the industrialized nations and 39th on the list. European countries dominated the top places in the ranking. The top 10 countries, with scores of 87 or better, were led by Switzerland, Sweden, Norway and Finland. The others at the top were Austria, France, Latvia, Costa Rica, Colombia and New Zealand, the leader in the 2006 version of the analysis.127

3.3

Six Forms of Corporate Social Responsibility Initiatives

Another viable concept how to distinguish various tools that are used by companies, which want to master or have already implemented CSR concept is based on Philip Kotlers six forms of CSR initiatives. Kotler argues that most corporate social initiatives, or CSR tools, under the CSR umbrella fall within one of the following distinct categories: cause promotions, cause related marketing, corporate social marketing, corporate philanthropy, community volunteering, and socially responsible business practices. Though there are commonalities among these initiatives (i.e. similar causes they are supporting, partnerships that are formed, and communication channels that are used), each initiative has a characteristic that makes it distinct. Importance to develop these distinctions lies in an old truth that awareness and familiarity with tools that are at hand increases the chances they will be considered and then used. Traditional and outdated CSR concept focused primarily on one of these initiatives, on philanthropy. However today a more strategic and disciplined approach involves selecting an issue for focus and then considering each of the six potential options for contributing to the cause. The delineation of these distinct initiatives may help increase consideration of them and may make understanding and application of the keys to success for a particular initiative more likely. The following subchapters outline each of the six CSR initiatives including selected practical examples in the Czech Republic.

125

The Environmental Performance Index (EPI) is a method of quantifying and numerically benchmarking the environmental performance of a country's policies. This index was developed from the Pilot Environmental Performance Index, first published in 2002, and designed to supplement the environmental targets set forth in the U.N. Millennium Development Goals. 126 Gazdk, R. (2008), The Czech Republic sank by 64 ranks in global eco-index (esko se propadlo o 64 mst ve svtovm ekoindexu), available at: http://aktualne.centrum.cz/priroda/clanek.phtml?id=609958 127 Barringer, F. (2008), U.S. Given Poor Marks on the Environment, available at: http://www.nytimes.com/2008/01/23 /washington/23enviro.html?_r=1

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3.3.1 Corporate Philanthropy

Corporate philanthropy is a direct contribution by a company to a charity or cause, most often in the form of cash grants, donations and/or in-kind services. It is perhaps the most traditional of all CSR initiatives and has historically been a major source of support for community health and human service organizations, education, and the arts, as well as organizations with missions to protect the environment. The corporate donations are often critical to an existence of non-profit organizations. Some authors and definitions include employee volunteerism as a form of corporate philanthropy. However it is better to distinguish community volunteering as a separate initiative, as it has unique characteristics, related corporate benefits, potential concerns, keys for success, and decision making related to developing and implementing corporate programmes. For details, please, see subchapter Community Volunteering. Corporate philanthropy has matured over the decades, primarily in response to internal and external pressures to balance concerns for shareholder wealth with expectations to demonstrate responsibility also for other stakeholders contributing to the companies livelihood. Perhaps the most consistent response has been to move to a more strategic approach to selecting social issues to support, with an increased tendency to choose an area of focus and to tie philanthropic activities to the companys business objectives. Second, there appear to be more long-term relationships being developed with non-profit organizations, ones that look more like a partnership than a casual acquaintance. Third, companies have expanded their options for giving beyond cash donations to include contributions of other (often less costly) company resources such as excess products, use of distribution channels, and technical expertise. Fourth, there can be seen increased interest in involving employees in decision making regarding the prioritization and selection of recipients for philanthropic programmes. Fifth, as with all other initiatives, companies have been increasingly focusing on determining ways to track and measure outcomes, even rates of return on contributions.128 Philanthropic efforts commonly involve selecting a cause that reflects a priority area for the company, determining the type of contribution to be made, and identifying a recipient for contributions, most often and existing non-profit organization, foundation, or a school. The range of options for giving are summarized below and, as indicated, are varied, with trends mentioned above that are breaking from the tradition of cash donations to creative giving strategies that make use of other (sometimes idle) company resources: Providing cash donations;

128

Hill, P. H., Stephens, D. (2003), Corporate Social Responsibility: An Examination of Individual Firm Behaviour, Business and Society Review, page 339-364

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Offering grants; Awarding scholarships; Donating products; Donating services; Providing technical expertise; Allowing the use of facilities and distribution channels; and Offering the use of equipment.129

Major strengths for this initiative can be building corporate reputation and goodwill, attracting and retaining a motivated workforce, and having an impact on societal issues, especially in local communities where the company operates.

3.3.2 Cause Promotions

In a cause promotion a company provides funds, in-kind contributions, or other company resources to increase awareness and concern about a social cause or to support fundraising, participation, or volunteer recruitment for a cause. Persuasive

communications are the major focus for this initiative, with an attention to create awareness and concern relative to a selected social issue and/or to persuade potential donors and volunteers to contribute to the selected cause or participate in activities that support that cause. Successful campaigns utilize effective communication principles, developing motivating messages, creating persuasive executional elements, and selecting efficient and effective media channels. Campaign plans are based on clear definitions of target audiences, communication objectives and goals, support for promised benefits, opportune communication channels, and desired positioning.130 Cause promotions are distinguished from other CSR initiatives primarily by the emphasis on promotional strategies. Particularly they differ from philanthropy in that it involves more from the company than simply writing a check, as promotional campaigns most often require involvement in the development and distribution of materials and participation in public relations activities. Further cause promotions differ from cause related marketing in that contributions and support are not tied to company sales of specified products. Corporate cause promotions most commonly focus on the following communication objectives:

129

Bartoov, Z. (2006), Guidebook of Corporate Philanthropy (Prvodce firemn filantropi) , Czech Donors Forum, Prague, pages 7, 9, 11, 19 130 Jeek, J. (2008), Philanthropy is Wealth of the Soul (Mecenstv je bohatstv due), Literary Newspapers, available at: http://www.literarky.cz/?p=clanek&id=5585

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Building awareness and concern about a cause by presenting motivating statistics and facts, such as publicizing the number of persons affected by lung cancer, by sharing real stories of people in need or who have been helped by the cause;

Persuading people to find out more about the cause by visiting a special web site or by requesting an informational brochure; Persuading people to donate their time and/or money and or non-monetary resources to help those in need; and Persuading people to participate in events, such as attending an art show, participating in a fundraising walk, or signing a petition to help the cause.

Several potential downsides for the company are inherent in these promotional campaigns, particularly visibility for the company can get lost; tracking investments and return on promotional investments is difficult because of its visibility; this initiative may generate too many additional requests for support from other organizations connected to the cause; this approach requires more time and involvement than simple donation of many; and promotions can often be replicated, thus potentially removing any desired competitive advantages.131 Key to success includes recommendations to carefully select an issue that can be tied to company products and core values. It should be a cause that owners and management can commit to a long-term, that is a concern for customers and target markets, motivates employees, and has the most chance for media exposure.

3.3.3 Cause Related Marketing

In cause related marketing (hereinafter also CRM) campaigns, a company commits to making a contribution or donating a percentage of revenues to a specific cause based on product sales. Cause related marketing is intrinsically linked to CSR, corporate affairs, community investment and marketing. It can be represented as shown in Figure 3.2 on the next page. CRM intersects with marketing, philanthropy, corporate affairs, and corporate community investments. Together they all form part of the overall matrix, which makes up CSR, which in turn forms part of the overall business strategy. The intersection of all spheres in Figure 3.2 is the ultimate point providing maximum return on investment and opportunity for all concerned. Awareness, support and provision of resources can all be enhanced if individual departments or persons in the company work in concert with each
131

Kotler, P., Lee, N. (2005), Corporate Social Responsibility Doing the Most Good for Your Company and your Cause, New Jersey, USA, page 79-80

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other. The benefits to the company, the charity or cause partners and therefore to the wider community can all be enhanced through effective communication, co-ordination, co-operation and by taking an overall view of the business. The CRM therefore represents a challenge to companies as it bridges organizational, functional and decision-making boundaries.132
Figure 3.2: Relations among cause related marketing, marketing, corporate community investment, philanthropy, and Corporate Social Responsibility

Source: Based on Adkins, S. (1999), Cause Related Marketing Who Cares Wins, Butterworth-Heinemann, Oxford, page 48-49

According to the prestigious and nationally recognized Cone/Roper 1999 Cause Related Trends Report: The Evolution Of Cause Branding133, consumers and employees solidly and consistently support cause related activities and companies see benefits to their brand and organizations reputation, image, and bottom line. Data highlights are as follows: 83% of consumers have a more positive image of companies who support a cause they care about. Well created, relevant cause programmes can have a dramatic impact on a companys reputation and brand image; 94% of influential consumers, those socially and politically active trendsetters, have a more favourable image of companies who are committed to a cause; 65% of consumers report they would be likely to switch brands or retailers to one associated with a good cause, when price and quality are equal;

132 133

Adkins, S. (1999), Cause Related Marketing Who Cares Wins, Butterworth-Heinemann, Oxford, page 9-10, 48-49 The Cone/Roper survey took place in the USA.

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61% of consumers agree that cause marketing should be a standard business practice; 90% of workers whose companies have a cause programme feel proud of their companies values versus 56% of those whose employers are not committed to a cause; and

87% of employees feel a strong sense of loyalty to their companies with cause programmes versus 67% of those employed in companies without a cause association.

The report clearly demonstrates that cause programs impact a companys bottom line in the short-term through increased sales, and in the long-term through increased customer loyalty, improved employee pride, and enhanced brand image. The report reinforces the fact that those companies that thoroughly implemented CSR are highly accepted and rewarded with enhanced brand equity and employee loyalty. 134 As an example of CRM can serve Procter & Gambles Pampers 1 Pack = 1 Vaccine programme. In 2007, Pampers teamed with UNICEF135 to provide tetanus shots for mothers and children in developing countries, which is a major health problem in these countries. For each pack of specially marked Pampers diapers and wipes that consumers buy during the promotion period, Pampers donates the cost of one vaccine to UNICEF. On top of that the partner of the programme Tesco stores in the Czech Republic donates the same amount as the Procter & Gamble for Pampers diapers bought in its stores. The programme has helped provide more than 40 million vaccines for UNICEF which will help protect the lives of mothers and newborns around the globe.136 137

3.3.4 Corporate Social Marketing

Corporate social marketing is a means whereby a company supports the development and/or implementation of a behaviour change campaign intended to improve public health, safety, the environment, or community well-being. Behaviour change is always the focus and the intended outcome. Successful campaigns utilize a strategic marketing planning approach: conducting a situation analysis, selecting target audiences, setting behaviour objectives, identifying barriers and benefits to behaviour change, and then

134

Cone, Inc. (1999), The 1999 Cone/Roper Cause-Related Trends Report: The Evolution of Cause Branding, Boston, available at: http://kidswishnetwork.net/ConeRoper.asp 135 UNICEF - The United Nations Children's Fund works for children's rights, their survival, development and protection. 136 Pampers.cz and Procter & Gamble (2008), Programme 1 Pack = 1 Vaccine (Akce Pampers 1 balen = 1 vakcna), available at: http://www.pampers.cz/unicef/bin/start.php 137 Procter & Gamble (2008), Caring for Babies around the World through Childrens Charities , available at: http://www.pampers.com/en_US/childrens-charities-around-the-world

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developing a marketing mix strategy that helps overcome perceived barriers and maximize potential benefits. It relies on the same principles and techniques used in developing and implementing marketing strategies for companys goods and services.138 It is most easily distinguished from other CSR initiatives by the behaviour change focus. Although campaign efforts may include awareness building and educational components or efforts to alter current beliefs and attitudes, the campaign is designed primarily to support and influence a particular public behaviour (e.g. refrain from smoking close to the children) or action (e.g. regularly visiting a physician for a preventive check-up). Corporate social marketing campaigns most commonly focus on promoting behaviours that address specific issues such as the following: Health issues including tobacco use prevention, breast cancer, prostate cancer, physical activity, skin cancer, eating disorders, diabetes, HIV/AIDS, and other; Injury prevention issues such as traffic safety, child injury prevention, and other; Environmental issues including water conservation, electrical conservation, use of pesticides, water and air pollution, and preservation of wildlife habitats; and Community involvement issues such as volunteering, animal rights, crime prevention, and other. Selection of issues can be most often influenced by a natural connection to a companys core business. A decision to support a behaviour change campaign may then be incited by some growing perhaps even alarming trends, for example by increase of traffic accidents or worsening of quality of natural environment. Potential company benefits can be greatest for supporting marketing objectives including strengthening brand positioning, creating brand preference, and increasing sales. Potential and significant additional benefits beyond marketing include improving profitability and making a real social impact.139 However several concerns and potential pitfalls with corporate social marketing campaigns are real. Some social issues, although important, are not an authentic fit for the company. For many issues and initiatives, clinical and technical expertise needs to be sought. Behaviour change, and therefore impact, does not often happen overnight, and key publics and partners need to be forewarned. Companies have also to be prepared for criticism from those who view social marketing campaigns as none of your business and have to recognize that developing, even supporting a social marketing campaign involves more than just writing a check.139
138

Valentino, B. (2007), MBA Toolkit For CSR: Corporate Marketing, available at: http://www.chinacsr.com/en/2007 /05/24/1355-mba-toolkit-for-csr-corporate-marketing/ 139 Bloom, N. P., Hussein, Y. P., Szykman, R. L. (1997), The Benefits of Corporate Social Marketing Initiatives, in Goldberg, E. M., Fishbein, M., Middlestadt, E. S. (1997), Social Marketing: Theoretical and Practical Perspectives , Lawrence Erlbaum Associates, USA, page 317-320

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3.3.5 Community Volunteering

Another CSR initiative, community volunteering, is an initiative in which an enterprise supports and encourages employees, business partners, and/or franchise members to volunteer their time to support local community and beneficial causes. Volunteer efforts may include employees volunteering their expertise, talents, ideas, and/or physical labour. Company support may involve providing paid time off from work, matching services to help employees find opportunities of interest, recognition for service, and organizing teams to support specific causes the company has targeted.140 Distinguishing community volunteering from other initiatives is not difficult, as it alone involves employees of a company personally volunteering for local cause efforts. Volunteering in the community is not a new corporate initiative. What is new and noteworthy, however, is an apparent increase in the integration of employee volunteer efforts into existing CSR initiatives and even connecting the volunteer efforts to business objectives. Today in modern CSR concept, a strategic approach appears to be the norm, where employees are often encouraged to volunteer for causes that are currently supported by other CSR initiatives, often connected to core business values and goals. Examples representing types of support include the following: Promoting the ethic through corporate communications that encourage employees to volunteer in their community and that may provide information on resources to access in order to explore volunteer opportunities; Suggesting specific causes and charities that the employee might want to consider and providing detailed information on how to get involved, often with causes and charities supported by other current CSR initiatives; Organizing volunteer teams for a specific cause or event; Providing paid time off during the year to do volunteer work, with typical benefits ranging from offering two to five days of annual paid leave to do volunteer work on company time (typical examples can be esk spoitelna a.s. and Raiffeisenbank a.s. in the Czech Republic); Awarding cash grants to charities where employees spend time volunteering; and Recognizing exemplary employee volunteers through gestures such as mentions in internal newsletters, etc.141

140

Kotler, P., Lee, N. (2005), Corporate Social Responsibility Doing the Most Good for Your Company and your Cause, New Jersey, USA, page 175-176 141 Cairns, B., Hutchison, R. (2006), The Impact of Investing in Volunteers (Final Report), The Centre for Voluntary Action Research at Aston Business School, available at: http://iiv.investinginvolunteers.org.uk/NR/rdonlyres/CFD0C332-DDA64F0B-AC27-B290F8B4003B/0/ImpactAndBenefitsreport2006.pdf

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Generally, types of projects that employees volunteer for range from those that contribute to a local community to ones that improve health and safety for individuals, to those that protect the natural environment. Similarly as other CSR initiatives, community volunteer programmes can contribute to building strong and enduring relationships with local communities, attracting and retaining satisfied and motivated employees, reinforcing and leveraging current involvement and investments in CSR initiatives, contributing to business objectives, enhancing company image, and providing opportunities to demonstrate products and services. On the other hand potential concerns with developing and managing community volunteer programmes can be real, including concerns with high costs, having a meaningful social impact, appropriately realizing business benefits, and tracking and measuring outcomes.

3.3.6 Socially Responsible Business Practices

Socially responsible business practices are those where the company adapts and conducts discretionary business practices and investments that support CSR causes to improve community wellbeing and protect the natural environment. Main distinctions from other CSR initiatives include a focus on activities that are discretionary, not those that are mandated by laws or regulatory agencies or are simply expected, as with meeting moral or ethical standards. Community is interpreted broadly to include employees of the corporation, suppliers, distributors, non-profit and public sector partners, as well as members of the general public. And wellbeing can refer to health and safety, as well as psychological and emotional needs.142 Over the last decade there has been an apparent shift from adopting more responsible business practices as a result of regulatory pressures, consumer complaints, and special interest group pressures, to proactive research exploring corporate solutions to social problems and incorporating new business practices that will support these issues. Several factors may be contributing to this shift: evidence that socially responsible business practices can actually increase profits; a global marketplace with increased competition and consumer options; interest in increased employee productivity and retention; and increased visibility and coverage of corporate social responsible and irresponsible activities.143
142

Kotler, P., Lee, N. (2005), Corporate Social Responsibility Doing the Most Good for Your Company and your Cause, New Jersey, USA, page 208 143 Good Money (2008), Social, Ethical and Environmental Investing and Consuming & Corporate Accountability: Principles & Codes for Socially Responsible Business Practices , available at: http://www.goodmoney.com /directry_codes.htm

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As might be expected, most initiatives related to socially responsible practices relate to altering internal procedures and policies, such as those related to product offerings, facility design, manufacturing, assembly, and employee support. Common activities may include the following: Designing facilities to meet or exceed environmental and safety

recommendations and guidelines, such as for increased energy conservation; Developing process improvements, which may include practices such as eliminating the use of hazardous waste materials, reducing the amount of chemicals used in growing crops, or eliminating the use of certain types of chemicals and materials; Discontinuing product offerings that are considered harmful but not illegal; Selecting suppliers based on their willingness to adopt or maintain sustainable social and environmental practices; Choosing manufacturing and packaging materials that are the most

environmentally friendly; Providing full disclosure of product materials and their origins and potential hazards; Developing programmes to support employee wellbeing; Measuring, tracking and reporting of accountable goals and actions; Establishing guidelines for marketing to ensure responsible communications and appropriate distribution channels(particularly regarding children); Providing increased access for disabled people to products and services; Protecting privacy of consumer information; and When making business decisions taking into consideration the economic impact of these decisions on local communities.144 145 Resulting financial benefits of socially responsible business practices can be associated with decreased operating costs, monetary incentives from regulatory authorities, and increased worker productivity and retention. Marketing benefits can be numerous as well, with the potential for increasing community goodwill, creating brand preference, building brand positioning, improving product quality, and increasing company respect. These activities also provide opportunities to build relationships with external stakeholders such

144

Cassuto, S. (2008), Socially Responsible Business Practices, Salem Style, available at: http://www.alternatives magazine.com/01/cassuto1.html 145 Littrell, M. A., Dickson, M. A. (2001), Socially Responsible Business Practices, Cornells Newsletter for the New York State Apparel and Sewn Products Industry, Spring 2001, available at: http://www.topstitch.cornell.edu/issues /Topstitch_Spring2001.pdf

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as regulatory authorities, suppliers, non-profit organizations, and other external partners.146

3.4

Measuring, Evaluating and Reporting On Corporate Social Responsibility

3.4.1 Measuring and Evaluating Corporate Social Responsibility

Measuring and evaluating CSR is by no means an easy task, even for large companies, which in many cases have highly developed and reliable measurement and internal reporting management systems. For SMEs with lack of available resources (particularly qualified human resources, financial means and time) and often without sophisticated management information systems it can be even more complicated and challenging task. Even though measuring and evaluating costs and benefits of CSR are not easy, it is always better to do something in this respect, even with less sophisticated tools and systems, than to do nothing. Measuring results provide companies necessary feedback of their efforts and can enable them to take essential steps if something goes wrong direction or just not according to plan. Companies can take advantage of tools and systems already used for measuring and evaluating of marketing activities and simply adjust them to measure and evaluate costs and benefits of CSR. Of course, there is not an equal sign between marketing and CSR, but regarding measurement and evaluation there are many similarities. However, despite many common attributes and characteristics, there is one serious problem that needs to be resolved and overcome - the time factor problem. Usually, costs and results of marketing campaigns and marketing activities can be allocated to particular time period and when calculating marketing effectiveness, costs and benefits are directly allocated to the respective time period (sometimes certain time lag is taken into consideration). But true CSR, and if meant seriously, is a long-time project without any foreseeable ending. Moreover, effective CSR should be incorporated into a companys overall strategy and into all decision-making processes at all levels in the hierarchy. Also, many CSR related activities and initiatives a company would do anyway as it saves costs and thus exactly allocating costs to CSR activities can be in the least tricky, if not impossible (for example some socially responsible business practices, which can save costs and at the same time can be associated to CSR). Similarly as tools and systems for measuring marketing activities, companies can apply for measuring and evaluating CSR already known benchmarking method and

146

Fabien, A. (2008), How to Employ Socially Responsible Business Practices to Enhance Your Brand , available at: http://smallfishbigmoney.com/2008/10/12/how-to-employ-socially-responsible-business-practices-to-enhance-your-brand/

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methodology. The most probably usage of external benchmarking would be suitable for most companies companies can compare their approach and their results with the best company in their field of operation and also with top companies in other lines of business as well. Internal benchmarking can be used by corporations with several quasi independent strategic business units, which can be compared among themselves or by multinational companies for comparing costs and benefits of CSR among individual countries, where the company operates. Despite obstacles and unresolved issues in measuring and evaluating CSR, companies should try their best as it can help them to substantiate invested resources and encourage them in continuing with CSR.

3.4.2 Corporate Social Responsibility Reporting

Development of Corporate Social Responsibility Reporting Not long time ago, CSR reports were seen as rarity, and very often as one-off activity taken by certain companies. In addition, a group of people who red reports was limited to hard-core campaigners or business consultants. However, this changed and improved over the years. CSR reporting went through three overlapping phases. The first phase of CSR reporting (1970s and 1980s) was the weakest, not linked to corporate performance, but mainly to PR without critical aspects. Reports at that time were composed of advertisements and annual report sections. They were perceived as very personal and not too much connected to CSR. 147 The second phase (end of 1980s and 1990s) was pioneering phase, which open the door to todays CSR reporting. In that period CSR reports were focused on major stakeholder categories: communities (e.g. philanthropic giving, environmental

awareness, and global awareness), employees, customers, suppliers, and investors. In CSR reports were often included auditors' opinions on the performance of the companies in the area of social and environmental responsibility with respect to stakeholders groups.147 The third phase of CSR reporting is surely the most interesting because it introduces not only third-party certification of the reports, but certification by bodies that are accredited to certify against social or environmental standards. The standards are already determined before an auditor goes in and the procedures are specified. When a violation is found, the facility is given a chance to take corrective action. The auditor returns to see that required corrective actions are made. Major problems are not allowed to remain year
147

Marlin, J.T., Marlin, A.T. (2003), A brief history of social reporting, Business Respect , Issue Number 51, available at: www.mallenbaker.net/csr/CSRfiles/page.php?Story_ID=857

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after year. In light with mentioned standards and certifications companies are under the pressure to protect brand name so businesses attitude toward CSR reporting has become more proactive and companies have been trying to raise value of what they report. The pioneers and global leaders and certified facilities of the new phase of CSR reports have been the Social Accountability International enhancing labour standards, and environmental leaders have been the Global Reporting Initiative and the International Social and Environmental Accreditation and Labelling Alliance. Though, there are also many other organizations writing and defining standards and codes for CSR.147 148 A global reporting survey conducted in 2004 by the Association of Chartered Certified Accountants found that the number of corporate social, environmental, and sustainability reports increased from fewer than 100 in 1993 to more than 1,500 in 2003. Similarly, a 2003 study of the world's 100 largest companies by the consulting group CSR Network found that almost half of them (49) issued an environmental, social, or sustainability report.149 According to the Steinerovas research, there were less than 20 companies that published CSR reports in the Czech Republic in 2008. Majority of these CSR reports either resembled Public Relations reports without being sufficiently credible or were translations of CSR reports published by respective controlling (mother) company. Impression from these reports was rather negative as majority of contained information could not be reliably verified. Also, absolute majority of the reports was not certified and verified by independent third party.150 If conclusion can be drawn from these facts, Czech companies do not know how to utilize the full potential of CSR so far. Corporate Social Responsibility Reporting Standards With increasing expectations to get more qualitative and informative CSR report a burden for those companies to provide such information in a standardized way also grow. In response to the diversity of codes of conduct, the Social Accountability International151 (hereinafter also SAI) has developed a standard for labour conditions and a system for independently verifying factories compliance. The standard, Social
148

Lippman, S. (2008), Sustainability Reporting Report Card: Needs Improvement, available at: http://trilliuminvest.com /news-articles-category/cover-story-news-articles/sustainability-reporting-report-card-needs-improvementa/ 149 Business for Social Responsibility (2005), CSR Reporting, available at: www.bsr.org/CSRResources/ IssueBriefDetail.cfm?DocumentID=50962 150 Steinerov, M. (2008), Corporate Social Responsibility Reporting as an Integral Part of Implementation Cycle (Spoleensk odpovdnost firem reportovn jako soust implementanho cyklu), available at: http://library.vse.cz /direct?000124567 151 The Social Accountability International (SAI) was established in 1997 and convened an expert, international, multistakeholder Advisory Board to partner in developing standards and systems to address workers rights. Representatives of trade unions, human rights organizations, academia, retailers, manufacturers, contractors, as well as consulting, accounting, and certification firms, by consensus, cooperated to develop the Social Accountability 8000 (SA8000) Standard. Published in late 1997 and revised in 2001, the SA8000 Standard and verification system is a credible, comprehensive and efficient tool for assuring humane workplaces.

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Accountability 8000 (SA8000), and its verification system draw from established business strategies for ensuring quality (such as those used for ISO 9000) and add several elements that international human rights experts have identified as being essential to social auditing.152 On the environmental side, the Global Reporting Initiative153 (hereinafter also GRI) is currently seen as best practice. The GRI has pioneered the development of the worlds most widely used sustainability reporting framework and is committed to its continuous improvement and application worldwide. This framework sets out the principles and indicators that organizations can use to measure and report their economic, environmental, and social performance. The GRIs sustainability reporting guidelines also includes ambitious guidelines on social reporting. Its sustainability reporting guidelines allows for inter-company comparability.154 The International Organization for Standardization155 (hereinafter also ISO), has also decided to launch the development of an International Standard providing guidelines for CSR and CSR reporting. The guidance standard is expected to be published in 2010 as ISO 26000 and will be voluntary to use. ISO 26000 will add value to existing initiatives for CSR by providing harmonized, globally relevant guidance based on international consensus among expert representatives of the main stakeholder groups and so encourage the implementation of best practice in CSR worldwide. ISO 26000 is intended for use by organizations of all types, in both public and private sectors, in developed and developing countries. It will assist them in their efforts to operate in the socially responsible manner that society increasingly demands. ISO 26000 contains guidance, not requirements, and therefore will not be for use as a certification standard like ISO 9001 and ISO 14001.156 Besides above-mentioned CSR standards and guidelines also exists a variety of other not so renowned ones and standards dedicated only to specific areas of CSR, for example focused on environment such as environmental management standards ISO
152

Social Accountability International (2008), Overview of Social Accountability 8000, available at: http://www.saintl.org/index.cfm?fuseaction=Page.viewPage&pageId=473&stopRedirect=1 153 The Global Reporting Initiative (GRI) is a large multi-stakeholder network of thousands of experts, in dozens of countries worldwide, who participate in GRIs working groups and governance bodies, use the GRI Guidelines to repo rt, access information in GRI-based reports, or contribute to develop the Reporting Framework in other ways both formally and informally. 154 Global Reporting Initiative (2008), What we do, Who we are, available at: http://www.globalreporting.org/AboutGRI/ WhatWeDo/and http://www.globalreporting.org/AboutGRI/WhoWeAre/ 155 The International Organization for Standardization (ISO) is the world's largest developer and publisher of International Standards. ISO is a network of the national standards institutes of 159 countries, one member per country, with a Central Secretariat in Geneva, Switzerland, that coordinates the system. ISO is a non-governmental organization that forms a bridge between the public and private sectors. On the one hand, many of its member institutes are part of the governmental structure of their countries, or are mandated by their government. On the other hand, other members have their roots uniquely in the private sector, having been set up by national partnerships of industry associations. Therefore, ISO enables a consensus to be reached on solutions that meet both the requirements of business and the broader needs of society. 156 International Organization for Standardization (2008), ISO and social responsibility, vailable at: http://www.iso.org/iso/socialresponsibility.pdf

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14000 (help organizations minimize how their operations negatively affect the environment), and EMAS - the EU Eco-Management and Audit Scheme (management tool for companies and other organisations to evaluate, report and improve their environmental performance), or on managing occupational health and safety risks such as OHSAS 18001 - Occupation Health and Safety Assessment Series (is intended to help organizations to control occupational health and safety risks).157 Corporate Social Responsibility Reporting in SMEs In European Union there has been existing increasing pressure for SMEs to engage in CSR practices, including CSR reporting. Curiously in this promotional programme of CSR reporting, the only group whose ideas have not been sought in this debate were the SME leaders themselves. The analysis, based on discussions within entrepreneurs' circles, suggested that the argument for expanding formalization of CSR reporting to SMEs rested upon several false conclusions. It implicitly assumed that an apparent solution for large multinationals can be transposed to SMEs, and it underestimated the drawbacks of bureaucracy. Moreover, many SMEs experienced inconsistency between the idealistic CSR communication of some large companies and their actions. Formalization of CSR reporting can even be counterproductive. CSR and CSR reporting in SMEs needs a specific approach, adapted to the informal nature and entrepreneurial character of the SMEs business.158 Verification of a companys CSR report involves costs and resources. The author of the dissertation acknowledges that independent assessments are useful, but notes that, while large companies can afford the costs of such independent assessment, a lot of SMEs cannot readily afford them. Therefore verification of CSR reports in case of SMEs would increase costs and in many cases do not bring expected benefits. The essence of CSR lies in the implementation of responsible business practices. It lies in the right attitudes, in the corporate culture, not in formalisation and third party verification of CSR reporting.

157

Business Leaders Forum, (2008), Standards related to Corporate Social Responsibility (Normy kter maj vztah k CSR), available at: http://www.csr-online.cz/Page.aspx?normy 158 Sheehy, T. (2006), Corporate Social Responsibility, available at: http://www.csaust.com/AM/Template.cfm? Section=Submissions&Template=/CM/ContentDisplay.cfm&ContentID=5881

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Chapter 4.

Surveys on Corporate Social Responsibility Conducted in the Czech Republic, Europe and Worldwide

This chapter provides a brief overview of surveys on corporate social responsibility that were conducted in the Czech Republic, Europe and worldwide between years 2002 and 2008. It has to be stressed that this overview is not exhaustive and does not include all surveys that were executed in these years. There are mentioned only surveys on CSR that were either focused on small and medium-sized companies or conducted in the Czech Republic and/or the author thought it was worth mentioning them in this dissertation paper. The individual surveys, arranged according to the year in which they were published, are shortly summarized in the following subchapters. Some of their results and conclusions were used for comparison and as a supporting evidence for making conclusions in chapters devoted to results of own survey on CSR (please, see Chapters Methodology and General Results of Own Research, Specific Results of Own Research: Internal Dimension of Corporate Social Responsibility, Specific Results of Own Research: External Dimension of Corporate Social Responsibility).

4.1 Global Surveys

4.1.1 Survey of Small and Medium Enterprises in the Global Compact (2004)159
The survey was conducted under the auspices of the United Nations Industrial Development Organization (hereinafter also UNIDO) in the year 2003 and was completed in the year 2004. The questionnaire was sent out to 193 of the 234 SME signatories to the Global Compact. Responses to the questionnaire were received over the period August to mid-December 2003. A total of 78 companies from 30 countries returned the questionnaire duly filled out. The survey, therefore, enjoyed the response rate of 40 %. The respondents were from Africa, Asia, Middle East, Latin America, North America and Europe.

159

United Nations Industrial Development Organization (UNIDO) (2004), Survey of Small and Medium Enterprises in the Global Compact, Vienna, available at: http://www.unido.org/index.php?id=o19478

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The survey was based on electronic questionnaire, consisted of 25 questions and grouped in five main categories. The most important topics the survey covered were the relationship of the company to the Global Compact, institutional support available for Corporate Social and Environmental Responsibility (hereinafter also CSER) and the extent to which SMEs were involved in implementation of CSER. The survey discovered that only 29 % of respondents connect the Global Compact to their businesses. This finding, on the relevance of CSER to business relations, is consistent with that of a European Unions survey of SMEs undertaken in 2002, in which only 28 % of 7.662 European SMEs mentioned CSER activities as instrumental to, or beneficial for, their business strategy. The relatively weak perception of the linkages, between CSER and business strategy, constituted a challenge on all partners to demonstrate the business case for CSER. On the other hand a large majority of SMEs spent between 1 and 10 % of their turnover on special benefits to employees and on environmental conservation. This would seem to indicate that the CSER agenda is fairly well rooted in the operations of the SME signatories to the Global Compact. It has to be point out that the grand disadvantages of this survey were the facts that the survey was conducted only among SME signatories to the Global Compact (i.e. its members, which had already endorsed the idea of Corporate Social and Environmental Responsibility) and a relatively low number of companies was involved.

4.2 European Surveys

4.2.1 Survey on European SMEs and Social and Environmental Responsibility (2002)160
The ENSR (European Network for SME Research) survey on SMEs was carried out from May to August 2001 and published in 2002. The survey used a Computer Assisted Telephone Interviewing (CATI) system to collect data from entrepreneurs and managers within SMEs, all being independent private enterprises with less than 250 employees in all sectors of industry and in 19 countries: the 15 countries of the EU, plus Iceland, Liechtenstein, Norway and Switzerland. In total 7.662 checked and approved interviews were available. In total the used questionnaire contained 59 questions split into 9 sections. Out of these sections only one was devoted to CSR, and contained 10 questions. The survey

160

European Commission (2002), Observatory of European SMEs 2002, No. 4: European SMEs and Social and Environmental Responsibility, Luxembourg, Available at: http://ec.europa.eu/enterprise/enterprise_policy/analysis/doc/ smes_observatory_2002_report4_en.pdf

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provided an overview of the current situation in the SME sector in Europe through various statistics. The analysis showed that half of the European SMEs are involved, to different degrees, in external community causes. An enterprise size perspective showed that this ratio ranges from 48 % amongst the very small enterprises (0-9 employees) to 65 % and 70 % in the case of the small (10-49 employees) and medium-sized enterprises (50-249 employees), respectively. A sector perspective showed that involvement in external community causes does not significantly depend on the sector in which SMEs operate. Gender considerations showed that there are no differences in the percentage of male or female SME owners concerning their relative participation in external community causes. From a geographical perspective, and looking into the percentage of SMEs that suggest carrying out any social activity with their external community, a clear North-South European divide was observed. The highest percentages corresponded to some of the Northern (Finland, Denmark, Iceland and Norway) and of the central European countries (i.e. Austria, Liechtenstein). Meanwhile, it was possible to identify a heterogeneous group of countries (The Netherlands, Ireland, Sweden, Portugal, Belgium, Luxembourg, Switzerland, Germany and Portugal) that occupied an intermediate position in the European context. Finally, it was in most of the Southern countries (Spain, Italy and Greece) as well as in France and the United Kingdom where social involvement is less common amongst SMEs. Key factors for explaining these national differences may include different cultural traditions on the role of enterprises in society, different expectations from the general public on the enterprises social involvement or different public welfare traditions. Referring to the concrete activities developed by those SMEs involved in external community causes, the survey found out that these activities mainly concentrate in three fields, the support to sport, cultural and health/welfare activities not aimed at the SMEs own employees. European SMEs mainly stated ethical reasons for their involvement in external socially responsible activities. Possible explanation for stating ethical reasons in the first place can be linked to the desire of entrepreneurs to give something back to the community. Three quarters of European SMEs were able to identify business benefits derived from their involvement in CSR activities aimed at external stakeholders. The main identified benefits included improvement of customer loyalty and better relations with the general community and public authorities. The European SMEs community activities were in most cases occasional and one-off, unrelated to the business strategy. Thus, up to 51 % of the SMEs involved in external

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community activities carried out these activities on an occasional basis in contrast to the 45 % who conducted them on a regular basis. Additionally, for seven out of ten SMEs, these social activities were unrelated to the general business strategy. In contrast, only a 28 % of SMEs argued that these activities were integrated into the general business strategy. Moreover, the data suggested that regular and related-to-the-business-strategy social activities become more common as the enterprises get larger. Unfortunately, the Czech Republic was not included in the survey. The second handicap of the survey was a low number of questions directly aimed at CSR.

4.2.2 Study of Sustainable Competitiveness in Global Value Chains (2006)161

The study, which purpose was to examine the role of SMEs with respect to sustainable supply chain management in global value chains was carried out in 2005 by researchers from the Copenhagen Centre for Corporate Responsibility. The study was realized on a sample of 291 Danish SMEs with 10 to 250 employees. The study dealt with two major issues: first, to what extent SMEs were affected by social and environmental requirements from buyers, and second, to what extent SMEs applied such requirements to their own suppliers. The study concluded that Danish SMEs faced requirements from their buyers much more frequently than they applied such requirements to their own suppliers. On top of that many buyer requirements in the value chain seemed to be implicit in a way that they were neither contractual nor subject to verification. These findings imply that SMEs are less likely than larger companies to act as change agents for sustainable production in global value chains. Therefore, the increased presence of small companies in global supply chains is likely to have a negative effect on the ubiquitousness of sustainability requirements in the value chain.

4.2.3 Survey on Corporate Social Responsibility, Standards and Corporate Governance (2006)162

Management

Survey on CSR, management standards and corporate governance was realized from June to September 2006 by the Environmental Law Service in Cooperation with the

161

Jorgensen, A., Knudsen, J. (2006), Sustainable competitiveness in global value chains: how do small Danish firms behave?, The Copenhagen Centre for Corporate Responsibility, available at: http://ec.europa.eu/enterprise/csr/ documents/mainstreaming/ms_sme_topic6_jorgensen.pdf
162

The Environmental Law Service in Cooperation with Global Alliance for Responsibility, Democracy and Equity (2006), Survey on CSR, management standards and corporate governance according to the OECD Standards for multinational companies in companies operating in the Central Europe (Vsledky przkumu o spoleensk odpovdnosti a standardech zen a sprvy podniku podle Smrnic OECD pro nadnrodn spolenosti u spolenost psobcch ve stedn Evrop), Brno, available at: http://www.responsibility.cz/uploads/media/OECD_monitoring-vyhodnoceni_final.pdf

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Global Alliance for Responsibility, Democracy and Equity. In the survey took actively part 28 multinational companies located in the 5 new member states of the European Union; 11 from the Czech Republic, 2 from Slovakia, 5 from Hungry, 4 from Slovenia and 6 from Estonia. Returnability of sent questionnaires was 22 %. Objective of the survey was answering the question, whether multinational companies operating in the Central Europe were familiar with CSR concept and the OECD Standards for multinational companies and whether their behaviour reflected these Standards. The survey found out that multinational companies were sufficiently acquainted with CSR concept (89 % of companies). According to the results, multinationals considered the topic of CSR as important, however in certain cases there were doubts that multinationals really knew, what CSR concept stood for. The survey proved that environmental responsibility was for the majority the most important part of the CSR (33,3 % of the companies stated environmental responsibility at the first place, 88,3 % of the companies were managed in line with environmental friendly rules). The survey had several shortcomings, which the most obvious were a low number of respondents (companies) who filled out the questionnaire and an error of bias in a form that only multinational companies that publicly expressed their support to CSR were selected for the survey.

4.2.4 Survey on Corporate Social Responsibility in SMEs in Berlin (2007)163

Survey on CSR in SMEs in Berlin was realized from September to November 2007 by the TV Rheinland Bildung und Consulting GmbH. In the aggregate 210 SME companies were inquired, 142 SMEs of that replied, and the overall response rate reached 67 %. The survey showed that the idea and the term Corporate Social Responsibility were not known very well among SMEs, only few SMEs had a clear concept in this field. Despite this conclusion social commitment was a regular part of the business for many Berlin SME enterprises, regardless of the enterprises size, even though with a different intensity. Main focus of CSR activities was aimed at employees and at securing their job, i.e. on internal dimension of CSR.

163

TV Rheinland Bildung und Consulting GmbH, Outermedia GmbH (2007), Survey: Corporate Social Responsibility (CSR) in SME in Berlin, Berlin, available at: http://www.acceleratingcsr.eu/uploads/docs/200804/ppt%20presentation _survey%20of%20CSR%20in%20SMEs%20in%20Berlin.pdf

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Concentration only on Berlin SMEs and not clearly stated line of business (results of the survey did not described the business sector the respondents were from) can be considered as the main weaknesses of this survey.

4.3 Surveys in the Czech Republic

4.3.1 Corporate Social Responsibility Complete Guide of the Topic and Conclusion of the Survey in the Czech Republic (2004)164
The Survey on CSR took place from November to December 2003 and investigated CSR awareness in 111 companies165. 75 % of these companies were located in capital Prague, 25 % outside the capital of the Czech Republic. The survey focused on companies of all sizes including SMEs. The goals of the survey were following: Find out a level of awareness about CSR in the Czech Republic; Find out an importance of CSR concept for business activities; and Find out what CSR activities are the most commonly applied.

The survey showed that 64 % of respondents (i.e. surveyed companies) knew CSR concept. 99 % of the companies considered active participation in CSR as important for the company, however activities in this field should not outweigh the key mission generating profit. Also according to the opinion of respondents, CSR activities of the companies should not replace the role and duties of the state. 84 % of the respondents planned to extend their CSR activities (mainly in the internal dimension of CSR, i.e. focused on employees of the company). This survey was the first complex and comprehensive one touching the issue of CSR in the Czech Republic. The main shortcoming of the survey was a too narrow concentration on one region only - 75 % of the surveyed companies were located in capital Prague.

164

Trnkov, J., et al. (2004), Corporate Social Responsibility Complete Guide of the Topic and Conclusions of the Survey in the Czech Republic (Spoleensk odpovdnost firem kompletn prvodce tmatem a zvry z przkumu v R), Prague, available at: http://www.blf.cz/csr/cz/vyzkum.pdf
165

Response rate of the survey was 42 %.

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4.3.2 Study of Social Responsibility as One of the Conditions for Entrepreneurial Success of the Company (2006)166
This study was prepared in 2006 and concentrated on companies in the MoravianSilesian Region only. 71 companies took an active part in the survey. A sample consisted of 32 % large, 28 % medium-sized and 40 % small and micro-sized companies. The goal of the study was to prove or negate the following hypotheses: Degree of companies involvement in CSR activities differs according to the size of the company; Companies social responsibility is largely reduced only on sponsoring and charitable activities; and CSR is more developed in the regions with low unemployment.

The first and the second hypotheses were disproved. As to the third hypothesis, the survey proved the statement partly because the study was carried out in one region of the Czech Republic only. Narrow concentration on one region only and a weak interpretation of results (particularly general conclusions, no detailed explanations of the results) were the main shortcomings of the study.

4.3.3 Survey on Utilization of Corporate Social Responsibility by Small and Medium-Sized Companies in the Czech Republic (2006)167
Companies engaged in this study conducted at the end of 2006 had their seat in Prague and as to the size of the company they belonged exclusively to the SME segment. The Czech Business Leaders Forum, who managed the study, sent its questionnaire to 452 companies and received a response from 104 SMEs (i.e. 23 % response rate) in the period from September to October 2006. Objective of the study was to identify the level of awareness and an ability to utilize CSR in the market competition in the Czech Republic. The study exclusively focused on Pragues SMEs. The study came to conclusions that:

166

Kolibov, H. (2006), Social responsibility as one of the conditions for entrepreneurial success of the company (Sociln odpovdnost jako jedna z podmnek podnikatelsk spnosti firmy), Opava, available at: http://www.svses.cz/skola/akce/konf/inovace06/texty/kolibova.pdf
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Business Leaders Forum (2006), Utilization of Corporate Social Responsibility by Small and Medium-Sized Companies in the Czech Republic (Vyuit spoleensk odpovdnosti firem malmi a stednmi podniky v R) , Prague, available at: http://www.neziskovky.cz/Files/Soubory/neziskovy_sektor_CR/Vyzkum_CSR_BLF_2006.ppt

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Concept of CSR was known to 44 % of Pragues SMEs; Majority (85 %) of Pragues SMEs carried out at least one CSR activity; Ethical and moral reasons were the main motivators for implementing CSR; and The greatest benefit of CSR identified by the companies was an improvement of employees satisfaction.

Aiming the study solely on Pragues SMEs, i.e. SMEs located in the largest city and the capital of the Czech Republic with more than 1,3 million inhabitants, can be reckoned as a flaw of this study. Because of that the survey was to a certain degree biased and could not provide a comparison with other regions of the Czech Republic.

4.3.4 Study of Utilization of Corporate Social Responsibility by Small and Medium-Sized Companies in the Czech Republic (2007)168
In total, 37 Pragues small and medium-sized companies filled in a questionnaire that investigated the level of awareness and implementation of CSR concept in SMEs. Study lead by Mr. Dinga under the aegis of the Czech Business Leaders Forum took place in the period from September to December 2007. Objective of the study was reviewing perception of CSR with the purpose of increasing competitiveness of SMEs situated in the capital Prague. According to the study, in the year 2007, one year after the first survey among the Pragues SMEs, familiarity with CSR concept rose to 59 % from the level of 44 %. Also, almost 98 % support of CSR activities by SMEs in 2007 was a fantastic result and the level increased by 13 % since 2006. Bureaucracy and lack of time were highlighted by the SME companies as the most significant obstacles to a more intense involvement in CSR activities. Again, paying attention solely to Pragues SMEs, i.e. SMEs located in the capital of the Czech Republic with more than 1,3 million inhabitants, and a small size of the sample can be reckoned as real weaknesses of this study.

168

Dinga, M., Business Leaders Forum (2007), Utilization of Corporate Social Responsibility by Small and Medium-Sized Companies in the Czech Republic (Vyuit spoleensk odpovdnosti firem malmi a stednmi podniky v R), Prague, available at: http://www.csr-online.cz/netgenium/Download.aspx?G+0eM3Y0WvtKHmg+gZbjuAZx1UhzT0cOJHBWPZP CZOEaRDloZVXs/A==

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4.3.5 Survey on Corporate Social Responsibility A New Factor of Corporate Competitiveness (2008)169
In 2008 Survey on Corporate Social Responsibility, managed again by Mr. Dinga under the auspices of the Czech Business Leaders Forum, took active part 225 companies of all sizes from all 14 regions of the Czech Republic. Surveyed sample consisted of 65 % micro and small companies, 23 % medium-sized companies and 12 % large companies. Objective of the survey was to identify a level of awareness about CSR tools and an ability to utilize them by companies located in the Czech Republic and to compare results according to size and seat of the company. Results of the survey showed that 47 % of involved companies knew CSR concept170. Percentage of companies that knew CSR concept was increasing together with an increase of the size of the company. Also Pragues companies ranked higher. Significant majority of companies (almost 90 %) embraced at least one CSR activity aimed at own employees. On the other hand, in at least one activity related to external dimension of CSR was involved 93 % of reviewed companies. The principal forces that motivated companies in implementing CSR concept were ethical and moral reasons, improvement of employees satisfaction, improvement of business relations and tradition. The main obstacles that hampered companies in socially and environmentally responsible behaviour were excessive bureaucracy, lack of time and too high costs. The same results showed the 2007 survey of Pragues small and medium-sized companies. The research showed that in general Prague companies were more focused on internal dimension of CSR, while companies from other regions were more oriented on external dimension of CSR.

169

Dinga, M., Business Leaders Forum (2008), Corporate Social Responsibility A New Factor of Corporate Competitiveness (Spoleensk odpovdnost firem nov faktor firemn konkurenceschopnosti), Prague, available at: http: //www.csr-online.cz/netgenium/Download.aspx?z/5oBElbQOp3k/O/7EYGhm5gx+IJs2xr1/ZaajokasA=
170

The result is interesting in that the similar survey in the year 2004 showed that 64 % of respondents (i.e. surveyed companies) knew CSR concept, which is 17 % decrease since then. According to the author of the dissertation, this decline has probably been caused by a small size of the sample than by a real change in the business environment.

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Chapter 5.

Methodology and General Results of Own Research

5.1 Basic Facts about Research and Methodology

5.1.1 Objective of the Research
The authors research on corporate social responsibility (CSR) in Czech small and medium-sized enterprises (SMEs) carried out within the framework of this dissertation paper should contribute to the knowledge of the actual state of affairs in the business sector in the Czech Republic regarding CSR activities and foster understanding of developments taking place in this particular field. Main objectives of the research including a deeper analysis were following: How Czech small and medium-sized enterprises perceive and carry out CSR; To what degree Czech small and medium-sized enterprises are involved (active) in CSR; What Czech small and medium-sized enterprises motivate to be engaged in CSR; What benefits Czech small and medium-sized enterprises can identify from their involvement in CSR; and What main barriers or obstacles Czech small and medium-sized enterprises encounter when carrying out CSR.

5.1.2 Timing of the Research

The survey on corporate social responsibility in small and medium-sized companies that was carried out for the purpose of this dissertation paper took place between 29 April 2008 and 10 August 2008. Transfer of information from received questionnaires to easily analyzable format began on 12 August 2008 and continued till 27 September 2008 when this time consuming work was successfully ended. Analytical work consisting of data analysis and synthesis and creation of easily understandable tables and charts started on 2 October 2008 and finished on 29 November 2008. Incorporating charts and tables into the dissertation paper commenced on 25 September 2008 and continued simultaneously with analytical work. Actual work on commenting completed charts and tables began on 15 April 2009.

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5.1.3 Methodology of the Research

The research was based on a random sample of small and medium-sized companies in the Czech Republic with respect to proportionate representation of micro, small and medium-sized companies in the overall sample. The overall research consisted of the following main stages: 1. Preparation of the questionnaire template: taking into consideration similar surveys conducted in the Czech Republic and Europe, professional literature and the authors personal and professional experience and wit, the questionnaire template containing a complete set of relevant questions was prepared in easy to distribute MS Word format. 2. Preparation of the sample: as a main source of information for preparation of the sample was utilized the Creditinfo Czech Republics database171. A total of 4.955 companies were selected on a random basis with only respect to proportionate representation of micro, small and medium-sized companies in the overall sample. Only companies with their seat in the Czech Republic were selected. 3. Testing of the questionnaire: one questionnaire was sent to an SME company, completed by an owner of the company, and returned to the author. Then appropriateness of individual questions and questionnaire as a whole was discussed with him. Based on discussion rewording of some questions and reasonable changes in the questionnaire were made. 4. Main distribution of questionnaires: gradually a total of 4.955 questionnaires in MS Word format were sent via electronic mail to recipients (SME companies) together with the instruction how to complete the questionnaire template. This stage ended on 10 June 2008. On aggregate 199 fully completed questionnaires were received back. Total returnability of questionnaires was 4 %. The relatively low returnability can be explained by: a) Relatively large extent of the questionnaire template; b) Survey was conducted by an unknown person; c) Frequent exploitation of SME companies by marketing agencies and agencies for research of public opinion (e.g. survey on CSR was carried out by the Czech Business Leaders Forum in 2007 and 2008); and

171

The Creditinfo Czech Republic is progressive and leading entity in the area of financial and business information on individuals and legal persons in the Czech Republic. The Creditinfos database contains the maximum available information on all the economical subjects in the Czech Republic. It is coming out from the Albertina Company Monitor marketing database, having existed and being regularly updated since 1992, and supplements it with a high amount of financial information final accountings, debtors, bankruptcies, liquidation or payments information. The database contains data on more than 420.000 Czech companies, including the managers and the owners and all Czech stocks and bonds emissions. The database is updated daily by an experienced team of analysts. Available at: http://www.cicr.cz/?PageID=207

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d) Relatively great number of e-mail addresses was addressed to companys general e-mail boxes and not directly to a particular person or manager and a fact that number of e-mail addresses was obsolete. Bearing in mind these limitations and obstacles, the returnability of 4 % is understandable and can be considered as a success. 5. Transfer of information: in this stage data and information from individual questionnaire forms were transferred from the MS Word format to the analytical software tool MS Excel. Total of 9 questionnaire forms were excluded from the consequent analysis as they represented companies with more than 249 employees, i.e. those not meeting SMEs criteria. 6. Analytical phase: data and information of all 190 SME companies were scrutinized, logically sorted out and finally well-arranged tables and charts (figures) were created from them. Subsequently, tables and charts were gradually reviewed, accompanied with text comments and explanations, and finally resulting conclusions were made.

5.1.4 Questionnaire Form

The questionnaire form consisted of the introduction, instructions how to complete it and three principal parts. The parts were following: 1. General Information About the Company this part consisted of 6 screening questions. 2. Socially Responsible Activities of the Company major section with 25 multiplechoice questions allowing a respondent to freely choose appropriate answers (often more answers than only one). 3. Corporate Social Responsibility Concluding Questions 5 final questions focusing on knowledge of and familiarity with CSR concept. The respective questionnaire form is attached as Appendix II: Example of the Questionnaire on Corporate Social Responsibility Designed for Small and Medium-Sized Companies (please, see for details).

5.1.5 Software Tools Used for Processing and Analysis

The questionnaire template was designed and created in the application MS Word. Distribution of individual questionnaires was via the electronic e-mail client MS Outlook. The application MS Excel was selected as a software tool for analysis and following synthesis of data and information and for creation of tables and charts used in the dissertation paper.

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5.2 Basic Facts about Surveyed SMEs Number, Size, Region, Age, Ownership Structure, Line of Business, and Hierarchical Level of Respondents
For the purposes of this survey and further analysis (and of course this dissertation paper) to clearly distinguish companies according to their size, a simplified approach set by the EU Commission Recommendation of 6 May 2003, concerning the definition of micro, small and medium-sized enterprises has been applied. The European Unions detailed definition of an SME is given in the subchapter Definition of Micro, Small and Medium-Sized Enterprise of this paper, and it is basically defined as having fewer than 250 employees, an annual turnover not exceeding EUR 50 million, and/or an annual balance sheet total not exceeding EUR 43 million. The widely used172 simplified approach for classifying companies according to their size is based only on number of employees who worked within the company or on its behalf and defines three groups or categories of SMEs: Micro-sized company with one to nine employees, Small-sized company with ten to forty nine employees, and Medium-sized company with fifty to two hundred and forty nine employees.

Distinguishing size of companies based only on number of employees has also been allowed by the Article 2173 of the above-mentioned EU Commission Recommendation of 6 May 2003. On top of that the criterion of staff numbers has been viewed by the EU Commission as the most important.174

5.2.1 Number of Surveyed SMEs and Their Division According to Size

In total 190 SME companies took active part in the survey. The distribution according to size of the company is shown in Table 5.1. Size class refers to the number of employed persons in the year 2008 as provided by companies in the questionnaire. Table 5.1 shows that, in terms of number of companies, SMEs are dominated (56 %) by medium-sized companies (50-249 employees). Micro enterprises (1-9 employees) make
172

The same approach for classifying companies based only on number of employees has been used in many research papers, for e.g. Jorgensen, A. and Knudsen, J. (2006), Sustainable competitiveness in global value chains: how do small Danish firms behave?, Copenhagen Centre for Corporate Responsibility; Trnkov, J. (2004), Corporate Social Responsibility, Business Leaders Forum, Prague; etc.
173

EU Commission Recommendation of 6 May 2003, concerning the definition of micro, small and medium-sized enterprises, Article 2: In implementing certain policies, Member States may also choose to apply only the criterion of number of employees, except in fields governed by the various rules on State aid.
174

EU Commission Recommendation of 6 May 2003, concerning the definition of micro, small and medium-sized enterprises, paragraph 4: The criterion of staff numbers (the staff headcount criterion) remains undoubtedly one of the most important, and must be observed as the main criterion.

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up 24 % of the enterprise population, and small enterprises (10-49 employees) account for the rest, i.e. 20 %.
Table 5.1: Absolute and relative number of surveyed companies in the analysed sample, sorted by size of the company
Num ber of surveyed com panies 46 37 107 190 Relative value 24% 20% 56% 100%

Size of the com pany Micro (1 to 9 employees) Small (10 to 49 employees) Medium (50 to 249 employees) Total

Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

5.2.2 Region of the Seat of Surveyed SMEs

Since the year 2000, the Czech Republic has been divided into thirteen administrative regions and the capital city of Prague. Prior the administrative reform in 2000, there were seventy-six districts including three statutory cities (without the capital Prague, which had special status). Due to the relatively small size of the sample, the author of the dissertation decided for a simplified regional classification into just three territorial areas the capital city of Prague, Bohemia, and Moravia. According to the authors opinion this kind of segmentation provides both, the regional perspective and assures sufficient representativeness and predicative value of the surveyed sample. The following Table 5.2 provides regional segmentation of the surveyed sample. Companies with their seats in Moravia form the largest part of the sample (43 %). Then follow companies from Bohemia with 34 % and finally companies from the capital Prague with 23 % representation.
Table 5.2: Absolute and relative number of surveyed SMEs in the analysed sample, sorted by region of the seat and size of the company
Size of the company (as per 2008) Micro 18 16 12 46 9,5% 8,4% 6,3% 24% Small 12 6 19 37 6,3% 3,2% 10,0% 19% Medium 13 43 51 107 6,8% 22,6% 26,8% 56% Total 43 65 82 190 23% 34% 43% 100%

Region of the seat of the company Prague Bohemia Moravia Total

Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

5.2.3 Classification of Surveyed SMEs According to Years of Operation

Table 5.3 gives a picture how surveyed SMEs are sorted by years of their operation. A clear majority (71 %) in the SME sample is formed by companies, which has been in operation for ten and more years.

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Table 5.3:

Absolute and relative number of surveyed SMEs in the analysed sample, sorted by age (years of operation) and size of the company
Size of the company (as per 2008) Micro 1 1 15 29 46 0,5% 0,5% 7,9% 15,3% 24% Small 1 4 10 22 37 0,5% 2,1% 5,3% 11,6% 19% Medium 1 5 17 84 107 0,5% 2,6% 8,9% 44,2% 56% Total 3 10 42 135 190 2% 5% 22% 71% 100%

Age / operation of the company Less than 1 year 1 to 3 years 4 to 9 years 10 and more years Total

Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

These companies can be considered as fully matured, regarding their stage of development. 22 % of the sample consists of companies with 4 to 9 years of operation, 5 % forms companies running more than one and less than four years, and only 2 % makes up start up companies that were running for less than one year.

5.2.4 Ownership Structure of Surveyed SMEs

Due to the nature of surveyed topic it has been desirable to find out, whether in the reviewed companies was present foreign capital or whether some companies were part of international corporation. It is because there are opinions suggesting that companies with foreign capital are more likely to have CSR in place than solely Czech companies. As presented in the Table 5.4, 80 % of reviewed SMEs were owned solely by Czech owner, which constitutes a clear majority. Companies combining Czech ownership with a foreign investor made up 8 %. 7 % of companies had exclusively foreign owner, while only 4 % of companies was a part of an international corporation.
Table 5.4: Absolute and relative number of surveyed SMEs in the analysed sample, sorted by ownership structure and size of the company
Size of the company (as per 2008) Micro Solely Czech owner Czech owner with a foreign investor Part of an international corporation Solely foreign owner Total 41 3 0 2 46 21,6% 1,6% 0,0% 1,1% 24% Small 34 2 0 1 37 17,9% 1,1% 0,0% 0,5% 19% Medium 77 11 8 11 107 40,5% 5,8% 4,2% 5,8% 56% Total 152 16 8 14 190 80% 8% 4% 7% 100%

Ownership structure of the company

Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

5.2.5 Classification of Surveyed SMEs According to Their Line of Business

The following Table 5.5 provides a distribution of surveyed SMEs according to the line of business they have been in. As evident, 41 % of companies belong to the production line of business, i.e. companies that have been involved in making products (either

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goods or production services). This can be attributed primarily to medium-sized enterprises, which in the whole sample make up almost 29 %. The second biggest share belongs to construction companies and companies falling into the category other, each of them accounting for 14 % share in the sample. Main activities of SMEs in the category other have been the following: agriculture, utility services, publishing, advertising, entertainment, health care, education, forestry, technical and environmental services, and geodetic survey. Wholesale companies and companies in the IS/IT business constitute the third greatest share in the reviewed sample, each of them with 8 % share. According to the author, the selected sample is sufficiently representative and suitable for intended purposes, which is review and analysis of CSR in SMEs.
Table 5.5: Absolute and relative number of surveyed SMEs in the analysed sample, sorted by line of business and size of the company
Size of the company (as per 2008) Micro 12 3 9 1 5 3 0 6 0 0 7 46 6,3% 1,6% 4,7% 0,5% 2,6% 1,6% 0,0% 3,2% 0,0% 0,0% 3,7% 24% 11 3 3 0 7 3 0 6 1 1 2 37 Small 5,8% 1,6% 1,6% 0,0% 3,7% 1,6% 0,0% 3,2% 0,5% 0,5% 1,1% 19% 55 1 4 7 3 1 2 15 1 1 17 107 Medium 28,9% 0,5% 2,1% 3,7% 1,6% 0,5% 1,1% 7,9% 0,5% 0,5% 8,9% 56% 78 7 16 8 15 7 2 27 2 2 26 190 Total 41% 4% 8% 4% 8% 4% 1% 14% 1% 1% 14% 100%

Main activity of the company Production Retail sale Wholesale Transport IS/IT Consultancy R&D Construction Financial services Tourism Other Total

Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

5.2.6 Hierarchical Level of Respondents

Even though the authors Questionnaires on CSR have always been addressed to the top managements or owners of SME companies, in reality the Questionnaire filled in persons at various positions and at different levels in the company hierarchy. Figure 5.1 and Table 5.6 provide information on hierarchical level of persons who actually filled in the Questionnaire. As visible in the Figure 5.1 and the Table 5.6, targeted addressees top managers and owners make up 78 % of respondents (exactly 69 % top management and 9 % owners).

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Figure 5.1: Hierarchical level of the person who filled out the questionnaire (in relative value)
Hierarchical Level Of The Person Who Filled Out The Questionnaire Low er management or employee 8% Middle management 14%

Ow ner 9%

Top management 69%

Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

Middle management constitutes 14 % of all respondents while lower management and regular employees represent the remaining 8 %. The great responsiveness of target group (top management and owners) can be to a certain level attributed to the specifics of SME companies. Usually SME companies do not have overinflated bureaucracy, multiple-level hierarchy, and abundance of administrative personnel and tasks such as filling various forms and questionnaires in stay in hands of top managers and owners (frequently they are the very same persons in SMEs).
Table 5.6: Absolute and relative number of persons who filled out the questionnaire, sorted by hierarchical level and size of the company
Size of the company (as per 2008) Micro Lower management or employee Middle management Top management Owner Total 1 0 34 11 46 0,5% 0,0% 17,9% 5,8% 24% Small 2 2 32 1 37 1,1% 1,1% 16,8% 0,5% 19% Medium 12 24 65 6 107 6,3% 12,6% 34,2% 3,2% 56% Total 15 26 131 18 190 8% 14% 69% 9% 100%

Hierarchical level

Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

5.3 General Results of the Research

From an enterprise size perspective, SMEs are involved in corporate social responsibility in general, but knowledge about CSR differs from company to company and degree of their involvement as well. This subchapter intends to investigate the following issues: Find out how SMEs are informed on CSR; Whether SMEs endorse fundamentals (essence) behind the CSR concept; and To what degree SMEs are involved in socially and environmentally responsible activities aimed both inwards and outwards the company.

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5.3.1 General Awareness of Corporate Social Responsibility

Table 5.7 provides answer on question, whether respondents representing SME companies ever heard about corporate social responsibility. In total 55 % of respondents175 stated that they heard about CSR. The result does not correspond to that of other similar researches conducted in the Czech Republic. For example 2006 survey by the Czech Business Leaders Forum states that 44 % of surveyed SMEs heard about CSR and research by the same organization in 2008 states only 37 % awareness about CSR. Higher percentage of CSR-aware company representatives in the authors research can be ascribed to a bigger size of the sample, different distribution of sizes of companies in the sample, and different level of respondents in the company hierarchy.
Table 5.7: Knowledge of Corporate Social Responsibility concept by the company (respondent), sorted by size of the company
Size of the company (as per 2008) Micro 19 27 46 41% 59% 100% Small 24 13 37 65% 35% 100% Medium 62 45 107 58% 42% 100% Total 105 85 190 55% 45% 100%

Knowledge of CSR concept by the company/respondent Yes No Total

Question: Have you ever heard about Corporate Social Responsibility (CSR) before getting this questionnaire? Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

The fact that 45 % of SMEs have never heard of the term Corporate Social Responsibility does not mean these SMEs actually do not behave socially responsibly or do not practice some of CSR activities. The result may simply suggest these SMEs do not approach CSR strategically and in a sophisticated way. As evident in the Table 5.7, 65 % awareness of CSR ranks small enterprises at the top, then follow medium-sized enterprises with 58 %, and the bottom occupy micro enterprises with only 41 %. The hypothesis and results of similar survey176 that the bigger the company is, the greater knowledge of CSR it has has been partially disproved - partially because the difference has not been so big. Result may suggest that medium-sized companies are more confident of their position on the market than small companies, are not as frequently targeted by various pressure groups as large companies and thus do not have sufficient stimuli to seek alternative business models. However, it has to be point out that it can also be coincidence and if selected a bigger or modified sample, the results could be different.
175

Note: 78 % of all respondents can be considered as real decision-makers as they were either top managers or company owners.
176

For example 2008 survey by the Czech Business Leaders Forum (Dinga, M., Business Leaders Forum (2008), Corporate Social Responsibility A New Factor of Corporate Competitiveness (Spoleensk odpovdnost firem nov faktor firemn konkurenceschopnosti), Prague, available at: http://www.csr-online.cz/netgenium/Download.aspx?z /5oBElbQOp3k/O/7EYGhm5gx+IJs2xr1/ZaajokasA=)

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Knowledge of the term Corporate Social Responsibility by the respondent, sorted by position of the respondent in the company hierarchy, depicts Table 5.8. The most CSRaware group of respondents was top managers, of which 57 % knew the term CSR. Then followed groups lower management and employees with 53 % and middle management and owners with 50 %. The results support authors opinion the top managers should be the most informed group. They are the ones who lead companies, who can really influence CSR in companies, and who should be informed first and foremost.
Table 5.8: Knowledge of Corporate Social Responsibility concept by the company (respondent), sorted by hierarchical level of the person who filled out the questionnaire and size of the company
Low er management or employee Y 1 1 6 N Y / N (%) 0 100% / 0% 1 50% / 50% 6 50% / 50% Middle management Y 0 1 12 N 0 Y / N (%) 0% / 0% 1 50% / 50% 12 50% / 50% Y 15 21 39 Top management N Y / N (%) Y 3 1 5 Ow ner N Y / N (%) 8 27% / 73% 0 100% / 0% 1 83% / 17%

Hierarchical level Know ledge of CSR concept 1 to 9 10 to 49 50 to 249 Total

19 44% / 56% 11 65% / 35% 26 60% / 40%

53% 47%

50% 50%

57% 43%

50% 50%

Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

Table 5.9 provides information on awareness of the term Corporate Social Responsibility by the respondent, sorted by region of the respondents seat of the company. Bohemia region placed at the top with 65 % of respondents knowing the term CSR. Then followed Moravia region with 58 % and Prague region with only 41 %. Results of the 2008 survey by the Czech Business Leaders Forum suggesting Prague companies are more aware of CSR than companies in other regions have not been confirmed. On the contrary, results in authors survey show SMEs with their seat in Prague are the least likely to hear about CSR. Possible explanation could be that Pragues SMEs are more focused on short-term profit and their managements do not have enough time for contemplating on soft (social) issues. Also business environment in the biggest city of the Czech Republic provides a certain level of anonymousness, which can help less CSR-aware companies survive.
Table 5.9: Knowledge of Corporate Social Responsibility concept by the company (respondent), sorted by region of the seat of the company
Region of the seat of the com pany Prague 19 27 46 41% 59% 100% Bohem ia 24 13 37 65% 35% 100% Moravia 62 45 107 58% 42% 100% Total 105 85 55% 45%

Know ledge of CSR concept by the com pany/respondent Yes No Total

190 100%

Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

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5.3.2 Acceptance of Corporate Social Responsibility Principles

Despite only 55 % of SME companies respondents ever heard about the term Corporate Social Responsibility, with the fundamental principle of CSR177 fully agree 74 % of them and 25 % partially, as in detail illustrates Table 5.10. Together it makes excellent 99 % of all respondents who accept CSR concept. Difference in acceptance regarding size of the company is insignificant. The same results (99 % agreement) also provided 2004 survey on CSR.178
Table 5.10: Acceptance of basic idea of Corporate Social Responsibility concept by the company (respondent), sorted by size of the company
Acceptance of CSR concept by the company / respondent Yes, fully/completely Rather yes Rather no No Total Size of the company (as per 2008) Micro Small Medium 33 13 0 0 72% 28% 0% 0% 26 9 2 0 70% 24% 5% 0% 81 26 0 0 76% 24% 0% 0% Total 140 48 2 0 190 74% 25% 1% 0% 100%

46 100%

37 100%

107 100%

Question: Do you agree with the following statement: In order to assure a long -term prosperity, a company has to behave responsibly and ethically to its employees, environment, and community, in which it undertakes its business. Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

Consensus regarding the company's orientation is thus evident - majority of participating companies is aware, besides their commercial role, of their responsibility towards the society in which they operate. According to some questionnaire commentaries business should not, however, substitute the role of the government and its involvement should have clear boundaries. A view from different perspective provided a survey by the agency STEM. According to a public opinion survey in the CSR area, conducted by the STEM for Philip Morris in 2003 in the Czech Republic, a large part of the asked respondents (exactly two thirds) believed that companies should do more than just generate profit and pay taxes.179 These results support general opinion claiming that CSR is a viable concept based on clear principles that should be embraced by companies as well as society and not just a mere and unsubstantiated theory made up by academics. Table 5.11 provides insight into acceptance of basic principles of CSR concept by respondents, sorted by region of the seat of SMEs. As ensues from the survey,
177

Respondents were asked the following question: Do you agree with the following statement: In order to assure a long term prosperity, a company has to behave responsibly and ethically to its employees, environment, and community, in which it undertakes its business.
178

Trnkov, J., et al. (2004), Corporate Social Responsibility Complete Guide of the Topic and Conclusions of the Survey in the Czech Republic (Spoleensk odpovdnost firem kompletn prvodce tmatem a zvry z przkumu v R), Prague, available at: http://www.blf.cz/csr/cz/vyzkum.pdf
179

Jebkov, V., Hartl, J. (2003), Corporate Social Responsibility in the Mirror of Sociological Research (Spoleensk odpovdnost firem v zrcadle sociologickho vzkumu), supported by the AISIS o.s., available at: http://www.sof.cz/download/781_03_aisis%20broura%20sof.pdf

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difference in acceptance regarding seat of the company is insignificant. In all regions acceptance rate is around 99 % (74 % full agreement and 25 % partial agreement).
Table 5.11: Acceptance of basic idea of Corporate Social Responsibility concept by the company (respondent), sorted by region of the seat of the company
Acceptance of CSR concept by the company / respondent Yes, fully/completely Rather yes Rather no No Total Region of the seat of the company Prague 32 11 0 0 43 74% 26% 0% 0% 100% Bohemia 48 16 1 0 65 74% 25% 2% 0% 100% Moravia 60 21 1 0 82 73% 26% 1% 0% 100% Total 140 48 2 0 190 74% 25% 1% 0% 100%

Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

Also promising results regarding future development of CSR provides Table 5.12, which reviews acceptance of essential principles of CSR by respondents, sorted by position of the respondent in the company hierarchy. In the Table 5.12 the top positions in acceptance of CSR principles belong to actual decision-makers - owners and top managers (fully agree 78 % respectively 75 % of them) who can make CSR become reality in their enterprises. Then follow middle and lower managers and employees.
Table 5.12: Acceptance of basic idea of Corporate Social Responsibility concept by the company (respondent), sorted by hierarchical level of the person who filled out the questionnaire
Acceptance of CSR concept by the company /respondent Yes, fully/completely Rather yes Rather no No Total Hierarchical level of the person who filled out the questionnaire Lower management or employee 10 4 1 0 15 67% 27% 7% 0% 100% Middle management 18 7 1 0 26 69% 27% 4% 0% 100% Top management 98 33 0 0 131 75% 25% 0% 0% 100% Owner 14 4 0 0 18 78% 22% 0% 0% 100%

Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

Another view on acceptance of CSR principles presents Table 5.13, which is focused on classification of acceptance according to ownership structure of the company. As expected, lead positions occupy SMEs that are owned solely by foreign owners (79 % unqualified assent) and SMEs that are part of an international corporation (75 % unqualified assent). These groups of companies tend to an opinion stating that pure focus on the profit alone is not a lasting sustainable policy and that it is necessary to find a balance between the profit making and social and environmental responsibility. After these two groups of companies come next SMEs entirely owned by Czech owners and SMEs with combined ownership (Czech owner with a foreign investor). Only 62 % full agreement on elementary principles of CSR by respondents representing SMEs with

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combined ownership can be explained by their loyalty to an opinion stating that the main function of the company is primarily being business enterprise with the goal to make profit. Also top managers of these SMEs may be strongly motivated (or softly forced) by foreign investors to make short-term profit without considering longer-term perspectives, where certainly belongs CSR.
Table 5.13: Acceptance of basic idea of Corporate Social Responsibility concept by the company (respondent), sorted by ownership structure of the company
Acceptance of CSR concept by the company / respondent Yes, fully/completely Rather yes Rather no No Total Ownership structure of the company Solely Czech owner 113 37 2 0 74% 24% 1% 0% Czech owner with a foreign investor 10 6 0 0 16 62% 38% 0% 0% 100% Part of an international corporation 6 2 0 0 8 75% 25% 0% 0% 100% Solely foreign owner 11 3 0 0 79% 21% 0% 0%

152 100%

14 100%

Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

The following Table 5.14 provides information on knowledge of documents about CSR and organizations (particularly non-profit) that promote CSR by questionnaire respondents, classified by size of the company. Results show there is a very low level of familiarity with documents and organization dealing with CSR among respondents from SME companies. Only 7 % of respondents stated they knew some CSR relevant documents or organization.
Table 5.14: Knowledge of documents or organizations (particularly non-profit) dealing with CSR by the company (respondent), sorted by size of the company
Knowledge of documents/ organizations dealing with CSR Yes No Total Size of the company (as per 2008) Micro 3 43 46 7% 93% 100% Small 0 37 37 0% 100% 100% Medium 10 97 107 9% 91% 100% Total 13 177 190 7% 93% 100%

Question: Do you know any documents or organizations (particularly non-profit) dealing with CSR? Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

Some informed respondents mentioned for example in the questionnaire the following documents and organizations: standard Social Accountability (SA 8000), environmental rules from the Ministry of Education, publication Across Corporate Social Responsibility, various ISO standards (ISO 14000 Environmental Management Standards, OHSAS 18001 Occupational Health and Safety Assessment Specification), and non-profit organizations (the Czech Business Leaders Forum, Czech Donors Forum, HESTIA National Volunteer Centre).

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The 2006 survey focused on Prague SMEs by the Czech Business Leaders Forum brought on similar question a little better result (19 % awareness of CSR related documents). On the other hand the same survey indicated that 67 % of SMEs showed interest in information on CSR. Presented results show very little awareness of CSR related documents and organizations caused by low activity and motivation of SMEs to actively seek information about CSR, low activity of state and non-governmental organizations to promote CSR, and low activity of media to properly inform on CSR. In comparison to little knowledge of documents about CSR and organizations that promote CSR, 42 % of SMEs respondents would appreciate to be provided with generally accepted and transparent methodology how to effectively implement CSR in their companies (please, see Table 5.15).
Table 5.15: Need for generally accepted and transparent methodology how to implement CSR in the company, sorted by size of the company
Need for methodology how to implement CSR Yes No No, CSR has already been implemented in our company Total Size of the company (as per 2008) Micro 8 37 1 17% 80% 2% Small 14 23 0 38% 62% 0% Medium 58 46 3 107 54% 43% 3% 100% Total 80 106 4 190 42% 56% 2% 100%

46 100%

37 100%

Question: Would your company appreciate generally accepted and transparent methodology how to effectively implement CSR in your company? Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

It seems these results stand in direct contrast to each other. Based on results the author presumes that SMEs are not prepared to invest adequate efforts in order to gain necessary information and to effectively implement CSR180. This opinion can also be supported by the fact that less than one fifth of the surveyed SMEs have a specific member of the staff allocated to CSR matters, even if only on part-time basis (please, see Table 5.16). Table 5.16 gives information on whether companies allocated some of their personnel to coordination of CSRs activities. The results show only 19 % of SMEs has dedicated some personnel for managing CSR activities. The survey also confirmed opinion that the bigger the company is, the more probable it is to have a member of staff assigned to dedicate him/her-self to CSR.

180

The author would like to point out that information on CSR and CSR implementation can be easily obtained on dedicated web pages or through various non-profit organizations (e.g. Czech Business Leaders Forum, web portal CSROnline, web portal CSR Europe, etc.).

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According to the survey, usually personnel dedicated to managing CSR occupy the following positions in the company: community investment coordinator, human resources manager, sales manager, marketing manager, quality manager, member of the management board, and owner. A wide variety of these positions suggests that SMEs active in CSR do not have the same opinion on who should be coordinating CSR activities in the company. Rather each SME company due to its relatively small size choose the solution that fits its individual specifics.
Table 5.16: Overview of companys personnel authorized/responsible for the coordination of CSR activities, sorted by size of the company
Pe rs on re s pons ible for the coordination of CSR Yes No Total Size of the com pany (as pe r 2008) M icro 7 39 46 15% 85% 100% Sm all 6 31 16% 84% M e dium 24 83 22% 78% Total 37 153 19% 81%

37 100%

107 100%

190 100%

Question: Is any of your companys employees (or yourself) authorized/responsib le for the coordination of CSR (i.e. social and environmental activities)? Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

5.3.3 Measurement of Corporate Social Responsibility

The following Table 5.17 investigates, whether SMEs measure and evaluate corporate social responsibility, i.e. social and environmental activities they are engaged in. In spite of the fact that 98 % of SMEs was involved in internal and 92 % was involved in external dimension of CSR (please, see Figure 5.2 and Figure 5.5), only 9 % of SMEs measured and evaluated their CSR activities at that time and just 5 % of SMEs has planned to do so in the future. Regarding classification according to the companys size, medium-sized companies ranked top with 10 % followed by small companies with 8 % and micro companies with 7 %. These results proved that SME companies either did not take CSR seriously enough and did not integrate it in their business strategies and operation or did not have enough time, resources, and know-how for CSR measurement and evaluation or did not have both.
Table 5.17: Measurement and evaluation of CSR by the company, sorted by size of the company
Measurement and evaluation of CSR by the company Yes No No, but it is planning to do so Total Size of the company (as per 2008) Micro 3 42 1 46 7% 91% 2% 100% Small 3 32 2 37 8% 86% 5% 100% Medium 11 90 6 107 10% 84% 6% 100% Total 17 164 9 190 9% 86% 5% 100%

Question: Does your company measure and evaluate Corporate Social Responsibilitys rela ted activities (i.e. social and environmental activities)? Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

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In accordance with modern management principles, and particularly in the time of economic downturn, top management has to be provided with consistent reporting on all company activities in order to manage it effectively. Therefore approach to CSR should be no different. According to the authors opinion it is very sad that SMEs do not measure and evaluate CSR activities, because CSR measurement and evaluation can: Provide a picture of what is happening, qualitatively and quantitatively, within the company. Outputs can be used as an input into a CSR report or a benchmarking study comparing the companys performance to other companies in its sector of activity. In all of these intermediate uses, CSR measurement can improve the focus and performance of the business; Provide a disciplined approach to enable an SME to react to protect its reputation and therefore its brand as the demands made by society (stakeholders) change and multiply; Help justify and allocate resources to the most effective CSR activities and eliminate ineffective ones; Help to open up new ways of thinking, which can lead to new products, better marketing or wiser investments; Allow communication of evaluation results that can strengthen relationships with stakeholders. Nevertheless the author believes that SMEs will start measuring and evaluating CSR activities similarly as other investments in the future due to increase in price of external resources, intensified external pressures, tougher competitive environment, and due to internal pressures to be more efficient.

5.3.4 Degree of Involvement of SMEs in Socially Responsible Activities towards Internal Community
According to a study of the Czech Business Leaders Forum, almost 90 % of companies in the Czech Republic were involved in internal dimension of CSR (i.e. towards their internal community, particularly towards employees) in the year 2007181. Figure 5.2 provides results of the authors research on the same topic in the year 2008. According to the results, 98 % of all surveyed SMEs operating in the Czech Republic are involved, to different degrees, in internal dimension of CSR. An enterprise size perspective shows that this ratio ranges from 95 % amongst small companies to 99 % and 100 % in the case of medium-sized and micro enterprises respectively.
181

Dinga, M., Business Leaders Forum (2008), CSR A New Factor of Corporate Competitiveness (Spoleensk odpovdnost firem nov faktor firemn konkurenceschopnosti), Prague, available at: http://www.csronline.cz/Page.aspx?pruzkum

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Figure 5.2: Percentage of SMEs involved in internal dimension of CSR in 2008, sorted by size of the company including an average for all SMEs

Micro Small Medium Average for SMEs 0% 25% 50% 75%

100% 95% 99% 98% 100%

Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

According to the author, this percentage is very high but can be plausibly explained. Firstly, probably the main reason is that the number of examples of socially responsible activities suggested to SMEs in the questionnaire was rather broad (please, for examples of socially responsible activities see Table 6.1). Secondly, attention paid by SMEs to the human resources management, especially to health and safety matters, which is part of internal dimension of CSR has a long tradition in the Czech Republic and can be considered as high. The following Figure 5.3 provides insight into involvement in internal dimension of CSR by Czech SMEs in 2008, sorted by region of the seat of the SME. As ensues from the survey, difference in involvement in internal dimension of CSR regarding seat of the company is insignificant. In all regions acceptance rate is around 98 %. Results thus show that no matter where the company is from, focus of SME companies on internal dimension of CSR and care for employees are approximately the same.
Figure 5.3: Percentage of SMEs involved in internal dimension of CSR in 2008, sorted by region of the seat of the company including an average for all SMEs

Prague Bohemia Moravia Average for SMEs 0% 25% 50% 75%

98% 98% 99% 98% 100%

Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

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5.3.5 Degree of Involvement of SMEs in Socially and Environmentally Responsible Activities towards External Community
Enterprises may develop a number of activities and relationships with the external communities where they are located. From an SME perspective, it is fair to recognise that many SMEs already take up their social and environmental responsibility, particularly through community involvement, even though these activities are not explicitly disseminated or marketed to the community. According to the 2001 SME survey182 that covered 15 countries of the EU, plus Iceland, Liechtenstein, Norway and Switzerland and published in the Observatory of European SMEs, half of the European SMEs was involved, to different degrees, in external community causes, i.e. external dimension of CSR. An enterprise size perspective showed that the ratio ranged from 48 % for the micro companies to 65 % for small and 70 % for medium-sized companies (please, see Figure 5.4).
Figure 5.4: Percentage of European SMEs involved in external dimension of CSR in 2001, sorted by size of the company including an average for all SMEs
Percentage of European SMEs involved in external CSR activities in 2001 100% 35% 75% 50% 65% 25% 0% Micro Small Medium Average for SMEs Size of the company 48% 70% 50% 52% 30% 50%

No

Yes

Source: European Commission (2002), Observatory of European SMEs 2002, No. 4: European SMEs and Social and Environmental Responsibility, Luxembourg, available at: http://ec.europa.eu/enterprise/enterprise_policy/analysis/doc/ smes_observatory_2002_report4_en.pdf

The following Figure 5.5 provides results of the authors research on the same topic in the year 2008. According to the outcome of the research, 92 % of all surveyed SMEs operating in the Czech Republic are involved, to different degrees, in external dimension of CSR. A company size perspective shows that the involvement of SMEs in socially and environmentally responsible activities towards external community is positively related to the size of company. According to the authors opinion, this percentage is high, especially in comparison to European SMEs average of 50 %. Three possible explanations can be given in this
182

For more information on the survey, please, see Chapter 4.2.1 Survey on European SMEs and Social and Environmental Responsibility (2002).

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respect. On the one hand, it should not be forgotten that the number of examples of socially and environmentally responsible activities suggested to companies in the questionnaire is rather broad (please, see Table 7.1 for details). On the other hand, this may be an example of a question that evokes socially desirable answers, which somehow foster positive replies from respondents representing SMEs. And finally, SMEs are really involved in external community causes due to the tradition and the fact that this involvement indeed helps SMEs to maintain good relations with external stakeholders and their competitiveness.
Figure 5.5: Percentage of SMEs involved in external dimension of CSR in 2008, sorted by size of the company including an average for all SMEs
Percentage of SMEs involved in external dimension of CSR in 2008 100% 17% 75% 8% 4% 8%

No

50% 83% 25%

92%

96%

92%

Yes

0% Micro Small Medium Average for SMEs Size of the company

Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

Percentage of SMEs involved in external dimension of CSR in 2008 classified by region of the seat of the company depicts Figure 5.6.
Figure 5.6: Percentage of SMEs involved in external dimension of CSR in 2008, sorted by region of the seat of the company including an average for all SMEs
Percentage of SMEs involved in external dimension of CSR in 2008 100% 75% 50% 25% 0% Prague Bohemia Moravia Average for SMEs Region 88% 89% 96% 92% 12% 11% 4% 8%

No

Yes

Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

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As portrays Figure 5.6 region Moravia with 96 % of SMEs involved in external community causes tops the three selected regions. Region Bohemia with 89 % involvement and region Prague with 88 % involvement followed the leading region. Higher engagement of Moravia SMEs in socially and environmentally responsible activities towards external community can be attributed to a deeper cultural tradition of mutual relations amongst business sector, local communities, and local authorities. A sector perspective illustrated in Figure 5.7 shows that involvement in external dimension of CSR to a certain degree depends on the sector in which SMEs operate. According to the available data, those SMEs belonging to retail sale, consultancy, research and development, and tourism sectors show the highest involvement, whereas the lowest SMEs involvement corresponds to the financial services and IS/IT sectors.
Figure 5.7: Percentage of SMEs involved in external dimension of CSR in 2008, sorted by sector of the company including an average for all SMEs
Production Retail sale Wholesale Transport IS/IT Consultancy R&D Construction Financial services Tourism Other Average for SMEs 0% 25% 50% 75% 92% 92% 100% 50% 100% 67% 100% 100% 96% 88% 88% 96% 100%

Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

Possible explanation for a lower involvement in external dimension of CSR of SMEs belonging to the financial services and IS/IT sectors can be that companies not involved do not see connection between their line of business and external dimension of CSR or they cannot identify added value by engaging in external dimension of CSR or their managements just do not have time for external dimension of CSR or combination of all previous factors. Figure 5.8 provides information on percentage of SMEs involved in external community causes, sorted by years of operation of an enterprise. Involvement of enterprises operating less than one year was 67 %, while involvement of older enterprises was approximately 92 %. According to the results of the survey, the involvement in external dimension of CSR depends on years of operation of the enterprise. Nevertheless there is no positive

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relation to the age of enterprise (i.e. the older the enterprise, the higher the percentage of involvement and vice-versa) but there is a clear dividing line between SMEs operating less than one year and older SMEs. This conclusion can be substantiated by facts that start-up SMEs existing less than one year have to primarily focus on their own existence and survival, their own business and usually do not have time for anything else. In CSR activities this kind of enterprises engage when their position on the market is more stable and when they are more matured.
Figure 5.8: Percentage of SMEs involved in external dimension of CSR in 2008, sorted by age/years of operation of the company including an average for all SMEs
Less than 1 year 1 to 3 years 4 to 9 years 10 and more years Average for SMEs 0% 25% 50% 75% 67% 90% 93% 93% 92% 100%

Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

Another view on involvement in external dimension of CSR provides Figure 5.9, which is focused on classification of engagement according to ownership structure of the company.
Figure 5.9: Percentage of SMEs involved in external dimension of CSR in 2008, sorted by ownership structure of the company including an average for all SMEs
Solely Czech ow ner Czech ow ner w ith a foreign investor Part of an international corporation Solely foreign ow ner Average for SMEs 0% 25% 50% 75% 75% 100% 100% 92% 100% 93%

Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

As expected, lead positions occupy SMEs that are owned solely by foreign owners (100 % engagement) and SMEs that are part of an international corporation (also 100 % engagement). SMEs entirely owned by Czech owners come next (93 % engagement). It can be said that these groups of companies tend to an opinion stating that pure focus on the profit alone is not a lasting sustainable policy and that it is necessary to find a balance between the profit making and social and environmental responsibility. The last position occupies SMEs with combined ownership (Czech owner with a foreign investor),

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where their engagement in external dimension of CSR reached only 75 %. The similar result showed also Table 5.13 summarizing acceptance of basic principles of CSR concept. Likely explanation of this result can be that these SMEs tend to an opinion stating that the main function of the company is primarily being business enterprise with the goal to make profit. Also top managers of these SMEs may be strongly motivated by foreign investors to make short-term profit without considering longer-term perspectives, where surely belongs CSR. The research found out that there is a fairly strong positive relation between ISO certification of the company and involvement in external dimension of CSR. As Figure 5.10 illustrates, on average 99 % of SMEs that were ISO certified were also involved, to different degrees, in external socially and environmentally responsible activities. Comparing to that 84 % of SMEs that were not ISO certified were involved in external dimension of CSR too. Reasons for the conclusion can be following: firstly, ISO certified companies are more matured and CSR conscious; secondly, CSR is implicitly integrated into ISO standards.
Figure 5.10: Percentage of SMEs involved in external dimension of CSR in 2008 based on ISO Certification, sorted by size of the company and including an average for all SMEs
Involvement in external CSR based on ISO Certification 100% 100% 75% 50% 25% 0% Micro Small Size of the company
Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

100% 79% 86%

99%

90%

99% 84%

ISO Certified ISO Not certified

Medium Average for SMEs

However, as illustrates Figure 5.11, almost no link exists between SMEs with defined and written business strategy and engagement in socially and environmentally responsible activities towards external stakeholders. Surveyed SMEs with defined business strategy in writing scored only 3 % higher in engagement than SMEs without any business strategy (93 % vs. 90%, while average was 92 %). This result suggests that no matter whether an SME company has or does not have its business strategy its involvement in external dimension of CSR is almost the same. According to the authors opinion, elaborated business strategy does not ensure that if it is properly implemented in the company, the company in question will also be a good corporate citizen, i.e. will incorporate CSR in its business operation. Whether a company

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is or is not socially and environmentally responsible depends more on conviction of its top managers and owners on added value of CSR for the company and willingness and effort implementing it into business operations than on existing company strategy. Nevertheless, existing company strategy is a necessary precondition for effective and efficient use of CSR principles and concept. Without it CSR can become for the company a mere routine, sometimes unpopular like paying taxes, with uncertain future.
Figure 5.11: Percentage of SMEs involved in external dimension of CSR in 2008 based on defined corporate strategy and including an average for all SMEs
Defined corporate strategy Not defined corporate strategy Average for SMEs 0% 25% 50% 75% 93% 90% 92% 100%

Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

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Chapter 6.

Specific Results of Own Research: Internal Dimension of Corporate Social Responsibility

Internal dimension of corporate social responsibility is focused on matters such as investment in human capital183, health and safety at work184, managing change185 and environmentally responsible business practices186. For theoretical background on internal dimension of CSR, please, see subchapter 3.2.1 Internal Dimension of Corporate Social Responsibility. This Chapter intends to investigate the following issues of internal dimension of corporate social responsibility: In what activities of internal dimension of CSR SME companies are involved; In what way SME companies support their employees and/or family members within the frame of internally focused socially responsible activities; Review various characteristics of internal dimension of CSR, such as whether SME companies have strategies for internally focused CSR or to find out how important it is for SMEs behaving socially responsible towards their employees; Determine reasons of SME companies for their involvement in internal dimension of CSR; Find out what benefits SME companies can identify by participating on internally targeted socially responsible activities; and Determine what barriers SME companies can face if they participate or want to participate on internally aimed socially responsible activities.

183

Investment in human capital can include measures such as lifelong learning, empowerment of employees, better information throughout the company, better balance between work, family, and leisure, greater work force diversity, equal pay and career prospects for women, profit sharing and share ownership schemes, and concern for employability as well as job security.
184

Health and safety at work within the frame of internal dimension of CSR can be interpreted as voluntary schemes, which can be seen as complementary to legislation and control activities by public authorities as they likewise aim at promoting a preventive culture, i.e. higher levels of occupational safety and health.
185

Managing change means restructuring in a socially responsible manner to balance and take into consideration the interests and concerns of all those who are affected by the changes and decisions.
186

Environmentally responsible business practices in general mean, reducing the consumption of resources or reducing polluting emissions and waste in order to reduce environmental impact. It can be good for the business by reducing energy and waste disposal costs and lowering input and de-pollution costs. Al these practices lead to increased profitability and competitiveness.

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6.1

Description of Internal Dimension of Socially Responsible Activities Used by SMEs

According to the 2004 survey187 conducted in the Czech Republic amongst companies of all sizes, internal dimension of corporate social responsibility was the most accentuated at that time as well as for the future, particularly the area of employee care and benefits and employee education.188 76% of participating companies declared they already care about their employees. Companies usually named the following benefits: pension insurance, canteen or luncheon vouchers, one additional week of vacation, social events, and financing of preventive health care programmes. Large companies, where heavy cuts of workforce are a common threat, often mentioned retraining of employees. 55% of participating companies provided educational and training programs for their employees (and 55% of companies were planning to educate their employees more in the future). Interestingly, some companies mentioned the possibility of their employees' personal development by their engagement in a non-profit organization or community development activities. According to the answers, 56% of participating companies pursued activities in the area of own transparency. In connection with this issue, companies named their ethical codes, openness on web pages, employees' possibility to look at company accounting, internal control mechanisms, and annual company reports with information exceeding the obligatory (legal) framework. One company mentioned a day of open doors. In order to find out precisely in what topics of internal dimension of CSR do SME companies in the Czech Republic engage the most and what topics they consider as important, the author offered to SMEs in the questionnaire a range of topics189 (for individual topics, please, see Table 6.1). When filling in the questionnaires, companies were asked to choose CSR topics they were engaged in. Table 6.1 gives an overview on wide-range of activities within the frame of internal dimension of CSR SME companies were involved in 2008. The Table 6.1 is sorted by size of the company and includes an average for all SMEs. Referring to the concrete activities developed by those SMEs involved in socially responsible activities focused on internal stakeholders, the authors survey shows that these activities mainly concentrate
187

Trnkov, J., et al. (2004), Corporate Social Responsibility Complete Guide of the Topic and Conclusions of the Survey in the Czech Republic (Spoleensk odpovdnost firem kompletn prvodce tmatem a zvry z przkumu v R), Prague, available at: http://www.blf.cz/csr/cz/vyzkum.pdf
188

According to the 2004 survey, attracting and retaining outstanding employees was the second most usual motivation for companies to engage in CSR activities. The first most usual motivation for companies to be involved in CSR was a belief that it was right to do.
189

Topics of internal dimension of CSR have been thoroughly selected by the author using professional literature, already realized CSR surveys, and his own knowledge and experience in the area.

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in five fields (fields where average involvement was higher than 60 %). The SME companies showed highest engagement in the following activities: Sufficient health and safety arrangements at workplace (77 %); Employee motivation and education system (67 %); Possibility of flexible working hours for employees (67 %); Company contributes to pension insurance and/or life insurance of its employees (62 %); and Top management discusses or consults important matters with employees (62 %). Other internally aimed socially responsible activities received a lower degree of attention from SMEs. Particularly, SME companies paid the lowest level of attention to company Code of Ethics. Only 2 % of SMEs were not involved in any of the selected internal socially responsible activities, which corresponds to an average of 98 % involvement (please, see Figure 5.2). Validity of results of the authors survey can be supported by two independent Czech Business Leaders Forums surveys conducted in 2004 and 2008, which brought similar findings.
Table 6.1: Percentage of SMEs involved in wide-ranging activities of internal dimension of CSR in 2008, sorted by size of the company and including an average for all SMEs
Size of the company (as per 2008) Micro 46% 24% 65% 83% 4% 76% 37% 9% 61% 28% 0% Small 73% 35% 76% 62% 24% 70% 54% 8% 51% 22% 5% Medium 75% 36% 83% 53% 38% 62% 49% 16% 70% 51% 1% SMEs average 67% 33% 77% 62% 27% 67% 47% 13% 64% 40% 2%

Description of internal dimension of socially responsible activities used by SMEs Employee motivation and education system Process to ensure steps are taken against all forms of discrimination, both in the workplace and at the time of recruitment Sufficient health and safety arrangements are implemented at the work place Top management discusses/ consults important matters with employees Rules for recruitment of disabled or handicapped people are set up in the company Possibility/ option of flexible working hours Possibility to work part-time for mothers taking care of small children Code of Ethics is worked out and implemented in the company Company contributes to pension insurance and/or life insurance of its employees 1 or more extra weeks of holiday above the standard legal length of 4 weeks None of these measures/ arrangements are implemented in the company

Question: Have any of the following measures/arrangements been implemented in your company? Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

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Concluding the results of the survey, the reason why the five above-mentioned activities of internal dimension of CSR190 scored highest is that these activities either bring companies the biggest competitive advantage in order to attract and retain qualified employees or they can inflict the company the highest damage (both financial and reputation), if the relevant activity is missing or managed below common standards. In the first category falls employee motivation and education system, possibility of flexible working hours, contributions to pension insurance and/or life insurance, and willingness of top management to consult important matters with employees. On the other hand sufficient health and safety arrangements at workplace fall into the second category. The most probable explanation why SME companies paid the lowest level of their attention to working out and implementing company Code of Ethics is that SMEs may consider drawing up a company Code of Ethics a typical example of bureaucracy for which they do not have time and available resources. On top of that they often regard themselves as ethical companies and consider waste of time drawing up something in writing they already do in their regular business. According to the authors opinion it is a pity that so low percentage of SME companies have their company Code of Ethics because they can also positively influence their competitiveness. Code of Ethics should be regarded as a constitution for the company, the cornerstone of its values on which future development can be built. Code of Ethics should serve as a guide to the everyday professional conduct of employees and its objective is to support desired standards of behaviour and law and order on the one hand and inform the public on the behaviour they can request from the companys employee on the other hand.191 The available data also suggest that there is a positive relationship between the size of companies and their degree of involvement in three fields: sufficient health and safety arrangements at workplace, employee motivation and education system, and rules preventing various forms of discrimination. The positive relationship in these cases makes sense because these measures are more crucial for larger companies with more complex processes and operation than for small and micro companies. On the other hand, there is also a negative relationship between the size of companies and their degree of involvement in two fields: willingness of top management to discuss important matters with employees and possibility of flexible working hours for employees. The negative relationship in these cases also makes sense as these measures are more easily implemented in smaller companies with lower level of complexity than in larger ones. In the authors opinion SME companies regardless of their size should strive for

190 191

Activities (fields) of internal dimension of CSR, where average involvement was higher than 60 %. MacDonald, Ch. (2008), Creating a Code of Ethics for Your Organization, available at http://www.ethicsweb.ca/codes/

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implementation of all these measures and activities because they can contribute to the increase of competitiveness. The following Table 6.2 complements Table 6.1 on previous page and provides general information on forms of activities of internal dimension of CSR, which SME companies were using in supporting of their employees and/or family members in the year 2008. The most common form of activity was regardless size of the company ensuring proper education and training for employees and/or their family members (exactly 88 % of SMEs support educational activities of employees and/or their family members)192. The second most frequent form of activity that SME companies were supporting was a support of sport activities (actually supported by 46 % of SMEs). The third place occupies support of cultural activities of companys employees and/or their family members. To very similar results came two independent Czech Business Leaders Forums surveys conducted in 2004 and 2008.
Table 6.2: Percentage of SMEs involved in supporting of employees and/or family members in various activities of internal dimension of CSR in 2008, sorted by size of the company and including an average for all SMEs
Size of the company (as per 2008) Micro 39% 24% 20% 2% 74% 0% 20% Small 46% 27% 24% 8% 89% 3% 8% Medium 50% 52% 38% 8% 94% 3% 6% SMEs average 46% 41% 31% 7% 88% 2% 9%

Description of activities related to internal dimension of CSR supported by SMEs Sport activities Cultural activities Health care Environmental protection ecological activities (other than directly related to consequences of the companys own operations) Education Other None

Question: Indicate in which of the following activities your company has been supporting its employees and/or its family members. Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

Probable reason why SMEs give preference to support of particularly education, sport and cultural activities is that these activities can both bring a company the greatest benefits (especially various forms of employees education) and they are highly appreciated by employees (sport and cultural activities). Hardly is anything better for a company than properly trained and educated, and highly satisfied, motivated and loyal employees. A less satisfactory outcome of the survey is that 20 % of micro companies were not supporting any of the proposed activities. The most probably these companies do not

192

In the authors opinion this activity (education) is primarily focused on companys employees and hardly ever on employees family members.

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see sufficient added value in support of these voluntary activities or they simply do not have resources for their support. Only 7 % support of ecological activities in which employees and/or their family members are engaged in is far to be satisfactory. On the other hand this result reflects current situation in the Czech Republic where people are seldom actively engaged in environmental protection because they consider this activity to be a duty of municipal and state authorities for which they pay taxes. The available data also suggest that there is a positive relationship between the size of SMEs and their degree of involvement in the different types of voluntary social activities. The order of preference for different types of activities is equal in all size-classes. This outcome supports a common fact that the bigger and richer the company is the more resources it can give on motivation of its employees and on voluntary activities. Regarding Table 6.3, which further develops Table 6.1 and Table 6.2 it investigates forms of further education and training of employees that are supported by SME companies. 83 % of SMEs prefer professional education, i.e. short-term courses and trainings, as a primary form of further education for their employees. The second most common form of education is language courses. SME companies prefer these two forms of education for their employees particularly for their relevance to actual needs of companies, possibility of tailor-made approach, and favourable ratio between costs and expected benefits for SMEs and employees.
Table 6.3: Forms of further education of employees supported by SMEs, sorted by size of the company and including an average for all SMEs
Size of the company (as per 2008) Micro 67% 9% 9% 22% Small 84% 22% 19% 46% Medium 89% 43% 28% 64% SMEs average 83% 31% 22% 51%

Forms of further education of employees supported by SMEs Professional education (short-term courses, trainings) Training in managerial techniques Further long-term education (secondary/high school, university, post-graduate education) Language courses

Question: Which forms of further education of employees has your company been supporting? Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

The third place occupies trainings in managerial techniques, which are much less common because they are usually focused on narrower group of participants managers. The last place with 22 % support belongs to long-term education, which requires more resources (particularly time and financial resources), is not as related to actual needs of

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companies as other forms of education and namely for these features it is the least likely option for SMEs. Results also suggest that there is a positive relationship between the size of SMEs and their degree of involvement in various forms of further education of employees. The order of preference for different types of forms is equal in all size-classes. This outcome again supports a common fact that the bigger and richer the company is the more resources it can spend.

6.2

Characteristics of SMEs Internal Dimension of Socially Responsible Activities

Previous subchapter 6.1 Description of Internal Dimension of Socially Responsible Activities Used by SMEs gave an overview on wide-ranging activities of internal dimension of CSR, which SME companies were engaged in. This subchapter develops the issue further as it intends to investigates degree of importance of socially responsible and ethical behaviour towards employees for SME companies and to answer the question how many SMEs have strategy for internal dimension of CSR in place. Figure 6.1 provides information in graphic form on percentage of SME companies with and without strategy for internal dimension of CSR in 2008.
Figure 6.1: Percentage of SMEs with and without strategy for internal dimension of CSR in 2008, sorted by size of the company and including an average for all SMEs
SMEs involved in wide-ranging activities of internal dimension of CSR in 2008 with and without relevant strategy 75% 74% 60% 45% 54% 54% 46% 41% No strategy 59%

Existing strategy

46%
30% 26%

15% 0% Micro Small Medium SMEs average

Company s size

Question: Has your company prepared strategy for above-mentioned measures/arrangements, which are implemented in your company? (Please, see options in question Have any of the following measures/arrangements been implemented in your company?) Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

According to the results of the survey 41 % of SMEs on average had a strategy for socially responsible activities aimed at internal stakeholders (particularly employees). As

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far as size of company is concerned, 46 % of small and medium-sized companies had strategy for internal dimension of CSR at their disposal, while only 26 % of micro companies elaborated the respective strategy. These outcomes approximately correspond to degree of SMEs involvement based on their size in wide-ranging activities of internal dimension of CSR as depicted at Table 6.1 and Table 6.2. Probable reasons why SMEs pay less attention to formalizing existing and planned internally aimed socially responsible measures and activities into the strategic document can be following: Adherence on inherent informality of mutual relations and processes that are typical for SMEs; Lack of available resources (namely time and financial and human resources) and lack of know-how; and Belief of top managers and owners that formalizing existing and planned internally aimed socially responsible measures and activities is a waste of time and other scarce resources without additional added value for the company (in the authors opinion this belief is, of course, wrong). According to the authors opinion, on one hand 98 % engagement of SMEs in internally focused socially responsible activities and on the other 59 % of SMEs without any strategy for these activities show that more than every second SME cannot utilize the full potential of internal dimension of CSR. Unfortunately, probably many SME companies did not understand or underestimated essentials of strategic management company without a strategy is like a ship without a compass; risks are unknown, direction unclear, and safety harbour far away. Tailor-made strategy for internal dimension of CSR should undoubtedly form an essential part of overall company strategy. Table 6.4 compares SME companies with and without strategy for internal dimension of CSR and with and without company (corporate) strategy. By providing this additional information Table 6.4 complements previous Figure 6.1.
Table 6.4: Comparison of SMEs with/without strategy for internal dimension of CSR and with/without corporate strategy in 2008 including an average for all SMEs

Strategy for internal dimension of CSR Yes No SMEs average

Corporate strategy Yes 55% 45% 68% No 13% 87% 32%

Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

Results showed that subsistent company (corporate) strategy was more common amongst SMEs than strategy for internal socially responsible activities on average 68

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% of SMEs had company strategy versus only 41 % which had strategy for internal CSR activities. On one hand 55 % of SMEs which had company strategy in place had also strategy for internal dimension of CSR. On the other hand just 13 % of SMEs which did not have company strategy had strategy for internal socially responsible activities. Concluding these results, approximately every second SME with company strategy had also strategy for internal dimension of CSR while only every seventh SME without company strategy had strategy for internal dimension of CSR too. It is clear that probability that a company has strategy for internal CSR activities is much higher, when the respective company has also overall company (corporate) strategy. Reasons why SMEs with overall company strategies have much more often also strategy for internal dimension of CSR are probably enlightened, competent and well educated top management and overall greater maturity of these SMEs. The next Table 6.5 gives an overview on authors investigation to what degree socially responsible and ethical behaviour to employees is important for SME companies. According to the results 44 % of SMEs considered on average as very important and 52 % of SMEs considered as important socially responsible and ethical behaviour towards employees in 2008. Together it makes 96 % of all surveyed SMEs, which considered this kind of behaviour as important for their companies. 3 % of SMEs deemed this behaviour as less important and only 1 % it deemed as unimportant for their companies. Two surveys on similar topic carried out by the Czech Business Leaders Forum in 2006 and 2008 came to almost identical findings.
Table 6.5: Degree of importance of socially responsible and ethical behaviour towards employees for SMEs, sorted by size of the company and including an average for all SMEs

Importance of socially responsible and ethical behaviour towards its employees for SMEs Very important Important Less important Unimportant

Size of the company (as per 2008) Micro 48% 50% 2% 0% Small 41% 54% 0% 5% Medium 44% 51% 5% 0% SMEs average 44% 52% 3% 1%

Question: How important is for your company socially responsible and ethical behaviour towards its employees? Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

Such good results prove that almost all SME companies take, except several exceptions, socially responsible and ethical behaviour to employees as a matter of fact. SME companies understand prominent position of their very influential internal stakeholders employees and take care to have with them excellent and sincere relations. SMEs also understand that with competent, loyal, devoted, inspired, and motivated employees

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companies can better challenge turbulent economic environment and competitors and reach planned objectives. Without socially responsible and ethical behaviour to employees, it would be hardly ever possible. Regarding SMEs, which regarded socially responsible and ethical behaviour to employees as unimportant, one was from Moravia and one was from Bohemia, one was operating more than one and less than 3 years and the other one was operating more than 10 years, both had solely Czech owner, both were from IS/IT, both had corporate strategy in place, and both were not involved in any internal or external CSR activities. Possible explanation for such inappropriate and obsolete opinion can be that these companies do not (or do not want to) see connection between socially responsible and ethical behaviour to employees and benefits of such behaviour for the company or top managements or owners of these SMEs just consider such behaviour as irrelevant for well-being of their companies or both of previous presumptions. The following Table 6.6 complements previous Table 6.5 and further explores those SME companies for which socially responsible and ethical behaviour towards employees was very important. The author selected only those results in individual categories, which exceeded an imaginary threshold of 50 % in given category. Regarding ownership structure of the company, 75 % of SMEs that were part of international corporation considered socially responsible and ethical behaviour to employees as very important. SMEs belonging to all other ownership structures scored below virtual 50 % threshold. As regards line of business, 100 % of SMEs engaged in research and development, 100 % of SMEs in financial services, and 57 % of SMEs doing business in consultancy considered socially responsible and ethical behaviour to employees as very important. SMEs belonging to all other lines of business scored below imaginary 50 % threshold.
Table 6.6: Analysis of SMEs for which socially responsible and ethical behaviour towards employees was very important, sorted by ownership structure and line of business
Importance of socially responsible and ethical behaviour towards its employees for SMEs very important for 75%

Ownership structure Part of an international corporation Line of business Consultancy Research & Development Financial services

very important for 57% very important for 100% very important for 100%

Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague. Important note: In the table above are mentioned only those results that exceeded imaginary threshold of 50 %, i.e. those that can be considered the most important.

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Almost no difference was observed amongst SMEs, if classified according to years of operation. SMEs for which importance of socially responsible and ethical behaviour towards their employees was very important formed approximately 44 % of all SMEs irrespective of duration of companys existence. Summarizing all the facts, SME companies that are part of international corporation are aware the most of benefits from socially responsible and ethical behaviour to employees and accentuate above standard employer-employee relations. The most probably for these reasons they topped the list of SMEs, sorted according to the ownership structure of company, for which responsible behaviour to employees was very important. SMEs doing business in research and development, financial services, and consultancy top the list of SMEs for which responsible behaviour to employees was very important. SME companies in these lines of business topped the list because they belong to lines with high economic value added where business success to a great extent depends on competent and motivated personnel and companies in these lines accentuate above standard employer-employee relations.

6.3

Reasons for Involvement in Internal Dimension of Socially Responsible Activities

According to the results of the All-European Survey conducted in the year 2001 and the Czech Business Leaders Forums Surveys conducted in the year 2006, 2007, and 2008193, the main reason of companies behind involvement in corporate social responsibility was related to ethical reasons, probably linked to the desire of entrepreneurs to give something back to the community. Particularly SMEs suggested this reason, well above other frequently quoted reasons. The second and the third most mentioned reasons in Czech surveys were enhancement of employees satisfaction and tradition while in European survey they were improvement of public relations with the community and public authorities and improvement of customer loyalty. Enterprise size considerations are an important explanatory factor in this respect. Thus, ethical considerations were the main reason for SMEs involvement in CSR activities for all enterprise sizes, although this reason seemed to be particularly important the smaller the enterprise size was. For the other reasons, the opposite enterprise size relation could be detected. This result suggests that larger SMEs have been more aware of the business benefits derived from their involvement in socially responsible activities in comparison to the smallest ones.

193

For more information on respective surveys, please, see subchapters 4.2 and 4.3.

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The following Table 6.7 tries to answer the important question, what have been the major drivers (or motivators) for SME companies for implementing socially responsible and ethical behaviour towards their employees. Great majority (exactly 82 %) of participating SME companies (regardless of company size) declared that the main reason behind their involvement in socially responsible and ethical behaviour towards employees was recruitment and retention of qualified employees. The second most important driver for SME companies to be engaged in socially responsible behaviour to employees was improvement of employees job satisfaction and the third most important motivator was improvement of employees job motivation. Ethical or moral reasons that were mentioned the most in European and Czech surveys occupied the fourth place in the authors survey. After the top four then followed reasons improvement of economic performance of the company and tradition. Drivers that were mentioned the least were application of business code of conduct, use of existing public incentives and pressure from third parties.
Table 6.7: Major drivers for implementing of socially responsible and ethical behaviour towards employees, sorted by size of the company and including an average for all SMEs
Size of the company (as per 2008) Micro 65% 24% 78% 41% 70% 41% 2% 11% 7% 0% Small 57% 32% 84% 54% 62% 38% 11% 11% 14% 5% Medium 52% 35% 82% 65% 63% 51% 10% 19% 18% 0% SMEs average 56% 32% 82% 57% 64% 46% 8% 15% 14% 1%

Major motivators for implementing socially responsible and ethical behaviour towards employees Ethical/moral reasons Tradition Recruitment and retention of qualified employees (Improvement of employees loyalty) Improvement of employees job motivation Improvement of employees job satisfaction Improvement of economic performance of the company (costs reduction, sales increase) Application/implementation of business code of conduct Pressure from third parties (i.e. clients, competitors, governments) Use of existing public incentives (tax incentives, subsidies, others) None

Question: Indicate which have been the major drivers/motivators for your company for implementing socially responsible and ethical behaviour towards its employees. Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

Results in Table 6.7 suggest that surveyed SME companies have been more aware of the business benefits194 derived from their involvement in socially responsible and ethical behaviour towards employees in comparison to the ones that took part in European and Czech surveys, where ethical reasons occupied the top place. This conclusion also underlines the fact that reason improvement of economic performance of the company was picked by SMEs as the fifth most important from ten alternative options.
194

For benefits identified by SME companies from their participation on internally targeted socially responsible activities please, see Table 6.8.

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Reasons improvement of employees job satisfaction and improvement of employees job motivation scored very high in the survey. Summarizing these results, employee care in the context of an equal and ethical approach and support of their professional development all form the stable core of business strategy of SMEs. Attention has been paid to activities that directly support employee performance; professional training and education being one of the most often selected answers followed by language courses (see Table 6.2 and Table 6.3). All the outcomes suggest that employee care has been both part of human resources management and part of activities carried out in the direct context of the CSR package. However, the exact percentage proportion between these two factors is unknown and hardly measurable. Concluding what has been mentioned above the author can say that SMEs concentrate their attention on activities that have a direct influence on their own overall economic management. The available data also suggest that there is a negative relationship between the size of SMEs and their preference of ethical (moral) reasons ethical reasons seem to be particularly important the smaller the company size is. This result suggests that larger SMEs have been more aware of the business benefits derived from their involvement in socially responsible and ethical behaviour towards employees in comparison to the smaller ones. The most infrequent reason was application (implementation) of business code of conduct, which suggests that formalized approach to internal dimension of CSR is the least likely to be found in SME companies. Rather informal, practical and focused on actual business environment approach driven by economic reasons is preferred by SMEs. The opinion supports the fact that from a wide-range of activities within the frame of internal dimension of CSR reviewed SME companies paid the lowest level of attention to company Code of Ethics (please, see Table 6.1). However, according to some authors, the existence of codes of conduct in SMEs does not necessarily affect the SMEs ethical and social behaviour since the foundation of ethics in most SMEs is in the mind of the owners and/or top managers195.

195

The idea has been taken from Marnburg, E. (2000), The behaviour effects of corporate ethical codes: Empirical findings and discussion, Business Ethics: A European Review, Vol. 9 Number 3, page 200-210

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6.4

Benefits Identified by SMEs from Their Participation on Internally Targeted Socially Responsible Activities

According to the survey amongst SME companies conducted by the Czech Business Leaders Forum in the year 2006, support of employee performance was the main advantage of the socially responsible conduct of small to medium-sized businesses in the Czech Republic. The second most mentioned benefit was enhancement of firms reputation and the third one improved relations with business partners or investors. Maximising economic outcomes ranked fourth on the scale of benefits that CSR can bring. The results proved that CSR was still perceived in the context of standalone benefits, rather than a complex route towards the encouragement of prosperity. This was supported by the fact that more than half of the firms did not communicate with their stakeholders on a strategic level and instead concentrated on instantaneous betterment in focusing on a specific group. Overview of major benefits for SME companies arising from implementing socially responsible and ethical behaviour towards employees summarizes the following Table 6.8. Results of the authors survey showed that SMEs placed at the top of major benefits improvement of employees job satisfaction closely followed with increase of current employees loyalty and reduction of staff turnover. So the first two most selected major benefits were tightly related to support of employee performance, which was also the top advantage mentioned in the 2006 Czech Business Leaders Forums survey.
Table 6.8: Major benefits for SMEs arising from implementing socially responsible and ethical behaviour towards employees, sorted by size of the company and including an average for all SMEs
Size of the company (as per 2008) Micro 24% 61% 85% 28% 57% 37% 11% 33% 2% 0% Small 30% 73% 78% 43% 43% 30% 14% 32% 0% 5% Medium 43% 65% 65% 24% 35% 36% 11% 30% 2% 4% SMEs average 36% 66% 73% 29% 42% 35% 12% 31% 2% 3%

Major benefits arising from implementing socially responsible and ethical behaviour towards employees Recruitment of new qualified employees Increase of current employees loyalty (reduction of staff turnover/fluctuation) Improvement of employees job satisfaction Improvement of relations with business partners and investors Improvement of customer satisfaction Improvement of economic performance of the company (costs reduction, sales increase) Use of existing public incentives (tax incentives, subsidies, others) Improvement of company's reputation (better image) Other None

Question: Indicate which have been in practice the major benefits for your company regarding socially responsible and ethical behaviour towards its employees. Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

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Benefit improvement of customer satisfaction ranked third and improvement of economic performance of the company scored fifth, just one percentage point after recruitment of new qualified employees. Other benefits seem to be less perceived by the surveyed SMEs. The outcomes imply that encouragement of employee performance together with improved customer satisfaction lead in SME companies to reinforcement of economic performance, which should be the paramount objective of every company together with sustainable growth and also the paramount benefit of CSR endeavour. The available data suggest that, generally speaking, SMEs are quite aware of the benefits derived from being involved in socially responsible and ethical behaviour towards employees, i.e. in internal community activities. Only around one percent of the SMEs effectively involved in internal dimension of CSR are unable to identify any business benefit derived from these activities, whereas the remaining ninety-nine percent do identify different business benefits. Interestingly enough, the smallest enterprises do not have more difficulties to perceive these benefits. Interestingly also, many benefits are identified more often by the smaller companies, especially as far as improvement of employees job satisfaction and improvement of customer satisfaction are concerned. The outcomes allow one to reach a very interesting conclusion, in the sense that the business benefits of socially responsible activities, assumed to lie exclusively in the domain of large companies, are in fact also present in the SME sector. However, this important result should be contrasted with the fact that, as already mentioned in the Table 5.17: Measurement and evaluation of CSR by the company, sorted by size of the company, only a minority of SMEs involved in corporate social responsibility monitors the effectiveness of their involvement.

6.5

Barriers to the Participation on Internally Targeted Socially Responsible Activities

Previous chapters have shown that the SME companies operating in the Czech Republic are able to identify a number of reasons and benefits underpinning their involvement in internal dimension of CSR. By way of contrast, this subchapter is interested in looking into the main barriers that hinder SMEs activities in this field. According to the 2008 Czech Business Leaders Forums survey, bureaucracy, lack of time and high costs were the main barriers enterprises of all sizes in the Czech Republic were facing when implementing corporate social responsibility in their enterprises. Less than one third of enterprises did not mention any obstacles. The authors survey provides some insight into the SMEs perspective on major barriers for SMEs for implementing socially responsible and ethical behaviour towards employees

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(please, see Table 6.9 for a graphical summary). Reasons that impede SME companies most in implementing internal dimension of CSR can be aggregated into three groups. The most frequently SMEs mentioned that there were no barriers that would prevent them in implementing socially responsible and ethical behaviour to their employees. Especially for further expansion and improvement in quality and effectiveness of CSR practices it is an important finding that more than one third of SMEs operating in the Czech Republic do not see any obstacles in implementing socially responsible behaviour to employees. Thus, it can be expected that internal dimension of CSR can reinforce its already strong position amongst SME companies.
Table 6.9: Major barriers for SMEs for implementing socially responsible and ethical behaviour towards employees, sorted by size of the company and including an average for all SMEs
Size of the company (as per 2008) Micro 7% 7% 24% 37% 17% 11% 9% 2% 35% Small 8% 8% 14% 38% 30% 0% 0% 8% 38% Medium 5% 4% 18% 28% 18% 6% 15% 8% 36% SMEs average 6% 5% 18% 32% 20% 6% 11% 7% 36%

Major barriers for implementing socially responsible and ethical behaviour towards employees I haven't thought about a possibility that my company could behave in such a way (responsibly) Such (responsible) behaviour doesn't benefit to the company in any way Lack of time (not enough time) Lack of financial resources Absence of state/government support Absence of public support/pressure Lack of know-how for establishment of such a system/program in the company Other None

Question: Indicate which have been the major barriers/obstacles for your company for behaving socially responsibly and ethically towards its employees. Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

Lack of internal resources, particularly financial means and time, and lack of know-how form the second most mentioned group of barriers. Nevertheless a lack of internal resources is not anything new for SMEs, as this obstacle is inherently present disadvantage in this category of enterprises. As the third group of most quoted barriers SMEs identified an absence of state and/or government support. In the authors opinion this obstacle is based on real foundations and SMEs are right in their statement that state and governmental support of enterprises that want implement or already practicing CSR has been vague and weak. The results of authors research is also supported with outcomes from 2004 Czech Business Leaders Forums survey. According to that survey motivation for activities in the CSR area was very weak on the side of the government. Commentaries of the participants in the indepth interviews pointed out that the role of government in creating better business

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environment in the country was marginal at that time and wished to be stronger and more proactive. The situation has not changed too much since then in this respect. Only 5 % of SMEs argued that the main obstacle impeding them in implementing socially responsible and ethical behaviour towards employees was because they do not expect any benefits from this behaviour and 6 % of SMEs have not thought about a possibility that they could behave in such a way. Also a minority of 6 % saw the lack of public support and/or pressure as the main reason. In the authors opinion these reasons obstructing SMEs in implementation of internal dimension of CSR form only minority, which could be further diminished if state and government support of CSR practices would increase and intensify.

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Chapter 7.

Specific Results of Own Research: External Dimension of Corporate Social Responsibility

Corporate social responsibility extends beyond the doors of the company into the local community and involves a wide range of stakeholders in addition to employees and shareholders: business partners and suppliers, customers, public authorities and nonprofit organizations representing local communities, as well as the environment (for theoretical background on external dimension of CSR, please, see subchapter 3.2.2 External Dimension of Corporate Social Responsibility). The view that companies have a deep self-interest in developing strong, healthy, safe, sustainable and affluent communities has increasingly been gaining ground. Corporate social responsibility is now seen as central to business strategy and long-term success and should be closely aligned with business mission, values and management practice.196 This Chapter intends to investigate the following issues of external dimension of corporate social responsibility: In what activities of external dimension of CSR SME companies are involved and what forms of support they use; Review various characteristics of external dimension of CSR, such as whether SME companies have strategies for externally focused CSR or to find out how important it is for SMEs behaving responsibly towards environment and community; Determine reasons of SME companies for their involvement in external dimension of CSR; Find out what benefits SME companies can identify by participating on externally targeted socially and environmentally responsible activities; Determine what obstacles SME companies can face if they participate or want to participate on externally aimed socially and environmentally responsible activities; and Find out future expectations on involvement of SMEs in activities of external dimension CSR.

196

European Foundation Centre (2001), EFC Comments on EC Green Paper on CSR, December 2001, available at: http://www.efc.be/ftp/public/cce/Dec2001_EFCComments_GreenPaper.pdf

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7.1

Description of External Dimension of Socially and Environmentally Responsible Activities Used by SMEs

7.1.1 Involvement in Wide-Ranging Activities of External Dimension of Corporate Social Responsibility

Referring to the concrete activities developed by those SMEs involved in external community causes, the All-European Survey conducted in the year 2001197 showed that these activities mainly concentrated in three fields: the support to sport, cultural and health and/or welfare activities not aimed at the SMEs own employees. Considering only those SMEs effectively participating in social and environmental activities, up to 47 %, 33 % and 33 % carried out activities in the previously suggested fields, respectively. Other fields received a lower degree of attention from European SMEs. From a national perspective, it was interesting to notice that the support to sporting activities was the most preferred type of external social activities by SMEs in nearly all the surveyed countries, although some exceptions were identified.198 Table 7.1 shows results of the authors research, a percentage of SMEs operating in the Czech Republic that were involved in a wide range of activities of external dimension of CSR in 2008.
Table 7.1: Percentage of SMEs involved in wide-ranging activities of external dimension of CSR in 2008, sorted by size of the company and including an average for all SMEs
Size of the com pany (as per 2008) Micro 35% 33% 4% 4% 39% 20% 17% 2% 0% 17% Sm all 35% 38% 8% 16% 65% 46% 19% 14% 0% 8% Medium 58% 55% 16% 22% 62% 46% 17% 10% 4% 4% SMEs average 48% 46% 12% 17% 57% 39% 17% 9% 2% 8%

CSR activities supported by SMEs w ithin the fram e of external dim ension of CSR Sport activities (not ow n employees) Cultural activities (not ow n employees) Health care (not ow n employees) Education and training activities (not ow n employees) Financial or other help/support to non-profit organization Environmental protection - ecological activities (other than directly related to consequences of the company's ow n operations) Creation of good conditions for socially or in other w ay deprived groups for their involvement in community and w ork process Participation in public affairs or political process on behalf of the company Other None

Question: Has your company been supporting any of the following activities (not its own employees and/or its family members)? Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

197 198

For more information on respective survey, please, see subchapter 4.2.

Greek and Portuguese SMEs paid special attention to the support of cultural activities, whereas Icelandic and British SMEs devoted particular attention to the support of health and to education activities not aimed at their own employees, respectively. However, support to sport was ranked as the second most common social activity developed by SMEs in these four countries.

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As already said in the subchapter 5.3.5 and depicted in Figure 5.5, the important finding is that only 8 % of SMEs were not involved in external dimension of CSR, which means that excellent 92 % of SMEs were, to a certain degree, engaged. On average, the most common (57 % of all SMEs) type of involvement in wide array of activities of external dimension of CSR was financial or other help or support of non-profit organization. The 2008 Czech Business Leaders Forums survey came to the very same outcome, which strengthens the validity of authors result. The second and the third most frequently used types of involvement were support of sport activities (48 % of all SMEs) and support of cultural activities (46 % of all SMEs) not aimed at SMEs own employees. The fourth place with 39 % support belongs to the environmental protection and various ecological activities that were not directly related to consequences of companys own operations. All other types of activities of external dimension of CSR were less common amongst Czech SME companies. The 2001 AllEuropean survey and 2008 Czech survey obtained similar results. The results suggest that non-profit organizations have been very active in the Czech Republic and quite successful in raising funds from SME companies. Direct support of other initiatives received less attention, probably due to their lower activity in raising funds or lower interest from SMEs in these activities or combination of the previous two factors. The available data also suggest that there is a positive relationship between the size of companies and their degree of involvement in the majority of activities aimed at external stakeholders.

7.1.2 Forms of Support of Socially and Environmentally Responsible Activities

According to the All-European Survey conducted in the year 2001199 the most popular way of European SMEs involvement in externally focused social and environmental activities was through donations (56 %), either in cash or in kind, conducted on an adhoc or irregular basis. This possibility was slightly more popular amongst the SME female owners in comparison to their male counterparts. The second most selected way was through regular or continued sponsorships, adopted by 45 % of the surveyed SMEs. By way of contrast, other ways of social and environmental involvement such as cause related marketing activities or employee/employer involvement in community activities (always, of course, on behalf of the enterprise) were less common amongst European SMEs. A positive relationship between the size of the enterprises and the percentage of

199

For more information on respective survey, please, see subchapter 4.2.

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SMEs involved in the different ways was identified. Sponsorships were the most usual way of involvement of medium enterprises, in contrast to very small and small enterprises, where donations were the most preferred method. Forms of support of socially responsible activities that have been used by Czech SMEs within the frame of external dimension of CSR depict Table 7.2. The most common way, exactly three quarters of all SMEs, of Czech SMEs engagement in externally aimed social activities was through donations, either financial or in kind gifts, conducted on an ad-hoc basis. This possibility was by 26 % more popular than the second most selected form through sponsorship. The third place occupied cooperation with other parties (e.g. non-profit sector, public sector, other private companies, etc) on socially beneficial projects, adopted by 31 % of the surveyed SME companies. Other ways of social involvement were less common amongst SMEs. A positive relationship between the size of the SMEs and the percentage of SMEs involved in the different ways was identified. The outcomes suggest that involvement in socially responsible activities within the frame of external dimension of CSR in a form of donations, either financial or in kind gifts, was the most convenient way for Czech SMEs companies donate money and/or in kind gifts and do not have to further dedicate their resources, particularly time and human resources. However in this way companies partially lose their opportunity to influence what exactly happens with donated money and an opportunity to be better associated with donations as a part of overall communication strategy.
Table 7.2: Forms of support of socially responsible activities used by SMEs in terms of external dimension of CSR, sorted by size of the company and including an average for all SMEs
Size of the company (as per 2008) Micro 35% 70% 11% 20% 2% 0% 17% Small 46% 65% 30% 32% 16% 0% 8% Medium 57% 80% 29% 35% 20% 0% 4% SMEs average 49% 75% 25% 31% 15% 0% 8%

Form of support of socially responsible activities used by SMEs (external dimension of CSR) Sponsorship Financial or in kind gifts (ad-hoc or once only) Cause related marketing Cooperation with other parties on socially beneficial projects (i.e. non-profit sector, public sector, other private companies) Employee involvement in social/community activities (on behalf of the company) Other The company does not support any social activity

Question: Indicate in which way your company has supported social activities (do not include activities for or support to your own employees). Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

The following Table 7.3 summarizes forms of support of environmentally responsible activities that have been used by Czech SMEs within the scope of external dimension of CSR. The most popular way of SMEs involvement in environmental activities not directly related to consequences of companys own operations was through donations conducted

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on irregular basis (17 % of all SMEs). The second most selected way was through cause related marketing (11 % of all SMEs) and the third most common form was through support of employee involvement in environmental activities on behalf of the company (10 % of all SMEs).
Table 7.3: Forms of support of environmentally responsible activities used by SMEs in terms of external dimension of CSR, sorted by size of the company
Size of the company (as per 2008) Micro 0% 7% 4% 7% 2% 2% 80% Small 3% 14% 14% 19% 14% 0% 54% Medium 14% 23% 12% 7% 12% 3% 54% SMEs average 8% 17% 11% 9% 10% 2% 61%

Form of support of environmentally responsible activities used by SMEs (external dimension of CSR) Sponsorship Financial or in kind gifts (ad-hoc or once only) Cause related marketing Cooperation with other parties on environmentally beneficial projects (i.e. non-profit/public sector, other private companies) Employee involvement in environmental activities (on behalf of the company) Other The company does not support any environmental activity

Question: Indicate in which way your company has supported environmental activities (other than directly related to consequences of the companys own operations). Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

Unfortunately all the three most popular ways of engagement in environmentally responsible activities received much lower level of attention than socially responsible activities. Surprisingly almost two thirds of all surveyed SMEs were not involved in any environmentally responsible activities under the umbrella of external dimension of CSR. These results correspond to findings stating that 31 % of surveyed SMEs could not identify any motivator for implementing environmentally responsible activities (please, see Table 7.15) and 42 % of SMEs did not name any benefits for SMEs arising from the support of environmentally responsible activities aimed at external community (please, see Table 7.17). If companies struggle to find any real motivators and benefits in this respect, it is no wonder that their support of externally aimed environmentally responsible activities has been so weak. On the other hand, current low support of environmentally responsible activities can be a great opportunity for SMEs to get involved in these activities and to distinguish themselves from those SMEs not supporting them and if being successful in doing them they may eventually acquire a competitive advantage in this field.

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7.1.3 Forms of Public Support of External Dimension of CSR Realized by SMEs

Figure 7.1 shows percentage of SMEs that received public support in a form of tax incentive, subsidy or grant for support of their engagement in external community causes during three-year period 2004 to 2007. According to the results, 16 % of Czech SMEs on average received during that period some public incentive. It is also worth identifying a positive relationship between the size of companies and the percentage of SMEs that actually received public support. The results suggest that only a minority (one sixth) of surveyed SMEs has been given some public incentive for their active involvement in external community causes. Moreover, larger SMEs have been much more successful in receiving public support than smaller ones.
Figure 7.1: Percentage of SMEs that have received public support (incentive/subsidy) for their external dimension of CSR during last 3 years, sorted by size of the company
Percentage of SMEs receiving public support (incentive/subsidy) Micro Small Medium SMEs average 0% 5% 10% 15% 16% 20% 25% 9% 14% 21%

Question: Did your company receive any public support (i.e. incentive, subsidy) for its socially and environmentally responsible activities (CSR) not aimed at its own employees during the last 3 years? Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

In the authors opinion, taking into consideration 92 % involvement of SMEs in activities of external dimension of CSR on one hand and on the other only 16 % of them actually receiving some public incentives, overall public support of CSR activities aimed at external stakeholders can be considered weak and should be strengthened. On top of that smaller SMEs should be more active in attracting public support and municipal and state authorities should focused more on smaller companies for which it is more difficult obtaining support due to their inherent characteristics (particularly lack of know-how, lower level of various resources, narrower scope of impact of their CSR activities on wide public, etc). The following Table 7.4 complements Figure 7.1 by providing information on forms of public support Czech SMEs received for three-year period 2004 to 2007 for their external community causes. The most common form of public support of external community causes was public subsidy and/or grant, while tax incentives were much less frequent way of support. Free

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of charge consultancy services received only 16 % of all SMEs that obtained public support. In the authors opinion free of charge consultancy services should be more promoted as a direct form of public support because they can help, especially to micro companies, to overcome lack of professional know-how and facilitate SMEs embracing activities of external dimension of CSR in a strategic manner.
Table 7.4: Forms of public support the SMEs* have received during last 3 years (2005 2008) for their external dimension of CSR, sorted by size of the company
Size of the company (as per 2008) Micro Tax incentive Subsidy/grant Free of charge consultancy service 50% 75% 0% Small 40% 60% 40% Medium 36% 73% 14% SMEs average 39% 71% 16%

Form of public support SMEs received

* Data refer to SMEs that actually received public support Question: Companies could choose from the following forms of public support: Tax incentive, Subsidy/grant, Free of charge consultancy service. Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

7.2

Characteristics of SMEs External Dimension of Socially and Environmentally Responsible Activities

This subchapter concentrates on describing, what are the main characteristics that define and distinguish the socially and environmentally responsible activities developed by Czech SMEs. Degree of Importance of Socially Responsible and Ethical Behaviour towards Environment and Community Table 7.5 gives an overview on authors investigation to what degree socially and environmentally responsible activities aimed at external stakeholders are important for SME companies. According to the results 34 % of surveyed SMEs considered as very important and 60 % of SMEs considered as important their engagement in activities of external dimension of CSR in 2008. Together it makes 94 % of all surveyed SMEs, which considered this kind of engagement as important for their companies. 4 % of SMEs deemed this involvement as less important and only 2 % it deemed as unimportant for their companies. Survey on similar topic carried out by the Czech Business Leaders Forum in 2008 came to similar findings, even though the relation between the very important and important category was different more than half of SMEs selected the first category. If compared degree of importance for internal (see Table 6.5) and external dimension of CSR for

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SMEs, the results are almost the same. The finding suggests that SMEs take seriously both dimensions of CSR and consider them nearly equally important for their existence and future prospects.
Table 7.5: Degree of importance of socially responsible and ethical behaviour towards environment and community for SMEs, sorted by size of the company and including an average for all SMEs
Size of the company (as per 2008) Micro 28% 63% 7% 2% Small 27% 65% 3% 5% Medium 38% 57% 5% 0% SMEs average 34% 60% 4% 2%

Importance of socially and ethically responsible behaviour tow ards environment and community Very important Important Less important Unimportant

Question: How important is for your company socially responsible and ethical behaviour towards environment and its community? Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

Such good results prove that almost all SME companies take their involvement in external community causes as a matter of fact. SMEs understand position of their external stakeholders and take care to have with them good relations. SMEs also understand that with satisfied external stakeholders companies can better challenge changing economic environment and competitors and reach planned objectives. Without engagement in both dimensions of CSR, it would be much more difficult achieving planned objectives and success would probably be only short-lived.

SMEs Approach to Socially and Environmentally Responsible Activities Table 7.6 investigates what kind of approach Czech SMEs have chosen for their socially and environmentally responsible activities within the external dimension of CSR, while Table 7.7 provides facts on the same topic for European SMEs.
Table 7.6: SMEs strategic approach to socially and environmentally responsible activities (external dimension of CSR), sorted by size of the company and including an average for all SMEs
Size of the company (as per 2008) Micro 46% 7% 24% 7% 17% 100% Small 32% 24% 19% 16% 8% 100% Medium 28% 21% 18% 30% 4% 100% SMEs average 33% 18% 19% 22% 8% 100%

SMEs strategic approach to socially and environmentally responsible activities Occasional activities, unrelated to business strategy Occasional activities, related to business strategy Regular activities, unrelated to business strategy Regular activities, related to business strategy CSR is not supported by our company Total

Question: Is involvement of your company in socially and environmentally responsible activities (CSR) occasional or regular? And is it related to business strategy or not? Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

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The Czech SMEs external community activities were in most cases occasional and oneoff, unrelated to the business strategy. Thus, up to 51 % of the Czech SMEs involved in external community activities carried out these activities on an occasional basis in contrast to the 41 % who conducted them on a regular basis. Additionally, for 52 % of Czech SMEs, these socially and environmentally responsible activities were unrelated to the general business strategy. In contrast, 40 % of SMEs argued that these activities were integrated into the general business strategy. Moreover, the data suggest that regular and related to the business strategy external community activities become more common as the companies get larger. If results for Czech SMEs are compared to the results of the European survey (see Table 7.7), relative percentage distribution amongst the given categories are almost the same for both Czech and European SMEs. The only significant difference is high percentage of European SMEs that did not supported external community causes.
Table 7.7: European SMEs strategic approach to socially and environmentally responsible activities (external dimension of CSR), sorted by size of the company and including an average for all SMEs
Size of the company (as per 2008) Micro 18% 7% 16% 7% 52% 100% Small 26% 8% 18% 13% 35% 100% Medium 25% 8% 20% 16% 30% 100% SMEs average 23% 8% 18% 11% 41% 100%

European SMEs strategic approach to socially and environmentally responsible activities Occasional activities, unrelated to business strategy Occasional activities, related to business strategy Regular activities, unrelated to business strategy Regular activities, related to business strategy CSR is not supported by the company Total

Source: European Commission (2002), Observatory of European SMEs 2002, No. 4: European SMEs and Social and Environmental Responsibility, Luxembourg, available at: http://ec.europa.eu/enterprise/enterprise_policy/analysis /doc/smes_observatory_2002_report4_en.pdf

Regarding a national perspective in the Pan-European survey, the available data confirmed the Pan-European results (see Table 7.7). Thus, in all the nineteen surveyed countries (with some exceptions) external community activities were performed on an occasional basis, unrelated to the business strategy. The results suggest that both Czech and European SMEs approach to CSR unsystematically and do not utilize the full potential of socially and environmentally responsible activities aimed at external stakeholders as more than half of surveyed SMEs that actually were engaged in these activities did not align management of these activities with their business strategies. On top of that as depicts Table 7.8 Percentage of Czech SMEs with and without strategy for external dimension of CSR in 2008, just 16 % of SMEs that have been participating in external dimension of CSR had strategy for these activities.

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According to the available data more than two thirds of SME companies had general business strategy in place (see Table 6.4), then followed 41 % of SMEs which had elaborated strategy for internal dimension of CSR (see Figure 6.1), and finally only 15 % of all SMEs prepared strategy for external dimension of CSR (see Table 7.8 bellow). In the authors opinion these results show how important each of the above-mentioned strategies has been for SME companies and which issues are vital, which important, and which only marginal for Czech SME companies. Findings further suggest that probably many SME companies do not understand essentials of strategic management and underestimate risks and negative impacts of missing or inadequate strategic management in the company. Tailor-made strategy for internal and external dimension of CSR should undoubtedly form an essential part of overall general business strategy.
Table 7.8: Percentage of SMEs with and without strategy for external dimension of CSR* in 2008, sorted by size of the company and including an average for all SMEs

Existing strategy for external dimension of CSR Yes No Total

Size of the company (as per 2008) Micro 11% 89% 100% Small 12% 88% 100% Medium 19% 81% 100% SMEs average 16% 84% 100%

* Data refer only to SMEs participating in external dimension of CSR Question: Has your company prepared strategy for socially and environmentally responsible activities (external dimension of CSR)? Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

Summarized view on manner, how SMEs carried out socially and environmentally responsible activities under the CSR umbrella presents Table 7.9.
Table 7.9: Manner, how SMEs carry out socially and environmentally responsible activities (external dimension of CSR), sorted by size of the company and including an average for all SMEs

Manner, how SMEs carry out socially and environmentally responsible activities Independently (only your company) In cooperation w ith other companies In cooperation w ith non-profit organization CSR is not supported by our company

Size of the company (as per 2008) Micro 57% 13% 13% 17% Small 43% 14% 35% 8% Medium 59% 11% 26% 4% SMEs average 55% 12% 25% 8%

Question: Your company carries out socially and environmentally responsible activities (CSR) not aimed at its own employees: Independently (only your company), in cooperation with non-profit organization, in cooperation with other companies, CSR is not supported by our company. Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

According to the outcomes, more than half of surveyed Czech SMEs (exactly 55 %) carried out CSR activities aimed at external stakeholders independently, i.e. without

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cooperation with other companies and/or non-profit organizations. A quarter of surveyed companies participated in the above-mentioned activities in cooperation with some nonprofit organization(s), while only 12 % of SMEs cooperated on external community causes with other companies. The available data suggest that Czech SMEs prefer carrying out socially and environmentally responsible activities aimed at external stakeholders independently. This finding confirms local sphere of action of SMEs, their close relations with local communities, and lower trust of SMEs in various alliances, particularly with other companies. In the authors opinion SMEs should start forming local alliances that would manage their CSR activities in a coordinated way in order to overcome their inherent disadvantages (particularly lack of know-how, lack of available resources, and lower communication impact of their activities compared to large companies). Acceptance of Idea that SMEs Can More Effectively Apply CSR on Local Level than Large Companies The 2001 Pan-European survey concluded that most of the SMEs involved in community causes focused their activities and interests at a local level. According to one survey in the United Kingdom in 2000, around 94 % of the SMEs active in CSR concentrated their CSR activities at a local level. Similar preference for local level activities was identified in the German example.200 Some authors suggest that SMEs knowledge of the local situation make them ideally placed to help tackle community issues.201 The following Table 7.10 investigates, whether Czech SMEs can more effectively carry out activities aimed at external stakeholders on a local level than large and multinational corporation in the Czech Republic. According to the outcomes of the authors research more than two third (exactly 72 %) of Czech SMEs believed that they had competitive advantage over large companies and multinational corporations in conducting socially and environmentally responsible activities at a local level. In the authors opinion persuasion of SMEs in this respect is very probably true and based on real experience. The respective competitive advantage is linked to inherent advantages and characteristics of SMEs they are small, flexible, rooted into the local communities and know local communities much better than large companies and multinational corporations (see also Table 7.11). Thus their help can be directly focused
200

Stibbard, H. (2000), Connecting SMEs with the Community: A research report on the Involvement of Small and Medium-sized Enterprises in Community Causes , Business Community Connections Research, available at: http://www.volunteering.org.uk/WhatWeDo/Projects+and+initiatives/Employer+Supported+Volunteering/Resources/Resear ch/Sector+specific+research.htm 201 Joseph, E. (2000), A Welcome engagement: SMEs and Social Inclusion, available at: http://www.ippr.org /uploadedFiles/projects/WESumcover1.pdf

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on issues (i.e. CSR activities) the local communities value and appreciate the most. On the other hand SMEs are limited in their CSR activities by lack of available resources much more than large and multinational companies, which is their disadvantage.
Table 7.10: Acceptance of idea that SMEs can more effectively apply CSR on a local level than large and multinational corporations, sorted by size of the company and including an average for all SMEs
Acceptance / approval of superior position of SMEs in CSR concept Yes, fully / completely Rather yes Rather no No Total Size of the company (as per 2008) Micro 24% 52% 13% 11% 100% Small 14% 43% 24% 19% 100% Medium 16% 61% 10% 13% 100% SMEs average 17% 55% 14% 14% 100%

Question: Do you agree with the following statement: Small and medium -sized companies can more effectively and in a more suitable way apply Corporate Social Responsibility on a local level than large and multinational corporations due to a better familiarity with local community. Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

Awareness of Local Issues and Willingness of SMEs to Offer Help Table 7.11 concurs on Table 7.10 and further examines, whether Czech SMEs are aware of problems and issues troubling their communities and whether SMEs are willing to offer help in solving these issues. The outcomes show that 65 % of SMEs were aware of problems and issues troubling their local communities and 85 % of these SMEs were willing to offer some kind of help or have already been helping solving these issues. Moreover, 67 % of SMEs that were not ready to offer help were willing to take more interest in local communities problems and issues and, probably in the future also offer some kind of help or assistance.
Table 7.11: Awareness of local issues and willingness of SMEs to offer help in solving these issues, sorted by size of the company and including an average for all SMEs
Awareness of local issues by SMEs Yes No If yes, is your company willing to offer help? Yes No If no, is your company willing to take more interest in communitys problems/issues? Yes No 67% 33% 50% 50% 73% 27% 67% 33% 73% 27% 88% 12% 88% 12% 85% 15% 48% 52% Size of the company (as per 2008) Micro Small 68% 32% Medium 72% 28% SMEs average 65% 35%

Question: Is your company aware of problems/thorny issues that trouble its close community? Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

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The results proof that SMEs really have very good position to positively influence local communities with directly aimed CSR activities. What is more, 85 % of Czech SMEs that were aware of problems and issues troubling local communities were either willing to offer help or have already been helping tackling these problems and issues. On the other hand it is hard to assess, which activities those of SMEs or large companies have greater impact on local communities because there are no available data that would allow such a comparison. Nevertheless, in the authors opinion CSR activities of SMEs have greater real impact on local communities because they are directly aimed, have been provided in much greater number (number of SMEs is much greater than number of large companies), and may be perceived by communities as more sincere.

The Most Influenced Groups by SMEs CSR Activities Table 7.12 gives an overview of the most influenced groups by SMEs internal and external dimension of CSR. According to the available data the most influenced group by SMEs socially and environmentally responsible activities was employees202. The second most influenced group by SMEs CSR activities was customers and/or buyers203 and the third one was local communities204. Only 10 % of SMEs thought that their CSR activities influenced public (local) administration the most. Authors findings can be supported by the 2008 Czech Business Leaders Forums survey, which came to the very similar results.
Table 7.12: The most influenced groups by SMEs CSR activities*, sorted by size of the company and including an average for all SMEs
The most influenced groups by SMEs CSR Employees Customers / Buyers Suppliers Shareholders / owners Community of the company Competitors Public administration Other None Size of the company (as per 2008) Micro 74% 58% 11% 11% 37% 3% 0% 0% 0% Small 71% 44% 9% 9% 24% 6% 9% 0% 3% Medium 74% 43% 18% 17% 40% 2% 15% 1% 0% SMEs average 73% 46% 15% 14% 36% 3% 10% 1% 1%

* Data refer only to SMEs participating in CSR activities Question: According to your opinion, which of the following groups has been inf luenced/affected by your companys Corporate Social Responsibility the most? (Maximum 3 answers allowed) Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

202 203 204

73 % of SMEs selected group Employees to be the most influenced by their CSR activities 46 % of SMEs selected group Customers/Buyers to be the most influenced by their CSR activiti es 36 % of SMEs selected group Community of the company to be the most influenced by their CSR activities

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The above-mentioned results provide an indirect proof that SME companies accentuate internal dimension of CSR from the overall CSR concept as 73 % of SMEs selected group Employees to be the most influenced by their CSR activities. Nevertheless, outcomes further imply that external dimension of CSR plays also important role in life of SMEs as 46 % of SMEs selected group Customers/Buyers and 36 % Community of the company to be the most influenced by their CSR activities.

Degree How SMEs Provide Information on CSR Activities According to the research study conducted for the Business in the Community in the year 2000, only a minority of SMEs involved in corporate social responsibility was publishing any information about their organisations involvement, a fact that contributes to the poor perception of the general public on the SMEs activities in this field. Notwithstanding this, SMEs were also aware of the importance of communicating their social and community involvement, although SMEs also suggested that no significant amounts of money should be devoted to that. Additionally, the lack of generally accepted certification in this field was also increasing the difficulties for SMEs in communicating socially responsible activities.205 The following Table 7.13 provides information on degree, how Czech SMEs provide information about their CSR activities to internal and external stakeholders. According to the results only every second SME company operating in the Czech Republic that was active in CSR field regularly provided information on its CSR activities to its internal and external communities. 13 % of SMEs have been providing information fully (i.e. complete information on CSR activities to all stakeholders), while 35 % only partially (i.e. incomplete information and/or not to all stakeholders).
Table 7.13: Degree how SMEs provide information about companys CSR activities*, sorted by size of the company and including an average for all SMEs
SMEs providing information about their CSR activities Yes, fully Partly No Size of the company (as per 2008) Micro 15% 24% 61% Small 6% 41% 53% Medium 15% 36% 49% SMEs average 13% 35% 52%

* Data refer only to SMEs participating in CSR activities Question: Has regularly been your company providing information about companys Corporate Social Responsibility to above-mentioned groups (see previous question)? Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

205

MORI (2000), SMEs Attitudes to Social Responsibility. Research Study conducted for the Business in the Communitys Business Impact Task Force, available at: http://ec.europa.eu/enterprise/enterprise_policy/analysis/doc/smes_observatory _2002_report4_en.pdf

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It is also worth identifying an almost positive relationship between the size of the companies and the percentage of SMEs providing information on their CSR activities to internal and external communities (see Table 7.13). The above-mentioned results suggest that Czech SMEs do not approach to CSR agenda in a strategic way and have difficulties utilizing the full potential of corporate social responsibility and CSR activities they are engaged in. The ground for this conclusion is based on fact that communication of CSR objectives, achievements, activities, and other relevant information to internal and external stakeholders forms an inseparable part of an overall CSR framework and strategy. In the authors opinion it is important to let the others know that a company is a socially-responsible business. This information should be appropriately communicated, reflecting the activities and initiatives in which respective company is involved.

7.3

Reasons for Involvement in External Dimension of Socially and Environmentally Responsible Activities

Reasons for Involvement in External Socially Responsible Activities According to the 2001 All-European Surveys results206, and referring only to those European SMEs involved in external community activities, the main reason behind their involvement in external social activities was related to ethical reasons, probably linked to the desire of entrepreneurs to give something back to the community. This reason was suggested as the most important irrespectively of the gender of the SME owner, with no significant differences amongst both groups. Other frequently quoted reasons were improvement of public relations with the community and/or public authorities and improvement of customer loyalty. Enterprise size considerations were a very important explanatory factor in this respect. Thus, ethical considerations were the main reason for European SMEs involvement in external community activities for all enterprise sizes, although this reason seemed to be particularly important the smaller the enterprise size was. For the remaining reasons, the opposite enterprise size relation was detected. This result would suggest that larger SMEs have been more aware of the business benefits derived from their involvement in socially responsible activities in comparison to the smallest ones. Table 7.14 presents results of the authors research on major drivers (reasons) for Czech SME companies for implementing socially responsible activities towards external stakeholders. According to the surveys outcomes, and referring only to those SMEs participating in external dimension of CSR, the main reason behind their involvement in
206

For more information on respective survey, please, see subchapter 4.2.

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external social activities was related to improvement of positive image of the company. 53 % of the Czech SMEs suggested this reason, only slightly above other frequently quoted reasons such as ethical/moral reasons and improvement of employees job satisfaction (pointed out by 52 % and 48 % of SMEs, respectively). Other reasons (e.g. tradition, improvement of relations with business partners and investors, improvement of economic performance of the company, etc.) were mentioned by less than one third of SMEs participating in external social activities. Only 2 % of SMEs could not find any reason (driver) for their involvement in external social activities. Similar outcomes presented Czech Business Leaders Forum in its 2008 survey.207 Ethical considerations were the second most mentioned reason for SMEs involvement in external social activities, although this reason was particularly important the smaller the company size was. For the majority of remaining reasons, particularly improvement of positive image of the company and improvement of employees job satisfaction, the opposite company size relation was identified. In the authors opinion this finding suggests that larger SMEs have been more aware of the business benefits derived from their involvement in external socially responsible activities compared with the smaller ones. The 2001Pan-European survey came to the identical finding regarding European SMEs.
Table 7.14: Major drivers for implementing socially responsible activities* towards external community, sorted by size of the company and including an average for all SMEs
Major motivators for support of social activities by SMEs Ethical / moral reasons Tradition Improvement of relations with public administration (public/state authorities) Improvement of customers loyalty Improvement of relations with business partners and investors Improvement of employees job satisfaction Improvement of positive image of the company Improvement of economic performance of the company (costs reduction, sales increase) Establishment and/or retention of competitive advantage Application / implementation of business code of conduct Pressure from third parties (i.e. clients, competitors, governments) Use of existing public incentives (tax incentives, subsidies, others) Marketing and Public Relations Other None
* Data refer only to SMEs participating in external dimension of CSR Question: Indicate, which have been the major drivers/motivators for your company for support of social activities (part of external dimension of CSR). Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.
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Size of the company (as per 2008) Micro 58% 24% 13% 37% 26% 34% 45% 18% 8% 3% 8% 3% 8% 0% 0% Small Medium SMEs average 53% 32% 9% 24% 15% 50% 53% 21% 21% 6% 3% 6% 18% 0% 6% 50% 36% 21% 25% 38% 52% 56% 18% 25% 9% 7% 8% 16% 1% 2% 52% 33% 17% 27% 31% 48% 53% 19% 21% 7% 6% 6% 14% 1% 2%

The results primarily differed in that the ethical reasons ranked the first and improvement of employees satisfaction ranked the second.

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Finally, the outcomes of the survey imply that a great number of Czech SMEs understand that adherence to CSR principles can bring the company a number of advantages mainly in the form of appreciation in the value of its intangible assets such as its corporate reputation, the value of its brand identity, its human capital and the relationships it has built on trust and its business partnerships, which in turn can also positively impact the value of the company for its owners or shareholders.

Reasons for Involvement in External Environmentally Responsible Activities Enterprises motivations to engage themselves in environmentally responsible activities may include a wide array of considerations. According to the existing literature and empirical evidence, the adaptation to the existing legislation and regulations is one of the key driving reasons amongst European SMEs for engaging themselves in environmental activities related to the own enterprises operations, irrespective of enterprise size or country considerations.208 Enterprises in general and SMEs in particular are fostered to become engaged in environmentally responsible activities for a number of pro-active reasons. Examples include the strategic choice to improve the enterprises own image or the wish to obtain certain competitive advantage in comparison to competitors. For instance, this former reason is ranked as second by the Spanish enterprises after adaptation to legislation, irrespective of enterprise size considerations.209 It is also worth mentioning the increasing importance of market demands (basically from customers and especially from business customers through subcontracting relationships) for adopting environmentally responsible solutions in general and environmental management systems in particular. Thus, supply chain management is becoming a key environmental driving force since large enterprises are starting to look at and drive environmental improvements along their supply chains, whereas smaller firms are coming under increasing pressure to modify their environmental behaviour. Also the relatively important role played by existing public support should not be forgotten. To give one example, Austrian evidence suggests that up to 55 % of the Austrian SMEs that have an environmental management system would not have obtained it without financial support from the public sector.210

208

Petts, J. et al. (1999), The climate and culture of environmental compliance within SMEs, Business Strategy and the Environment, Volume 8, page 14-30, available at: http://www.esrcsocietytoday.ac.uk
209

European Commission (2002), Observatory of European SMEs 2002, No. 4: European SMEs and Social and Environmental Responsibility, Luxembourg, Available at: http://ec.europa.eu/enterprise/enterprise_policy/analysis /doc/smes_observatory_2002_report4_en.pdf
210

Ruth, H. (1999), Evaluation of Study Reports on the Barriers, Opportunities and Drivers for SMEs in the Adoption of Environmental Management Systems, Published by the Department of Trade and Industry, Environment Directorate, available at: http://www.smallbusinessjourney.com/output/Page256.asp

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Table 7.15 analyses the main reasons why Czech SMEs get involved in external environmentally responsible activities. Same as in case of external social activities, the most cited reason was improvement of positive image of the company, however quoted only by 38 % of SMEs participating in external dimension of CSR. Ethical considerations seemed to be the second most important driving force behind SMEs external environmentally responsible activities. This evidence suggests that SMEs have some environmental concern and recognition of the responsibility of businesses to help to protect the environment. Also the relatively important role played by the establishment and/or retention of competitive advantage, which ranked at the fourth place, should not be forgotten. This reason implies that some SMEs discovered concrete value and competitive advantages from taking environmental initiatives, for example, in areas such as pollution prevention, energy efficiency, environmentally oriented design, supply-chain management, industrial ecology etc.
Table 7.15: Major drivers for implementing environmentally responsible activities* towards external community, sorted by size of the company and including an average for all SMEs
Major motivators for support of environmental activities by SMEs Ethical / moral reasons Tradition Improvement of relations with public administration (public/state authorities) Improvement of customers loyalty Improvement of relations with business partners and investors Improvement of employees job satisfaction Improvement of positive image of the company Improvement of economic performance of the company (costs reduction, sales increase) Establishment and/or retention of competitive advantage Application / implementation of business code of conduct Pressure from third parties (i.e. clients, competitors, governments) Use of existing public incentives (tax incentives, subsidies, others) Marketing and Public Relations Other None
* Data refer only to SMEs participating in external dimension of CSR Question: Indicate, which have been the major drivers/motivators for your company for support of environmental activities (part of external dimension of CSR). Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

Size of the company (as per 2008) Micro 37% 5% 13% 8% 3% 5% 24% 0% 3% 3% 5% 0% 8% 0% 47% Small 35% 12% 3% 9% 6% 12% 35% 3% 12% 6% 6% 6% 12% 0% 29% Medium SMEs average 31% 17% 17% 11% 17% 15% 44% 12% 22% 4% 14% 7% 6% 1% 26% 33% 13% 13% 10% 12% 12% 38% 7% 16% 4% 10% 5% 7% 1% 31%

On the other hand, surprisingly, one third of surveyed SMEs could not identify any motivator for implementing environmentally responsible activities. This result

corresponds to findings stating that almost two thirds of all surveyed SMEs were not involved in any environmentally responsible activities under the umbrella of external dimension of CSR (see Table 7.3) and 42 % of SMEs did not name any benefits for them arising from the support of environmentally responsible activities aimed at external

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community (see Table 7.17). If companies struggle to find any real motivators and benefits in this respect, it is no wonder that their support of externally aimed environmentally responsible activities has been so weak. In the authors opinion possible explanation for low involvement in external environmentally responsible activities and problem with identifying motivators for engaging in these activities can be inability of SMEs to identify real connection between environmental responsibility and prosperity of the company, which can be caused by variety of reasons, for example by lack of know-how, lack of courage to do things differently, lack of public support, personal conviction of owners or managers, etc.

7.4

Benefits Identified by SMEs from Their Participation on External Dimension of Socially and Environmentally Responsible Activities

Benefits from Involvement in External Socially Responsible Activities The available empirical evidence from the 2001 Pan-European Survey suggested that, generally speaking, SMEs were quite aware of the benefits derived from being involved in external community activities. The two main benefits identified by SMEs included an improvement of the loyalty of customers and better relations with the general community/public authorities (35 % and 28 % of SMEs involved in external social activities point out these benefits, respectively). Other benefits seemed to be less perceived by the European SMEs. Only around a quarter of the European SMEs effectively involved in external social activities was unable to identify any business benefit derived from these activities, whereas the remaining three-quarters did identify different business benefits. Interestingly enough, the smallest enterprises had more difficulties to perceive these benefits. Major benefits for Czech SMEs arising from the support of socially responsible activities aimed at external community presents Table 7.16. According to results of the authors survey, and referring only to those SMEs involved in external community activities, the main benefit identified by Czech SMEs from their involvement in external social activities was improvement of positive image of the company (picked by 57 % of SMEs). The most SMEs also selected improvement of positive image of the company as the main reason for their involvement in external social activities (see Table 7.14). Improvement of employees job satisfaction was the second and improvement of relations with business partners and investors was the third most important business benefit arising from the support of external socially responsible activities. The fourth

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place occupied benefit improvement of companys reputation and the fifth improvement of customers loyalty. Other benefits seem to be less perceived by the Czech SMEs. Interestingly also, some benefits were identified more often by the larger companies, especially as far as improved employees job satisfaction and improved relations with public administration/authorities are concerned.
Table 7.16: Major benefits for SMEs arising from the support of socially responsible activities* aimed at external community, sorted by size of the company and including an average for all SMEs
Major benefits for SMEs arising from the support of socially responsible activities towards external community Improvement of relations with public administration (public/state authorities) Improvement of customers loyalty Improvement of relations with business partners and investors Improvement of employees job satisfaction Improvement of positive image of the company Improvement of economic performance of the company (costs reduction, sales increase) Establishment and/or retention of competitive advantage Use of existing public incentives (tax incentives, subsidies, others) Improvement company's reputation None
* Data refer only to SMEs participating in external dimension of CSR Question: Indicate, which have been in practice the major benefits for your company from the support of social activities (part of external dimension of CSR). Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

Size of the company (as per 2008) Micro 8% 32% 29% 37% 61% 8% 13% 5% 26% 16% Small 18% 18% 24% 41% 41% 18% 15% 9% 35% 15% Medium 24% 24% 33% 48% 60% 17% 19% 5% 28% 9% SMEs average 19% 25% 30% 44% 57% 15% 17% 6% 29% 11%

The previous data allow one to reach an interesting conclusion, in the sense that the business benefits of social activities, often assumed to lie exclusively in the domain of large companies, are in fact also present in the SME sector. However, this important result should be contrasted with the fact that, as already mentioned, only a minority of Czech SMEs involved in community causes have strategy for external dimension of CSR (see Table 7.8) and measure and monitor the effectiveness of their involvement (see Table 5.17). Benefits from Involvement in External Environmentally Responsible Activities Referring to the main benefits that SMEs obtain from their involvement in environmentally responsible activities, the literature provides many concrete examples of SMEs that have achieved cost and resource reduction as well as increased competitiveness and market niche expansion through environmental improvements. However, this win-win situation, both economic and environmental benefits resulting from improved environmental behaviour, cannot be always guaranteed. Generally, the existing business literature identifies a number of benefits obtained by those SMEs who

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effectively adopted an environmental management system. These benefits can be differentiated according to their internal and external nature: Internal benefits can be grouped in three main sub-categories: o Organisational benefits basically derived from improvements in the quality of management, improved quality of environmental information or improvement in the procedures. o o Financial benefits, such as cost savings from material, energy and waste reductions and efficiencies, which results in improved economic performance. Benefits regarding internal employees, such as increased employee motivation and morale, enhanced employees skills and qualifications.211 External benefits again can be grouped in several sub-categories: o Commercial benefits, such as new customers/business opportunities, clear environmental profile contributing to competitive/marketing advantage or satisfaction of existing customers. o o Environmental performance. Communication benefits, such as positive enterprises public image, better relationships with customers, better access to capital from environmentallysensitive investors or improved co-operation and relationships with regulators and administrative bodies that contributes to reduced regulatory oversight.211 Table 7.17 analyses the main benefits for Czech SMEs arising from their support of environmentally responsible activities aimed at external stakeholders. In the same way as in case of external socially responsible activities, the most quoted business benefit was improvement of positive image of the company, however mentioned only by 35 % of SMEs participating in external community causes. Improvement of relations with public administration/authorities was the second most important benefit arising from SMEs support of external environmentally responsible activities, although cited only by 17 % of SMEs. The third most quoted benefit was improvement of companys reputation. This evidence suggests that at least some SMEs can identify some business benefits resulting from their engagement in external environmentally responsible activities, although it is much more difficult for them than in case of socially responsible activities. On the other hand, 42 % of surveyed Czech SMEs could not identify any business benefit that would arise from their involvement in external environmentally responsible activities. This result corresponds to previous findings stating that one third of surveyed
211

benefits

basically

derived

from

improved

environmental

Ruth, H. (1999), Evaluation of Study Reports on the Barriers, Opportunities and Drivers for SMEs in the Adoption of Environmental Management Systems, Published by the Department of Trade and Industry, Environment Directorate, available at: http://www.smallbusinessjourney.com/output/Page256.asp

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SMEs could not identify any motivator for implementing environmentally responsible activities aimed at external community (see Table 7.15) and almost two thirds of all surveyed SMEs were not involved in any environmentally responsible activities under the umbrella of external dimension of CSR (see Table 7.3). If companies struggle to find any real drivers and benefits in this respect, it is no wonder that their support of externally aimed environmentally responsible activities has been so weak.
Table 7.17: Major benefits for SMEs arising from the support of environmentally responsible activities* aimed at external community, sorted by size of the company and including an average for all SMEs
Major benefits for SMEs arising from the support of environmentally responsible activities towards external community Improvement of relations with public administration (public/state authorities) Improvement of customers loyalty Improvement of relations with business partners and investors Improvement of employees job satisfaction Improvement of positive image of the company Improvement of economic performance of the company (costs reduction, sales increase) Establishment and/or retention of competitive advantage Use of existing public incentives (tax incentives, subsidies, others) Improvement company's reputation Other None
* Data refer only to SMEs participating in external dimension of CSR Question: Indicate, which have been in practice the major benefits for your company from the support of environmental activities (part of external dimension of CSR). Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

Size of the company (as per 2008) Micro 13% 8% 11% 11% 26% 0% 3% 3% 11% 0% 61% Small 9% 9% 21% 6% 18% 12% 9% 3% 24% 0% 50% Medium SMEs average 21% 12% 15% 17% 45% 12% 17% 1% 16% 1% 33% 17% 10% 15% 13% 35% 9% 13% 2% 16% 1% 42%

As already mentioned in the subchapter 7.3 Reasons for Involvement in External Dimension of Socially and Environmentally Responsible Activities, possible explanation for low involvement in external environmentally responsible activities and problem with identifying motivators for engaging in these activities can be inability of SMEs to identify real connection between environmental responsibility and prosperity of the company, which can be caused by variety of reasons, for example by lack of know-how, lack of courage to do things differently, lack of public support, personal conviction of owners or managers, etc. Also there are obstacles, which can discourage SMEs in environmental involvement. According to some authors, as far as the internal barriers are concerned, the most important one is given by a negative company culture towards the environment (despite positive attitudes amongst both employers and employees). Many small firms feel that environmental activity is something to be avoided unless driven by legislative demands. Moreover, a large proportion of SMEs (especially the smallest ones) remains unaware both of the environmental impacts derived from their business activities and of

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the existing environmental programmes and resources available to them. For instance, a Belgian study showed that up to 84 % of the Belgian industrial SMEs do not feel that they contribute to pollution.212

7.5

Barriers to the Participation on Externally Targeted Socially and Environmentally Responsible Activities

Previous subchapters have shown that the SMEs are able to identify a number of reasons and benefits underpinning their involvement in external social and environmental activities. By way of contrast, this subchapter is interested in looking into the main barriers that impede SMEs activities in this field. According to the 2001 Pan-European Survey, the main reason suggested by European SMEs for not getting involved in external social and environmental activities was simply because they have never considered the possibility of engaging in such activities (24 % of responses). This result was complemented by the fact that up to 17 % of the total respondents argued that external social and environmental activities were not related to the enterprises activities. Around 19 % and 16 % of SMEs respectively, identified the lack of time and financial resources as their main barriers for involvement. Only 8 % of SMEs argued that the main reason underpinning their inactivity was because they did not expect any benefits from these activities, whereas a minority of 2 % saw the lack of public support as the main reason. Data by enterprise size suggested that whereas the lack of consideration about these activities was the main barrier amongst the smallest enterprises (quoted by 25 % of them), small and medium-sized enterprises pointed to the lack of time as their main barrier (21 % of responses in both cases). British evidence suggested that the two most important barriers identified by SMEs were money and time considerations, whereas fewer SMEs suggested other barriers such as bureaucracy/red tape or lack of awareness and understanding of social responsibility.213 Results of the authors survey provide some insight into the Czech SMEs perspective on barriers that stay in the SMEs way of implementing CSR activities (both social and environmental) towards external communities (please, see Table 7.18). The most quoted barrier by Czech SMEs for behaving in a socially responsible way towards community and environment was lack of financial resources. This obstacle supported 42 % of SMEs

212

European Commission (2002), Observatory of European SMEs 2002, No. 4: European SMEs and Social and Environmental Responsibility, Luxembourg, available at: http://ec.europa.eu/enterprise/enterprise_policy/analysis /doc/smes_observatory_2002_report4_en.pdf
213

MORI (2000), SMEs Attitudes to Social Responsibility, Research Study conducted for the Business in the Communitys Business Impact Task Force, available at: http://ec.europa.eu/enterprise/enterprise_policy/analysis /doc/smes_observatory _2002_report4_en.pdf

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on average; however the obstacle was much more quoted by micro and small businesses (52 % and 46 % respectively) compared to medium-sized companies (36 %). Absence of state and/or government support was the second and lack of human resources and/or capacity was the third most important barrier for Czech SMEs for implementing external social and environmental activities (27 % and 23 % of SMEs mentioned these barriers respectively). Lack of time was picked by 22 % of respondents and ranked at the fourth place. The fifth most cited obstacle for SMEs was bureaucracy/red tape, which mentioned 21 % respondents. Subjective (attitudinal) reasons such as have not thought about the possibility of behaving in such a way and do not see relation to the activities of the company were mentioned only by 3 % and 4 % of SMEs respectively. On the other hand 18 % of Czech SMEs did not identify any obstacles that would impede their involvement in activities of external dimension of CSR, which is a good sign for future development of corporate social responsibility in the Czech Republic.
Table 7.18: Major barriers for SMEs for implementing CSR activities (both social and environmental) towards external communities, sorted by size of the company and including an average for all SMEs
Major barriers for implementing CSR activities towards external community I haven't thought about a possibility that my company could behave in such a way (responsibly) I do not see relation to the activities of my company Such (responsible) behaviour doesn't benefit to the company in any way Lack of time (not enough time) Lack of human resources/capacity Lack of financial resources Absence of state/government support Absence of public support/pressure Lack of information on Corporate Social Responsibility Lack of know-how for implementation of Corporate Social Responsibility in the company Bureaucracy Other None Size of the company (as per 2008) Micro Small Medium SMEs average 0% 7% 13% 28% 24% 52% 24% 2% 11% 7% 13% 0% 24% 3% 0% 8% 19% 22% 46% 32% 3% 3% 16% 24% 5% 14% 5% 5% 7% 21% 23% 36% 27% 9% 15% 15% 23% 3% 18% 3% 4% 9% 22% 23% 42% 27% 6% 12% 13% 21% 3% 18%

Question: Indicate which have been the major barriers/obstacles for your company for behaving socially responsibly towards its community and environment (i.e. supporting of social and environmental activities)? Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

In the authors opinion the previous results show that, generally speaking, attitudinal reasons (i.e. no consideration, lack of relation to business activities and no benefits expected) are much less important for SMEs in comparison to lack of resources reasons (i.e. lack of money/human resources/time) and lack of state support for explaining the low activity and inactivity of SMEs in external social activities.

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According to the authors opinion obstacle absence of state and/or government support is based on real foundations and SMEs are right in their statement that state and governmental support of companies that want implement or already practicing CSR has been vague and weak. The results of authors research is also supported with outcomes from 2004 Czech Business Leaders Forums survey. According to that survey motivation for activities in the CSR area was very weak on the side of the government. Commentaries of the participants in the in-depth interviews pointed out that the role of government in creating better business environment in the country was marginal at that time and wished to be stronger and more proactive. According to some interview participants, government activity would be desirable also towards the public (communication, tools for customer's orientation, awards for responsible companies, and implementing CSR into the broader context of national economy or national competition advantage). This need to explain and inform on CSR was confirmed by the survey results214, conducted among the Czech general public by STEM215 for company Philip Morris.

7.6

Future Expectations on Involvement of SMEs in External Dimension of Socially and Environmentally Responsible Activities

This subchapter presents 2008 authors survey results focused on future expectations on involvement of Czech SME companies in external dimension of socially and environmentally responsible activities. The following Table 7.19 and Figure 7.2 provide information on involvement of Czech SMEs in socially and environmentally responsible activities aimed at external stakeholders for the next three years (2009 to 2011). Table 7.19 on the following page shows that on average 75 % of Czech SMEs expected to continue as it is in their engagement in activities of external dimension of CSR, 23 % would like to increase their involvement, and only 2 % wanted to decrease their participation. The authors survey results are supported by independent 2008 Czech Business Leaders Forums survey, which came to the same outcomes. Due to the fact that the Czech Business Leaders Forums survey comprised also respondents from Czech large companies, their results can provide interesting additional information. According to this survey 52 % of large companies wanted to continue as it is in activities of external dimension of CSR, surprising 48 % wanted to increase these activities and no one wanted to decrease their participation. This result suggests that large companies are
214

Approximately 90 % of people responded that they only hardly find out if a company is socially responsible or not. Information on social, ethical, and ecological behaviour of companies is sufficient only according to 5 % of people.
215

STEM is the Czech Centre for empirical research

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even more committed to CSR than SMEs and especially they consider that CSR activities will be gaining importance in the future.
Table 7.19: Future involvement of SMEs in external dimension of socially and environmentally responsible activities, sorted by size of the company and including an average for all SMEs

Future involvement in external dimension of CSR Decrease participation Continue as it is Increase participation

Size of the company (as per 2008) Micro 4% 74% 22% Small 3% 73% 24% Medium 2% 76% 22% SMEs average 2% 75% 23%

Question: Is your company planning to decrease or to increase its participation in external social and environmental activities over the next 3 years? Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

Concerning the Czech SMEs future expectations on their involvement in external social and environmental activities, an overwhelming majority of those SMEs currently engaged in this type of activities are expecting to either continue or even increase their participation in the next three years (77 % and 21 %, respectively). By way of contrast, only 2 % confessed that they intended to reduce their participation (see Figure 7.2).
Figure 7.2: SMEs plans regarding participation in external dimension of CSR for the next three years, percentage of all SMEs SMEs not participating in external dimension of CSR SMEs participating in external dimension of CSR
Increase participati on 21% Decrease participati on 2%

Plan to start participati on 47% No participati on is foreseen 53%

Continue as it is 77%

Source: Polek, D. (2008), Own survey of corporate social responsibility in small and medium-sized companies in the Czech Republic conducted from April to August 2008, Prague.

Also, the picture does seem to be very optimistic where Czech SMEs not participating in external social and environmental activities are considered. Almost half of them (47 %) were planning to start participating in these activities in the next three years. On the other hand 53 % of SMEs not involved did not expect to begin with these activities in the next three years. No specific company size differences have been detected in either case.

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Chapter 8. Recommendations for Small and MediumSized Companies How to Implement Corporate Social Responsibility Concept
This chapter provides a guide to responsible business, which includes steps how to identify and apply principles of corporate social responsibility in micro, small, and medium-sized companies. The author believes the introduced CSR concept can enrich SME business community, bring many benefits and also competitive advantages for those SMEs, which would like to strategically engage themselves in CSR or have already been engaged. This chapter was compiled by the author based on results of own research216, authors professional knowledge and experience, and review of professional literature, particularly Business in the Communitys Winning With Integrity material217, Business Leaders Forums Concept of CSR in Practice218 and CSR Europe's Toolbox.219

8.1 Scope of Corporate Social Responsibility Involvement

Before developing ten-step concept how to implement corporate social responsibility in SME companies, the author would like to point out several important information regarding scope of CSR. Over the time and mainly for SMEs, it has become increasingly important to understand the scope of CSR activities and initiatives both in developing possible defences against attacks on their competitive position and ability to compete, and as a potential source of new types of competitive strength. For better understanding and defining scope of CSR for SMEs, corporate social responsibility can be broken out into four different areas in terms of CSR activities orientation:
216 217

Marketplace; Workplace; Community; and Environment.

For details, please, see Chapter 5, Chapter 6, and Chapter 7 of this dissertation paper. Business Impact Project Team (2000), Winning with integrity, Business in the Community, available at: http://www.bitc.org.uk/resources/publications/wwi.html 218 Steinerov, M., Business Leaders Forum R (2008), Concept of CSR in Practice - guide to responsible business (Koncept CSR v praxi - prvodce odpovdnm podniknm), available at: http://www.blf.cz/doc/brozura_CSR_web_CZ.pdf 219 CSR Europe's Toolbox includes information, ideas and advice designed to help companies and their stakeholders address socio-economic and environmental challenges and integrate corporate social responsibility (CSR) into mainstream business practice. The Toolbox is based on the first results of the CSR Laboratories, cross-sectoral businessstakeholder cooperation projects under the umbrella of the European Alliance for CSR. (CSR Europe's Toolbox, available at: http://www.csreurope.org/pages/en/toolbox.html)

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As an alternative, the CSR concept is sometimes broken down into the following three levels: economic (equivalent to Marketplace), social (equivalent to Workplace and Community) and environmental (equivalent to Environment); please, see Figure 8.1 for a graphical illustration. Or it can be divided into internal and external dimension. These suitable alternatives were reviewed in subchapters 3.1 Levels of Corporate Social Responsibility and 3.2 Dimensions of Corporate Social Responsibility. Nevertheless, for the purposes of this chapter and proposal of steps and activities how to implement CSR in SMEs, the author used the first above-mentioned and very practical concept of dividing CSR into four fundamental areas. More detailed information on individual areas of CSR, activities which SMEs can be engaged in within these areas and business benefits associated with responsible behaviour in these areas is provided in the following subchapters.
Figure 8.1: Three levels and four areas of corporate social responsibility
CSR Level Economic Level Social Level Environmental Level CSR Area Marketplace Workplace Community Environment

Source: Based on review of professional literature and outcomes of own research.

A fully socially responsible company should be active in all four above-mentioned areas. Based on its core values and principles, field of business, and the requirements of its stakeholders, the company chooses individual, specific activities in each of these areas on which it is going to focus its efforts. However, it has to be stressed that a given SME company does not have to be involved in all possible CSR activities that are associated to these four CSR areas. Right on the contrary, an SME company due to its size and inherent disadvantages (particularly lack of resources and know-how) should rather focus its attention and effort on one or several the most suitable CSR activities, which can comprehensively cover CSR concept. After successfully managing these, SME company can extend scope of its CSR involvement. Choosing the right scope of CSR concept is extremely important for SMEs. If scope is too wide, an SME company can have difficulties allocating scarce resources to all selected activities and probably it will never accomplish planned objectives (both economic and CSR). Such company may end up in financial difficulties and/or resign from CSR concept. On the other hand, if scope is too narrow, a company may be seen as not enough socially responsible by stakeholders, which undermines invested effort and resources and again it may prevent achieving planned objectives.

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Last but not least it is also immensely important to choose within the scope of CSR those activities that are consistent with the overall strategy and business objectives of the company, i.e. activities that are of interest to companys existing and potential customers.220

8.1.1 Marketplace
In todays market-oriented environment, a socially-responsible company is expected to conduct its business in a transparent manner and to have positive relationships with its investors, customers, suppliers and other business partners. The companys ability to succeed on a long-term basis depends on its ability to create lasting and high quality sales networks for its products and services. A responsible approach to business partners can contribute to the building up of a sense of mutual trust, produce higher quality products and services and, in its final result, also lead to higher profits, generated from these enhanced business partnerships. Corporate Social Responsibility Activities Relating to Marketplace Area The following is a list of examples of CSR activities which belong in the Marketplace category: Business policies guaranteeing adherence to ethical standards; Providing of clear and accurate information on products and services; Timely settlement of liabilities (payment of invoices); Monitoring and responding to complaints from customers, suppliers and other business partners; Collaborating with other businesses and/or organizations on CSR activities and projects; and Applying high ethical standards in marketing and advertising.

Benefits Associated with Marketplace Area The following benefits can be associated with responsible behaviour in the Marketplace category of CSR: Increased customer loyalty; Standing out among competitors;

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With alignment of CSR concept with a business strategy deals subchapters 3.3 Six Forms of Corporate Social Responsibility Initiatives, 5.3.5 Degree of Involvement of SMEs in Socially and Environmentally Responsible Activities towards External Community, 6.2 Characteristics of SMEs Internal Dimension of Socially Responsible Activities, and 7.2 Characteristics of SMEs External Dimension of Socially and Environmentally Responsible Activities.

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Becoming an attractive business partner for socially perceptive business partners and customers; Becoming a generally sought after supplier and business partner; and Enhanced supplier chain performance.

8.1.2 Workplace
Employees are highly dependent on the company for which they work. Work is the location where they spend most of their day and their profession impacts the quality of their private and their family life and it often also impacts their level of physical wellbeing. In a complimentary fashion, the long-term ability of the company to thrive and be successful is dependent upon on the quality of the workforce managing the company, manufacturing its products, providing services to its customers and carrying out other activities that help the company to achieve its business objectives. Behaving in a socially responsible manner to its most valuable assets employees should be the standard for all companies. Due to these facts SMEs should pay special attention to Workplace area when deciding on scope of CSR activities.

Corporate Social Responsibility Activities Relating to Workplace Area The following is a list of typical CSR activities which belong in the Workplace category: Involvement of employees in corporate decision-making processes; Non-monetary benefits; Employee training and personal development programmes; A balance between professional and personal life (e.g. flexible forms of work, particularly for parents with small children); Workplace diversity, i.e. employment of women, ethnic minorities, handicapped individuals and seniors; High standards regarding health and safety at work and workplace in general; Providing of support for laid-off workers; and Implementation of anti-discrimination measures.

Benefits Associated with Workplace Area The following benefits can be associated with responsible behaviour in the Workplace category of CSR: A company can become a preferred employer; A company can attract a quality workforce;

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Lower costs on recruitment and training of new employees due to lower employee turnover; Healthier and more satisfied workforce; A company can provide motivation leading to increased productivity; and A company can establish a creative and innovative working environment, which may build up a competitive advantage.

8.1.3 Community
As soon as the company starts the operation of its business activities, it becomes a part of the local community. A socially responsible company tries to build good-neighbourtype relationships by minimizing any negative impact on the local environment and by getting involved in addressing and dealing with local problems and concerns. All of this pays off through a reduction in possible risks to the companys operations and through goodwill created by the companys acceptance by the local community. The local community is a source of both potential customers and employees for the company. To become a good neighbour, the company can engage itself in such varied initiatives as providing financial and material support for local activities and projects and by making the time and the professional knowledge of its employees available to the local community.

Corporate Social Responsibility Activities Relating to Community Area The following is a list of examples of CSR activities belonging in the Community category: Financial and in kind (material) donations; Corporate volunteerism; A company can provide free of charge consulting and spreading of know-how; Support for social integration; Education of the public; Various support for the local quality of life (e.g. sports, culture, etc.); Building local alliances with other companies in order to provide coordinated support to local community; Collaboration with local schools, authorities, and various organizations; and Shared marketing, i.e. joint marketing activities promoting the company and a non-profit project.

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Benefits Associated with Community Area The following are typical benefits associated with responsible behaviour in the Community category of CSR: Improvement of the companys reputation and image; Loyal employees and customers; Simplified access to local resources; Lower costs on security due to lower crime and vandalism; and New business opportunities.

8.1.4 Environment
Even in the natural environment area, it has been evident that businesses that try to minimize negative environmental impact of their activities can benefit through new business opportunities. An SME company that actively cares for the natural environment has a better chance of succeeding in tenders held by large corporations and the public sector and a better chance of acquiring new customers from the ranks of environmentally-conscious consumers. Corporate Social Responsibility Activities Relating to Environment Area The following is a list of examples of CSR activities which belong in the Environment category: Environmentally friendly manufacturing, products, and services; Environmentally friendly packaging; Environmentally friendly distribution and transportation practices; Recycling; Use of recycled materials; Energy and water saving practices; Waste reduction practices; Compliance with regulations and standards (e.g. ISO 9000 standards for quality management systems, ISO 14000 standards for environmental management systems, Eco-Management and Audit Scheme - EMAS, etc.)221; Protection of natural resources; and Providing of accurate environmental information on products, services and activities.

221

See also subchapter 3.4.2 Corporate Social Responsibility Reporting

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Benefits Associated with Environment Area The following are typical benefits associated with a socially and environmentally responsible behaviour in the Environment category of CSR: New business opportunities (e.g. attraction of environmentally-conscious customers); Protection of resources; Reduction of energy and waste; Lower costs due to improved energy efficiency and use of resources; and More efficient operations.

8.2

Ten Steps How to Adopt and Implement Corporate Social Responsibility Concept in Small and Medium-Sized Companies

There is no one-size-fits-all method for pursuing a corporate social responsibility approach. Each company has unique characteristics and circumstances that will affect how it views its operational context and its defining of social responsibilities. Each will vary in its awareness of CSR issues and how much work it has already done towards implementing a CSR approach. That said, there is considerable value in proceeding with CSR implementation in a systematic way, i.e. in harmony with the companys mission, and sensitive to its business culture, environment and risk profile, and operating conditions. Many SME companies are already engaging in activities in the area of customer and employee care, community support and environmental protection. These activities can serve as a good starting point for development of a more strategic approach to corporate social responsibility so that a company could maximise competitive as well as social benefits. CSR can be phased in by focusing carefully on priorities in accordance with resource or time constraints. The bottom line is that CSR needs to be integrated into the companys core decision making, strategy, management processes and activities, be it incrementally or comprehensively. When implementing CSR concept, it is important to have a systematic approach and to take the following into consideration: Mission statement of a company; Corporate culture of a company; Line of business of a company; Overall business strategy of a company; Environmental profile of a company; Risk profile of a company; and

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Operating conditions of a company.

Managing corporate social responsibility is just like managing any other aspect of the business. Whether a company employs 5 people or is a multinational corporation, there are a number of key principles that generally apply. These all turn on ensuring that a company has the right policies, the right processes, and that it gets the right performance. Based on the results of own research222, authors professional knowledge and experience, and review of professional literature223, the author prepared a set of ten steps for turning all this into action, i.e. implementing CSR in the SME company. The following implementation ten-step diagram (Figure 8.2) is based on the well-known PDCA concept: Plan = plan ahead; Do = execute your plan; Check = evaluate the results; Act = act on the results by trying to improve.224 Individual steps in the PDCA cycle are further elaborated in the following subchapters.
Figure 8.2: Diagram how to implement corporate social responsibility concept in SMEs in ten steps

10. Improvement measures

1. Management commitment 2. Identifying of key stakeholders 3. Analysis of current situation 4. Setting of values and principles 5. Setting of objectives and CSR approach 6. Action plan

8. Monitoring 9. Communication and reporting

7. Implementation

Source: Based on Hohnen, P., Potts, J. (2007), Corporate Social Responsibility: An Implementation Guide for Business, International Institute for Sustainable Development, available at: http://www.iisd.org/pdf/2007/csr_guide.pdf; Business Impact Project Team (2000), Winning with integrity: Summary, Business in the Community, available at: http://www.bitc. org.uk/resources/publications/wwi.html; and CSR Europe (2008), CSR Europe's Toolbox, available at: http://www.csreurope.org/pages/en/toolbox.html

222 223

For details, please, see Chapter 5, Chapter 6, and Chapter 7 of this dissertation paper. Particularly review of the following information sources: Business Impact Project Team (2000), Winning with integrity, Business in the Community, available at: http://www.bitc.org.uk/resources/publications/wwi.html; Steinerov, M., Business Leaders Forum R (2008), Concept of CSR in Practice - guide to responsible business (Koncept CSR v praxi - prvodce odpovdnm podniknm), available at: http://www.blf.cz/doc/brozura_CSR_web_CZ.pdf; CSR Europe's Toolbox, available at: http://www.csreurope.org/pages/en/toolbox.html. 224 PDCA ("Plan-Do-Check-Act") is an iterative four-step problem-solving process typically used in business process improvement. It is also known as the Deming Cycle, Shewhart cycle, Deming Wheel, or Plan-Do-Study-Act. Available at: http://en.wikipedia.org/wiki/PDCA

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8.2.1 Planning Phase

8.2.1.1 Management Commitment (Step 1) Without the support of top management and owners, a CSR programme would have only a small chance of success. Owners and management convinced of the necessity of taking a responsible CSR approach can spread these values across the company, involving all of their employees. Under ideal conditions, owners and management can even involve their employees in the process of selecting the CSR activities for the company (this can be especially the case of micro companies, where relations resemble a family). Owners and management should openly declare their support for a socially responsible approach and commit themselves to actions that will lead to a more positive impact of the company on the market environment, the work environment, the local community and the natural environment. For larger SMEs, which have senior managers, the personal commitment of them, based on ethical approaches and viewpoints, can make a major contribution to the effectiveness of the application of the CSR concept in the company. Management should feel the need to turn the company into an integral part of the broader society and overall environment in which it operates. The rewards will come in the form of all of the benefits, which CSR can provide to a business over a medium to longer-term time horizon (as already mentioned in the subchapter 8.1 Scope of Corporate Social Responsibility Involvement). As part of this particular step, owners and top management also have to decide on how to allocate resources and whether to set up a special CSR team headed by a member of top management and/or owners, which will manage implementation of CSR in the company. If the special CSR team is established, it should ideally include members with the following specializations: human resources, public relations, marketing, process management, finance and controlling, production, health and safety at work, and sales. In smaller SMEs a function (role) of the specialized CSR team should ensure owners, top managers and selected employees. 8.2.1.2 Identifying Key Stakeholders (Step 2) No SME company is completely isolated from its surroundings and it usually represents an important part of its local community and the environment within which it operates. The ability of a business to succeed on a long-term basis depends on the relationships it has with its owners, investors, employees, customers, suppliers, the local community and other involved parties who are collectively referred to as stakeholders (for more

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information on stakeholder concept, see subchapter 1.4 Definition of the Stakeholder Concept and its Relation to Corporate Social Responsibility). The term stakeholders encompasses all parties, institutions and organizations, which either have an impact on the operation of the respective SME business or which are in turn impacted by it. In a broader sense, competitors, governmental and local authorities, special interest groups, media, unions, international organizations and even the general public can also be considered to be stakeholders. In order to effectively implement CSR concept, SMEs have to understand and appreciate value of their involvement with their stakeholders. This is because corporate social responsibility is not just about the advocating of the companys values and principles but also about understanding expectations of those who have an impact on the company and who are being impacted by the company. The following Figure 8.3 shows a list of stakeholders broken down into four different areas (or three levels) of corporate social responsibility.
Figure 8.3: Example of a list of stakeholders associated with four different areas of corporate social responsibility CSR Levels* CSR Area** Stakeholders
Owners and investors Customers Business partners

Economic Level

Marketplace
Suppliers Competitors Governmental institutions Employees and their families

Workplace
Unions Public

Social Level
Non-profit organizations

Community
Media Educational institutions Non-profit organizations

Environmental Level

Environment

Governmental institutions Public

* Alternative concept of dividing CSR into three levels ** Practical concept of dividing CSR into four areas Source: Based on review of professional literature and outcomes of the authors own research.

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Importance of Stakeholders Engagement The systematic and regular involvement of key stakeholders gives the SME companies numerous advantages. The author would like to point out the following: Establishing innovative environment: A continuing dialog with stakeholders represents a valuable tool for the prediction of new trends and possible areas of interest to the business. It allows SMEs to better understand complexity of the business environment and current market trends and helping them to properly put together their future strategic plans. Improving risk management: A dialog with external parties can often warn SMEs about potential future risks. Establishing of mutually beneficial relationships: Face-to-face contact and the ability to maintain a close relationship with stakeholders is the best way to build mutual trust between SMEs and their key stakeholders. Setting of objectives and performance monitoring: An outsiders perspective allows the SMEs to properly set out their objectives and evaluate their actual performance. Improving access to information: Strong and close relationships with stakeholders can be a valuable source of information for SMEs.225

An explanation and overview of the roles played by the stakeholders throughout the four stages of the CSR implementation process, i.e. planning, execution, evaluation and improvement, helps to better understand how important it is to get the stakeholders involved in the decision-making processes of ones business (please, see Figure 8.4 on the following page). During the planning stage, stakeholders can help SMEs to understand the respective economic, social and environmental impacts of company's actions and help them choose the right CSR strategies. When executing CSR strategy stakeholders play an important role strategy by helping SMEs to define and act upon their commitments in the area of corporate social responsibility. Stakeholders are also an essential part of the monitoring and reporting of business' performance. They are included in selection of performance indicators and provide SMEs with feedback on their performance in the different CSR areas. Last but not least SMEs stakeholders contribute to the shaping of ideas for improving their existing CSR strategies.

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Based on results of the authors research and Smith, S. (2004), Navigating the Stakeholder Relations Continuum, Leading Perspectives: In perspective Stakeholder engagement, Business for Social Responsibility, available at: http://www.bsr.org/reports/leading-perspectives/2004/Fall.pdf

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Figure 8.4: An explanation and overview of the roles played by the stakeholders throughout the four stages of the CSR implementation process

Companys stakeholders contribute to the shaping of ideas for improving its existing CSR strategy.

During the planning stage, stakeholders can help company to understand the respective economic, social and environmental impacts of company's actions and help it choose the right CSR strategy for its business.

Stakeholders are an essential part of the monitoring and reporting of business' performance. They are included in selection of performance indicators and provide the company with feedback on its performance in the different CSR areas.

Stakeholders play an important role in companys business' execution of its CSR strategy by helping it to define and act upon company's commitments in the area of corporate social responsibility.

Source: Based on Steinerov, M., Vclavkov, A, Mervart, R. (2008), Corporate Social Responsibility: Guide not only for SMEs (Spoleensk odpovdnost firem: Prvodce nejen pro mal a stedn podniky) , Business Leaders Forum R, available at: http://www.dokumenty.ipodnikatel.cz/ke-stazeni/BLF_Pruvodce_CSR.pdf

Identifying Key Stakeholders SME companies should first identify their key stakeholders and subsequently involve these stakeholders in practically all stages of the CSR implementation process (see Figure 8.4). During the preparatory stage, a dialog with the stakeholders gives SME companies a detailed understanding of their needs. Such a dialog can be a rich source of ideas and can help SME companies identify the particular areas on which they should focus parts of the CSR programmes. In identifying the key stakeholders, the particular SME company should ask itself the following questions: What individuals or groups impact our business? What individuals or groups does our business impact?

It is important to always consider both the positive and negative impacts of stakeholders on SMEs business. By answering the above-mentioned questions, the SME company should be able to come up with a long list of stakeholders that are involved in different aspects of the companys business, some of whom having opposing interests. This is why it is important to ask another question: What types of relationships are important for our business?

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After completing a list of stakeholders, comes another step - stakeholder analysis, which is an essential part of developing a useful engagement plan. A common method of stakeholder analysis is a Stakeholder Matrix. This is where stakeholders are plotted against two variables. The Stakeholder Influence and Dependency Matrix (so-called Stakeholder Matrix) can be used as a guide to help SME companies to decide on which particular stakeholders and areas they should be focusing their attention and the respective courses of action they should be taking (see Figure 8.5). In the matrix, the involved parties are categorized from two different perspectives: the level of relative impact (stakeholder influence on company), and the level of relative expectations (stakeholder dependence on company).
Figure 8.5: Stakeholder influence and dependency matrix (the so-called Stakeholder Matrix)
Level of impact - stakeholder influence on SME company Low High (A) Strategic threat or opportunity invest in engagement processes to understand concerns and develop solutions (B) Keep involved and informed, but ensure balance between the concerns of high influence stakeholders and those actually impacted by decisions

Level of expectations stakeholder dependence on SME company

High

(C) Treat fairly honour commitments to these stakeholders

Low

(D) Low priority - provide access to general channels of information and feedback

Source: Based on Krick, T., Forstater, M., Monaghan, P., Sillanp, M. (2005), The Stakeholder Engagement Manual, Volume 2: The Practitioners Handbook on Stakeholder Engagement, AccountAbility, the United Nations Environment Programme, and Stakeholder Research Associates, available at: http://www.accountability21.net/uploadedFiles /publications/Stakeholder%20Engagement%20Handbook.pdf

Boxes A, B and C are the key stakeholders of the SME company. The explanations to each box are summarised below: Box A (High-High): These are stakeholders appearing to have a high degree of influence on the SME, who are also of high importance for its success and they pose strategic threat or opportunity. This implies that the SME should construct good working relationships with these stakeholders to ensure an effective coalition of support for the company. It is necessary to invest in engagement processes to understand concerns and develop suitable solutions. Box B (Low-High): These are stakeholders with high influence, who can therefore affect the SME, but whose interests are not necessarily aligned with the overall goals of the company. This implies that these stakeholders may be a source of significant risk, and they will need careful monitoring and management. The SME

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should keep involved and informed these stakeholders, but ensure balance between the concerns of high influence stakeholders and those actually impacted by SMEs decisions. Box C (High-Low): These are stakeholders of high importance to the success of the SME, but with low influence. This implies that they require special initiatives if their interests are to be protected. The SME should honour commitments to these stakeholders in line with company policy, regulations and industry norms, and endeavour to keep stakeholders satisfied insomuch as balance of costs and benefits allow. Box D (Low-Low): The stakeholders in this box, with low influence on, or importance to the SME, may require limited monitoring or evaluation, and are of low priority. The SME should provide these stakeholders with access to general channels of information and feedback.226 Concluding the stakeholder analysis, those stakeholders that have a strong impact on and who also expect a lot from SMEs represent the key stakeholders from the SMEs perspective (the group located in the upper right hand section of the Matrix). These are also the parties with whom the SMEs should be leading a dialog with and who the companies should get involved in their CSR related decision-making. What SMEs Should Talk to Stakeholders About Once the SMEs have identified the key stakeholders with whom they plan to enter into a dialog, they still have to determine what topics are that the stakeholders would be interested in talking about. This can be determined by using another matrix in which different types of stakeholders are associated with specific areas of interest (see Figure 8.6). The matrix provides a systemic way of examining a range of issues and identifying the stakeholders likely to be concerned about a particular topic. To breath some life into this matrix, the author taken a hypothetical example of an SME company and shaded various cells in a way that illustrates the perspectives and concerns of that company. The dark grey cells show areas of strong interest, light gray illustrates medium interest and white indicates areas of weak interest in the given topic. This type of matrix would be the most likely different for each SME company.

226

Based on Krick, T., Forstater, M., Monaghan, P., Sillanp, M. (2005), The Stakeholder Engagement Manual, Volume 2: The Practitioners Handbook on Stakeholder Engagement, AccountAbility, the United Nations Environment Programme, and Stakeholder Research Associates, available at: http://www.accountability21.net/uploadedFiles /publications/Stakeholder%20Engagement%20Handbook.pdf and The Department of Sustainability and Environment (2007), Stakeholder Analysis (Stakeholder Matrix), available at: http://www.dse.vic.gov.au/DSE/wcmn203.nsf/LinkView/ 86D3534A103DB113CA257089000A2FB3B3D050C7331FFEBBCA257091000FEF77

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Furthermore, a companys perspectives and concerns will almost certainly change over time.
Figure 8.6: Examples of interests of different types of key stakeholders in corporate social responsibility key issues
Key Stakeholders Ow ners, shareholders, investors Values and Management Practices
CSR Key Issues

Employees

Customers

Suppliers

Public (local community)

Non-profit organizations

Transparency Work Conditions Product Impact Social Impact Environmental Impact Strong interest Some interest Weak interest

Source: Freely based on Holme, R., Watts, P. (2000), Corporate Social Responsibility: Making Good Business Sense, World Business Council for Sustainable Development, available at: http://sustainable-finance.org/DocRoot/IunSPdIKvm YH5HjbN4XC/csr2000.pdf

Although listening to stakeholders might seem a simple concept, effective engagement of stakeholders and dialogue with them is not nearly as easy or self-evident as it might first appear. In order to complete the matrix presented in the Figure 8.6, SMEs should try screening their stakeholders by asking the following questions: Area of Legitimacy: Is a particular stakeholder group representative of issues which are relevant to your business and accountable to those with a legitimate interest in the way you do business? Area of Contribution and Influence: Does the stakeholder group have a contribution to make in helping you to run the business more responsibly or significant influence on your companys business and/or on other stakeholders? Outcome: Is the engagement likely to result in a productive outcome in the long run? Those stakeholder groups for whom the answers are yes should be considered key stakeholders and have priority in a dialogue. SMEs have to be prepared to listen to them they may even reveal other stakeholders with valid concerns that SMEs did not identify. By making constructive use of what SMEs hear, SME companies can devise strategies and plans to avoid conflicts and gain insights which can help preserve and enhance their reputation in the marketplace because they show concern for the social impact of their activities.

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Methods of Stakeholder Engagement The choice of the methods to use to get stakeholders involved in the CSR process depends on the degree of involvement being sought from the particular group of stakeholders (as already identified in Figure 8.5 and Figure 8.6). There are certain ways to communicate, which are more appropriate for obtaining feedback, while other techniques are more appropriate for the involvement of the stakeholders in decisionmaking processes. However, there are also tools and techniques which are suitable for both purposes. Examples of tools and techniques that SMEs can use for stakeholders engagement are provided in Figure 8.7.
Figure 8.7: Examples of tools and techniques a company can use for stakeholders engagement
Feedback from stakeholders Surveys Questionnaires and online forms Help Desk and telephone support Comments and suggestions box Feedback forums Marketing surveys Dialog with stakeholders Forums for representatives of key stakeholders Expert committees Individual discussions with stakeholders Work groups Participation in decision-making processes Organisation of joint projects Feedback and Dialog In-depth interviews Group discussions Work meetings Online discussion forums and internet blogs Informal meetings
Source: Based on outcomes of own research and freely on Partridge, K., Jackson, C., Wheeler, D., Zohar, A. (2005), The Stakeholder Engagement Manual, Volume 1: The Guide to Practitioners Perspectives on Stakeholder Engagement , Stakeholder Research Associates Canada Inc., available at: http://www.accountability21.net/uploadedFiles/publications/ Stakeholder%20Engagement_Practitioners'%20Perspectives.pdf

It is important for SMEs to make sure that they become familiar with the objectives and preferred methods of communication they can use with particular stakeholders before initiating contact and moving forward to active dialog. 8.2.1.3 Analysis of Current Situation (Step 3) Prior setting fundamental values and principles, SMEs have to carry out analysis of current situation consisting of internal and external analysis.

Internal Analysis As a part of the CSR concept, SMEs have to analyze their current statuses in terms of their CSR involvement. A thorough internal analysis helps SMEs to understand the current condition of their involvement in CSR related activities, it inspires them to

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become involved in additional CSR activities and it motivates them to take a systematic approach towards CSR. When conducting an internal analysis SME companies should try to focus on and look at the following: Legislative requirements in the area of environmental protection, care for employees, customer service, etc. Current CSR activities in which the SME is involved and the method(s) being used to measure results. The tools and methods being used for communicating the SMEs CSR concept. The use of financial resources on CSR activities and internal capacity to generate them. A review of existing business policies and documents. Specific aspects of CSR that relate to the SMEs area of business and the implied key areas of CSR, which have or might have an impact on the company. Anticipated benefits from the socially and environmentally responsible behaviour on the SME. External Analysis Once SMEs have completed their internal analyses, the next step is to perform an analysis of the external environment, which involves completing the following tasks: An identification of possible external factors (e.g. globalization, new national and EU legislation, local and EU incentives associated with CSR, technological advancements, etc.) that might impact the SME. Research into the CSR activities and tools used by the competition. A comparison of the SMEs performance with the best practices used in the respective field (benchmarking). 8.2.1.4 Setting Fundamental Values and Principles (Step 4) CSR should be based on values that are important to SME companies with respect to their individual key stakeholders. Company (corporate) values represent the general preferences of the respective SME company. The key values are usually included in the companys mission statement, which is communicated to all of its employees, as well as to the public. Today many large companies and according to the authors survey 13 % of Czech SMEs (see Table 6.1) also have their own code of ethics in order to make sure that their daily business activities and the conduct of their employees conform to their company principles. Such a code of ethics is a set of specific rules that are based on the values

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and the principles of the respective company and which define standards for professional conduct. Such clearly defined rules and guidelines are used as a management tool and they make it easier for employees to make decisions especially in non-standard-type situations. In order to successfully complete this implementation step, i.e. setting fundamental values and principles, SMEs have to try to identify the most important values for each of their key stakeholders (as already identified in Figure 8.5 and Figure 8.6). For examples of key company (corporate) values, see Figure 8.8 below. In the table the key company values were associated with individual stakeholders that were grouped according to CSR area they belong to. For real examples of selected Czech SMEs company values and principles, please, see Appendix III: Examples of Company Values and Principles.
Figure 8.8: Examples of key company (corporate) values
CSR Area Marketplace Workplace Community Environment Targeted Stakeholders Owners and investors Customers Business partners Employees Non-profit organizations Local (municipal) authority Environmental non-profit organizations Key Company Values Transparency Personal approach Quality Training and development Active support Transparency Environmental protection

Source: Based on review of professional literature and outcomes of own research.

Based on the company values that SMEs selected, the SMEs can then put together sets of principles of responsible behaviour. These can serve as the basic building blocks of their CSR strategy. 8.2.1.5 Setting Key Objectives and Corporate Social Responsibility Approach (Step 5) In this next step, the SME companies have to set forth the direction in which they would like to proceed with respect to CSR. SMEs have to identify individual objectives for each area of corporate social responsibility. These objectives should correspond to their own company (corporate) values and principles as already identified in the previous step. In order to keep CSR objectives updated, SMEs should set out and review these objectives on an annual basis and regularly evaluate their fulfilment. The following Figure 8.9 shows examples of CSR objectives categorized into four CSR areas.

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Figure 8.9: Examples of companys corporate social responsibility objectives categorized into four CSR areas

CSR Area
Marketplace

Examples of CSR Objectives

Environmental management of suppliers Harmonization and optimization of relations with suppliers Improvement of customer relations Improvement of training and educational opportunities for employees

Workplace

Improvement of health and safety at work standards Improvement of employee-employer relations Involvement of employees in the selection of supportive community projects Harmonization and optimization of relations with local community Improvement of environmental impact of the companys products and services (e.g. production, packaging, shipping, etc.) Promotion of alternative means of transport (e.g. bicycles, public transport, etc.) for commuting to work

Community

Environment

Source: Based on review of professional literature and outcomes of own research.

8.2.1.6 Preparation of Action Plan (Step 6) The next step is the creation of an action plan i.e. the selection of CSR activities that will lead to the fulfilment of the companys CSR objectives. The following practical issues should SMEs also clarify: The allocation of resources (financial resources, time capacities, human resources, and other necessary resources); The establishment of authority and responsibility in the respective SME for the work to be done; and An implementation schedule.

Action plan should have clearly elaborated implementation schedule with assigned responsibilities and should be in an appropriate way communicated to all relevant stakeholders, particularly to employees. As a useful source of valuable information and ideas Czech SMEs can use CSR Europe's Toolbox.227 The Toolbox includes information, ideas and advices designed to help companies and their stakeholders address socio-economic and environmental challenges and integrate CSR into mainstream business practice. The Toolbox is based on the first results of the CSR Laboratories, cross-sectoral business-stakeholder cooperation projects under the umbrella of the European Alliance for CSR. The Toolbox consists of the following five parts: Sustainable Production & Consumption;

227

CSR Europe is the leading European business network for corporate social responsibility with around 75 multinational corporations and 25 national partner organisations as members. The organisation was founded in 1995 and it has since grown to become an inspiring network of business people working at the very forefront of CSR across Europe and globally.

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Communication & Transparency; R(E)volutionary Business Models; Human Capital; and Integrated Workplace.228

The Figure 8.10 below shows examples of specific CSR activities that in imaginary scenario should lead to the accomplishment of the CSR objectives (the CSR objectives were already set in the previous subchapter).
Figure 8.10: Examples of specific corporate social responsibility activities that are related to the accomplishment of planned corporate social responsibility objectives
CSR Area Examples of CSR Objectives Examples of CSR Activities A company has to launch the Environmental Management of Suppliers project with suppliers, whose activities have a significant impact on the environment, will Environmental management of suppliers be negotiated endorsement of environmental commitment clauses, under which they will commit themselves to behave responsibly with respect to the environment. A company has to incorporate best ethical standards and best practices of supply Harmonization and optimization of management into relations with its suppliers. relations with suppliers Improvement of customer relations A company has to incorporate best ethical standards and best practices of customer relationship management into relations with its customers. A company has to establish individual development plans for its employees. Based on that the company has to introduce a new form of training which combines traditional learning with online teaching methods. A company has to implement best standards of health and safety at work. A company has to adopt such management practices, which will lead to improvement of employee-employer relations. A company has to establish an employee grant programme for the support of employees who are active in and want to do something positive for the local community. A company has to find ways how to improve its relations with local community and based on real needs provide it with suitable support. A company has to launch project establishing/improving overall environmental management of the company or environmental management in selected area or process.

Marketplace

Improvement of training and educational opportunities for employees Workplace Improvement of health and safety at work standards Improvement of employee-employer relations Involvement of employees in the selection of supportive community projects Harmonization and optimization of relations with local community Improvement of environmental impact of the companys products and services (e.g. production, packaging, shipping, etc.) Promotion of alternative means of transport (e.g. bicycles, public transport, etc.) for commuting to work

Community

Environment

A company has to launch project for promotion of alternative means of transport (other than cars) for commuting to work and e.g. instal bike stands.

Source: Based on review of professional literature and outcomes of own research.

8.2.2 Execution Phase

8.2.2.1 Implementation of Corporate Social Responsibility (Step 7) During the implementation stage, SME companies follow the previously created action plans and by doing so, they incorporate CSR into their daily activities. SMEs should follow the implementation schedule and evaluate progress of implementation regularly. The best available solution for doing it would be using

228

CSR Europe (2009), CSR Europe's Toolbox, available at: www.csreurope.org/toolbox

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methodology and know-how for project management; after all, implementing CSR into daily activities of a given SME is a full-valued project and thus should also be treated. SMEs implementing corporate social responsibility should also keep in mind that the essence of CSR lies in the implementation of responsible business practices. It lies in the right attitudes, in the company culture, not in formalisation or mere public relations without real backing.

8.2.3 Evaluation Phase

8.2.3.1 Monitoring of Corporate Social Responsibility (Step 8) During this step, SME companies perform the monitoring of their own performance using a group of quantitative and qualitative indicators. This provides management with the data and information required for future decision-making. The SMEs stakeholders should actively participate in the selection and evaluation of these indicators in order to ensure transparency, reliability, efficiency and effectiveness of monitoring. The Figure 8.11 below shows a list of exemplary indicators that SMEs can use for the evaluation of the results of their CSR activities (determination of CSR activities was in the Step 6).
Figure 8.11: Examples of indicators used for the evaluation of results of a companys corporate social responsibility activities
CSR Area Examples of CSR Indicators Number of suppliers participating in the Customer and advertising complaints about environmental management project products and services Area(s) covered by the environmental commitment clauses Results of customer satisfaction survey Number of missed payment deadlines Number of trained employees Feedback i.e. how satisfied were employees with the training courses Number of flexible employment arrangements Number of employee complaints Number of community projects being supported Total amount spent on support for projects Community Customer loyalty index (number of repeat orders) Results of employee satisfaction survey Employee breakdown (gender, age, race, handicap) Employee turnover rate Absenteeism Ratio of donations to gross profit Number of hours of corporate volunteerism

Marketplace

Workplace

Total value of donated resources Results of the corporate image survey Volume of non-monetary donations (products, Positive/negative reaction of media to the services, know-how) companys activities Number of employees using alternative means of Number of complaints related to environmental transport for commuting to work pollution Total energy and water consumption Amount of waste produced Percent of waste that is recycled Amount of CO2/greenhouse gas released Amount of hazardous substances used Positive/negative reaction of media to the companys environmental impact

Environment

Source: Freely based on Holme, R., Watts, P. (2000), Corporate Social Responsibility: Making Good Business Sense, World Business Council for Sustainable Development, available at: http://sustainable-finance.org/DocRoot/IunSPdIKvm YH5HjbN4XC/csr2000.pdf and outcomes of own research.

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8.2.3.2 Communication and Reporting (Step 9) Once SMEs have initiated collaborative relationships with their key stakeholders and started to engage in activities that are part of their overall CSR strategies, it is time to let the surrounding community and also the SMEs own internal communities know about their initiatives in the area of corporate social responsibility. As a first step, SMEs have to make sure that their employees and partners are supportive of the SMEs efforts in this area. In order to make this happen, SMEs have to thoroughly explain to them what, how and why certain types of CSR activities are being undertaken. SMEs external stakeholders also need to be properly informed about these CSR efforts because this is the only way in which the given SME company can be able to set itself apart from its competitors in the eyes of these external parties. In this phase of the implementation process, SMEs present comprehensive overviews of their CSR performance over the respective reporting period. This information can either be released as part of a CSR report or it might be posted on the companys website. The CSR overview (report) should include information on the given SMEs ability to meet the objectives that it set out for itself at the start of the reporting period (usually a year) and a list of new objectives for the coming period. More information on this topic can be found in the subchapter 3.4.2 Corporate Social Responsibility Reporting and further in this subchapter Step 9. Figure 8.12 on previous page shows in the table examples of reported results of fictitious SMEs CSR activities. Achieved results in the field of CSR are in the table aggregated according to the CSR area they belong to. Regarding communication on CSR, according to the research conducted in the Czech Republic in 2004, there has been a problem of lack of interest on the side of media and the public regarding corporate social responsibility. According to the corporate representatives' opinions, Czech people have been primarily concerned with the price of products and/or services. Czech wider public has not been getting information about CSR behaviour; the topic has not been communicated and thus has not been reflected upon. Czech company representatives also considered the journalists' concerns of hidden company advertisement to be a mere excuse or a misunderstanding, as according to their opinions, a mention of a company in the CSR context did not bring any dramatic increase of sales whatsoever. Lack of interest from the media brings yet other negative consequences - on one hand, it blocks wider public debate about CSR and on the other, it does not enable responsible companies to take up the activity, promote the topic, and inspire others. Although some branches of multinational corporations, for example, show interest in being exemplary, majority of them expressed their concerns that the whole issue would, at the end, turn against them. These concerns can be

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summarized by the words of one of the survey participants: "Here, it is really easy to turn a good thing into a bad one."229
Figure 8.12: Examples of reported results of the companys corporate social responsibility activities
CSR Area Achieved Results in CSR (per indicator) X out of Y suppliers participated in the environmental management project Marketplace The environmental management project resulted in the signing of X environmental clauses According to the customer satisfaction survey X % of customers were very satisfied and Y % were satisfied with company products and services A company established e-learning X % of all employees completed new traning courses According to the employee satisfaction survey X % of employees were very satisfied and Y % were satisfied with the company Employee turnover rate declined by X % and absenteeism by Y % X community development programmes were supported by company X % of all employees were involved in community volunteer programmes Employees devoted X hours to community development programmes Total value of devoted monetary resources was CZK X and non-monetary resurces CZK Y X % of all employees were using alternative means of transport for commuting to work; as of M % used public transport, N % used bicycles, O % walked Company produced X tons of waste; Y % was recycled, which is Z % improvement compared to previous year Environment Company supported X environmental protection programmes with the total amount of CZK Y Company spent on improvement of its environmental impact in total CZK X Company produces X tons of greenhouse gas, which is Y % improvement compared to previous year
Source: Based on review of professional literature and outcomes of own research.

Workplace

Community

Why Companies Should Communicate about Corporate Social Responsibility Regularly communicating information about the companys socially and environmentally responsible behaviour can provide SMEs with a number of advantages. They can be following: Transparency: provides others with better information on the companys CSR activities and makes the company and its business more transparent. Better control over CSR activities: allows the company to compare its publicly proclaimed CSR commitments with what is actually taking place and helps it identify weaknesses in its CSR strategy. Involvement of stakeholders: strengthens the position and involvement of stakeholders in company decision-making processes. Non-commercial partnerships: promotes non-commercial partnerships between enterprises, public institutions and non-profit organizations.
229

Trnkov, J., et al. (2004), Corporate Social Responsibility Complete Guide of the Topic and Conclusions of the Survey in the Czech Republic (Spoleensk odpovdnost firem kompletn prvodce tmatem a zvry z przkumu v R), Prague, available at: http://www.blf.cz/csr/cz/vyzkum.pdf

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Corporate Social Responsibility Communication Tools There are many communication tools and methods that SMEs can use when providing communications about their socially and environmentally responsible behaviour to stakeholders. Some of these are highly affordable for SMEs and should take a minimum of effort. They can be following: CSR Report; Internet - publishing of information about CSR activities on SMEs websites, publishing of articles in the companies blogs, providing information on CSR via various community forums (e.g. Facebook), etc; Internal and external newsletters and magazines; Announcements sent via e-mail or via traditional mail; Employee training on CSR; Publishing of information about CSR activities on SMEs Intranets; Code of Ethics; Speeches and presentations, press releases and conferences, open house events; Standards and Norms (e.g. ISO 9000, ISO 14000, SA 8000, EMAS, etc.); Product designations (e.g. organic, bio-degradable, environmentally friendly, quality guaranteed, Fair-Trade, etc.) and shared marketing; Awards and recognition (e.g. socially responsible enterprise, employer of the year, corporate philanthropist of the year, Czech TOP 100 Corporate Social Responsibility Report category, etc.); Presentation of SME as a good CSR example through non-profit organizations (e.g. inclusion in the Czech Business Leaders Forums database); and Active communication with the media and media announcements in the form of paid advertising.230 Practical Information on Corporate Social Responsibility Report CSR report can be described as an annually released public report that provides a detailed overview of the company and its economic, social and environmental impact on the society. The release of the CSR report accomplishes the following two purposes: It acts as a communication tool which should be used by SMEs to communicate information about their CSR activities to internal and external stakeholders; and

230

Based on Steinerov, M., Business Leaders Forum R (2008), Concept of CSR in Practice - guide to responsible business (Koncept CSR v praxi - prvodce odpovdnm podniknm), available at: http://www.blf.cz/doc/brozura_CSR _web_CZ.pdf

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It acts as a management tool which helps SMEs to systematically approach the CSR concept, measure progress and set out new strategies and objectives.

According to the authors opinion Czech SMEs should be preparing and publishing their CSR reports whenever it is possible with respect to their size and internal capacities in order to achieve desired CSR benefits. There is not anywhere written that CSR report has to be one-hundred-page hard-covered document. On the contrary, it should correspond to the size and scope of activities of respective SME.

Important Characteristics of CSR Report When preparing CSR reports, SME companies should make sure that the information released in their reports is accurate and credible and that reports meet necessary formal requirements as summarized below: Completeness - it is expected that the CSR report should cover all of the SMEs operations and branches and provide comprehensive information on the significant aspects of the SMEs impact on the society and the environment. Credibility - the credibility of the CSR report is based on the way in which the SME describes its business policies, its responsibilities towards its employees and methods it uses for the collection of data and the setting out of future objectives. Credibility is also dependent on the level of involvement of the SMEs stakeholders (and in case of large SMEs also on the results of an independent internal audit of the SMEs systems and data). Format - the formal aspects of the CSR report can also play an important role. These include not just the graphic layout and the overall look of the document, but also the fact that the report is easy to understand, readable and neither too short nor too long. The reader should be able to easily navigate through and orient when reading the report.231 SMEs should keep in mind that their CSR reports will most likely be read by two different types of readers those who will quickly skim through it and select only key, desired information and those who will carefully read through the report in its entirety or study particular parts of the document (e.g. employees, non-profit organizations, analysts, various interest groups). Once published, CSR reports should be easily accessible and available to readers (ideally in both electronic and printed version). Regarding publishing, the internet opens

231

Based on Ceres-ACCA North American Awards for Sustainability Reporting (2009 ), Report of the judges, available at: http://www.ceres.org/Document.Doc?id=433

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up a broad range of possibilities for flexible and up-to-date reporting and feedback giving stakeholders a chance to immediately respond to the information provided. In order to measure SMEs actual performance in the area of CSR, the use of hard quantitative data can be recommended wherever possible. Nevertheless, performance data on its own can be sometimes boring so the text should be interlaced with practical examples, as well as with tables, charts and graphic images so that SMEs would be in this way able to visually illustrate their data instead of just writing about it or charting it. Key Elements of CSR Report232 A good CSR report should include sections dealing with all of the following: corporate commitment, CSR management, business performance and information about creation of the CSR report. The following bullet points present a summarized content of justmentioned most important parts of the CSR report. Corporate commitment - in order to give the readers a proper orientation to the CSR report, the authors should try and describe the given SME company in terms of the broader environment in which it operates. Specific elements that should usually be included in this section are the commitment of the SMEs senior management and/or owners to the CSR concept along with a profile of the company. CSR management this part should describe SMEs ability to successfully achieve its objectives in the area of corporate social responsibility, explain the relationship between SMEs CSR strategy and its overall business strategy, and explain the quality of its management and the level of involvement of its stakeholders on SMEs CSR activities and business operation. Corporate performance - a description of the CSR performance of the given SME represents the core part of the CSR report. Both quantitative and qualitative information should be presented in this section, particularly the impact of the SMEs operation, processes, products and services on the society and environment in the context of the respective CSR areas (i.e. marketplace, workplace, community, and natural environment). The best way how to present measured results of SMEs performance is through comparisons (benchmarking). As reference points, SMEs can use data released for businesses operating in the same sector, current trends or the objectives that SMEs have set out for themselves for the upcoming period.

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Freely based on Heemskerk, B., Pistorio, P., Scicluna, M. (2002), Sustainable Development Reporting: Striking the balance, The World Business Council for Sustainable Development, available at: http://www.wbcsd.org/DocRoot/ fBBNXf7oYVJuJAG77hUt/20030106_sdreport.pdf

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Information about creation of the CSR report in this part SMEs should: o Describe scope of their CSR reports, methodology (i.e. standards and methods used in the creation of the report), and feedback mechanisms that can be used by readers to communicate back to the SMEs their opinions on the report or CSR activities; and o Provide a list of performance indicators included in the report, sources of additional information about the given SME, and the results of an independent audit into their CSR reports (this can be valid particularly for large SMEs).

As an alternative, SMEs can separate their CSR reports into chapters dedicated to specific types or classes of stakeholders.

8.2.4 Improvement Phase

8.2.4.1 Improvement Measures (Step 10) In the last step of the implementation cycle, SMEs should propose measures for further improvements to their CSR activities, expansion of the existing activities or perhaps revisions to their entire CSR strategies. The results of the evaluation of the SMEs prior performance in the area of CSR and recommendations made by its stakeholders should be used as sources of vital information for these improvements. The following Figure 8.13 gives examples of such recommended improvements.
Figure 8.13: Examples of improvement measures for the companys corporate social responsibility activities
CSR Area Marketplace Examples of Improvement Measures for Companys CSR Actiities Increase number of suppliers participating in the environmental management project Increase number of areas covered by the environmental commitment clauses Increase number of trained employees Workplace Extend offer of training and educational cources for employees Increase number of flexible employment arrangements, if it is feasible Allow employees to actively participate in the supported community projects during working hours Community Increase number of hours of corporate volunteerism Evaluate companys support of community projects and based on it adjust companys support Decrease total energy and water consumption Environment Decrease amount of waste produced Decrease amount of greenhouse gas released Increase percentage of waste that is recycled
Source: Based on review of professional literature and outcomes of own research.

Also, in case an overall business strategy is amended or completely changed, it is necessary reviewing its CSR strategy in order to maintain CSR strategy aligned to mission, vision, core values, and overall business strategy.

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Chapter 9. Conclusions
9.1 Conclusions - Theoretical Part
9.1.1 Defining Corporate Social Responsibility
Corporate social responsibility over the past half a century evolved into a modern and widely accepted concept. It represents a comprehensive concept related to the role of business in global market and development. CSR is based on the presumption that the stakeholders expect companies to perform responsibly in terms of reducing negative outcomes resulting from their operation and for the most part profit-orientated objectives of their undertaking. Various definitions and approaches to CSR coexist today, some determined by sociocultural and economic situation in a given country, some by the political system and belief. In the USA, CSR has developed as an attempt to respect shareholders needs and promote companies image through philanthropic events, while in Europe CSR is seen as a day-to-day management practice and a way how companies should be managed concerning wider group of stakeholders. Usually in developing countries, CSR is still not adopted as corporate value but it is more ad-hoc reaction to external market and investors requirements. The Green Paper of the European Commission published in the year 2001 defined CSR as a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis. The term CSR is often used interchangeably with others, including corporate citizenship, social enterprise, sustainability, sustainable development, triple bottom line, societal value-added, strategic philanthropy, corporate ethics, etc.

9.1.2 Dimensions of Corporate Social Responsibility and Corporate Social Responsibility Initiatives
CSR includes both internal corporate behaviour and external relationships. Internal dimension of CSR comprises of human resources management, occupational health and safety management, business restructuring, and management of environmental impacts and natural resources. External dimension of CSR goes beyond doors of the company and involves many stakeholders, affects local communities, business partners and suppliers, customers and consumers, deals with protection of human rights along the whole supply chain, and global environmental concerns. Based on Kotlers review, there are accustomed ways of doing good that can be implemented by companies. These ways - corporate social initiatives or CSR tools - fall within one of the following distinct categories: cause promotions, cause related marketing, corporate social marketing,

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corporate philanthropy, community volunteering, and socially responsible business practices.

9.1.3 Aspects of Corporate Social Responsibility

Contemporary view on CSR rationale brings into play arguments challenging CSR impact and motivation behind. In theory, CSR is favourable both for company and for society. In practice, it is difficult to verify all achievements and to appraise concrete changes. It also put forward question whether companies are accountable for social problems and instability. Companies are not obliged to takeover public service role but they should be helpful in terms of making complementary actions and preventing potential problems resulted from their business. CSR contributes companies in more than a few different areas such as increased profit, access to capital, reduced operating costs and increased operational efficiency, enhanced brand image and reputation, increased sales and customer loyalty, increased productivity and quality, increased ability to attract and retain employees, possible reduced regulatory oversight, reducing risk, increased risk management, etc. Impact on society cannot be generalized as there are many different options how CSR can positively influence society, e.g. support of local communities in their efforts to create better environment for living, support of humanitarian programmes, support of educational activities, environmental protection, etc.

9.1.4 Corporate Social Responsibility in the Czech Republic

Consumers in the Czech Republic make their choices when buying a product and/or service also based on companies CSR record and strategy. Research conducted in 2003 showed that around 50 % of citizens said that when shopping, they are willing to pay higher price for products and/or services of companies, which are engaged in CSR. Results of this research confirm that Czech consumers are about the same in their attitude towards CSR as in rest of the Europe. As CSR gaining its popularity among Czech entrepreneurs, some non-governmental organizations have been focusing on building partnership between profit and non-profit organizations in the area of corporate philanthropy, corporate volunteerism, social marketing, environmental protection and others. The promotion of CSR is aided by the country's cooperation with international organisations. In March 2007 the Ministry of Labour and Social Affairs created a new website on CSR, to inform users about the concept of CSR in the European Union. The website also provides references to different projects and activities concerning the promotion of CSR. Despite of non-profit and profit organizations and governments efforts in promoting CSR, there still is a lot of companies, which consider as satisfactory CSR involvement

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only providing financial and non-financial means for philanthropy and do not concentrate on more deeper integration of CSR into companys structure and operation. Conducted surveys discovered that this effort was not efficient enough. According to the survey among Czech entrepreneurs in 2004, the state has not been playing any important role in promoting CSR. The only governmental body paying some attention to CSR has been the Council for Sustainable Development. Entrepreneurs would welcome communication of the CSR concept and strategies how to achieve and implement it by the state to the general public, awards to socially responsible companies, and information directed to consumers, who on all accounts play an important role in adopting CSR practices. Lack of CSR information has been manifested in other surveys as well. In the authors opinion, CSR is seen as a viable concept in the Czech Republic. However, some important factors fostering this modern philosophy of doing business as well as an appropriate institutional framework are still not sufficient. Among these factors, pressure of consumers, investors and banks may be considered crucial. Socially responsible investments are not yet an option for Czech citizens, as there has not been a tradition in investing in stock market. Also the role of the media should increase. Last but not least governmental incentives, mainly fiscal, but also various other tools and awards should be developed to promote CSR in an organized and systemic way. Organizations promoting CSR should also be more supported.

9.2 Conclusions - Summary of the Authors Own Research

9.2.1 General Aspects of Corporate Social Responsibility in Czech SMEs
9.2.1.1 Objectives of the Authors Research on CSR The authors research on CSR in SMEs carried out within the framework of this dissertation paper should contribute to the knowledge of the actual state of affairs in the business sector in the Czech Republic regarding CSR activities and foster understanding of developments taking place in this particular field. Main objectives of the research including an analysis were following: How Czech SMEs perceive and carry out CSR; To what degree Czech SMEs are involved (active) in CSR; What Czech SMEs motivate to be engaged in CSR; What benefits Czech SMEs can identify from their involvement in CSR; and What main barriers or obstacles Czech SMEs encounter when carrying out CSR.

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9.2.1.2 Structure of the Selected Sample of Czech SMEs The authors survey took place between 29 April 2008 and 10 August 2008 on a random sample of 190 SME companies operating in the Czech Republic. The sample was dominated by medium-sized companies (56 %), and then followed micro enterprises (24 %), and small enterprises (20 %). 9.2.1.3 General Awareness of CSR amongst Czech SMEs In total 55 % of respondents233 stated that they had heard about CSR. The fact that 45 % of SMEs respondents have never heard of the term CSR does not mean these SMEs actually do not behave socially responsibly or do not practice some of CSR activities. The result may simply suggest these SMEs do not approach CSR strategically and in a systemic way. 9.2.1.4 Acceptance of CSR by Czech SMEs 74 % of SMEs respondents fully and 25 % partially agreed with the fundamental principle of CSR. Together it makes excellent 99 % of all respondents who accepted CSR concept. Difference in acceptance regarding size of the company is insignificant. Consensus regarding company's orientation is thus evident - majority of participating companies was aware, besides their commercial role, of their responsibility towards the society in which they operate. 9.2.1.5 Degree of Czech SMEs Involvement in CSR According to the results, 98 % of surveyed SMEs were involved, to different degrees, in internal dimension and 92 % in external dimension of CSR. A company size perspective showed that the involvement of SMEs in external dimension of CSR was positively related to the size of company. 9.2.1.6 Measurement and Evaluation of CSR in Czech SMEs In spite of the fact that 98 % of SMEs was involved in internal and 92 % was involved in external dimension of CSR, only 9 % of Czech SMEs measured and evaluated their CSR activities at that time and just 5 % of SMEs has planned to do so in the future. These results proved that SME companies either did not take CSR seriously enough and did not integrate it in their business strategies and operation or did not have enough time, resources, and know-how for CSR measurement and evaluation or did not have both. In accordance with modern management principles, and particularly in the time of economic downturn, top management has to be provided with consistent reporting on all company

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Note: 78 % of all respondents can be considered as real decision-makers as they were either top managers or company owners.

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activities in order to manage it effectively. Therefore approach to CSR should be no different. According to the authors opinion it is very unfortunate that Czech SMEs do not measure and evaluate CSR activities, because they miss great opportunities and benefits stemming from CSR measurement and evaluation and deprive their CSR efforts of strategic dimension.

9.2.2 Internal Dimension of Corporate Social Responsibility in Czech SMEs

9.2.2.1 The Most Frequent Activities of Internal Dimension of CSR Used by Czech SMEs Referring to activities developed by those SMEs that have been involved in socially responsible activities focused on internal stakeholders, the authors survey showed that these activities mainly concentrated in five fields (fields where average involvement was higher than 60 %): 1. Health and safety arrangements at workplace; 2. Employee motivation and education system; 3. Possibility of flexible working hours for employees; 4. Companys contribution to pension insurance and/or life insurance of its employees; and 5. Willingness of top management to discuss (consult) important matters with employees. The reason why the five above-mentioned activities of internal dimension of CSR scored highest is that probably these activities either bring companies the biggest competitive advantage in attracting and retaining qualified personnel and/or they can inflict SMEs the highest damage (both financial and reputational), if the relevant activity is missing or managed below common standards. 9.2.2.2 Use of Strategy for Internal Dimension of CSR by Czech SMEs According to the results of the survey 41 % of Czech SMEs had a strategy for socially responsible activities aimed at internal stakeholders (particularly employees). Probable reasons why SMEs pay less attention to formalizing existing and planned internally aimed socially responsible measures into the strategic document can be following: Adherence on inherent informality of mutual relations and processes that are typical for SMEs; Lack of available resources and lack of know-how; and

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Belief of top managers and owners that formalizing measures and activities is a waste of time and other scarce resources without additional added value for the company (in the authors opinion this belief is, of course, wrong).

According to the authors opinion, on one hand 98 % engagement of SMEs in internally focused socially responsible activities and on the other 59 % of SMEs without any strategy for these activities show that more than every second SME cannot utilize the full potential of internal dimension of CSR. However, outcomes also showed that 44 % of Czech SMEs considered as very important and 52 % of SMEs considered as important socially responsible and ethical behaviour towards employees. 9.2.2.3 Reasons of Czech SMEs for Engagement in Internal Dimension of CSR Great majority (exactly 82 %) of participating SMEs, regardless of company size, declared that the main reason behind their involvement in socially responsible and ethical behaviour towards employees was recruitment and retention of qualified employees. The second most important driver was improvement of employees job satisfaction and the third one was improvement of employees job motivation. Ethical or moral reasons that were mentioned the most in European and Czech surveys occupied the fourth place in the authors survey. Results suggest that surveyed Czech SMEs have been aware of business benefits derived from their involvement in internal dimension of CSR. This finding also underlines the fact that reason improvement of economic performance of the company was picked by SMEs as the fifth most important from ten different options. 9.2.2.4 Benefits Identified by Czech SMEs from Involvement in Internal Dimension of CSR Further outcomes of the authors survey showed that Czech SMEs placed at the top of major benefits, arising from implementing socially responsible and ethical behaviour towards employees, improvement of employees job satisfaction closely followed with increase of current employees loyalty and reduction of staff turnover. Benefit improvement of customer satisfaction ranked third and improvement of economic performance of the company scored fifth, just one percentage point behind recruitment of new qualified employees. 9.2.2.5 Obstacles Identified by Czech SMEs for Involvement in Internal Dimension of CSR Reasons that impede Czech SMEs most in implementing internal dimension of CSR can be aggregated into three groups. The most frequently SMEs mentioned that there were no barriers that would prevent them in implementing socially responsible and ethical

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behaviour towards their employees. Especially for further expansion and improvement in quality and effectiveness of CSR practices it is an important finding that more than one third of SMEs operating in the Czech Republic do not see any obstacles in implementing internal dimension of CSR. Thus, it can be expected that internal dimension of CSR can reinforce its already strong position amongst SMEs. Lack of internal resources, particularly financial means and time, and lack of know-how form the second most mentioned group of barriers. As the third group of most quoted barriers SMEs identified an absence of state and/or government support. In the authors opinion this obstacle is based on real foundations. SMEs have been right in their statement that state support of companies that would like to implement CSR or have already embedded CSR in their operation has been weak.

9.2.3 External Dimension of Corporate Social Responsibility in Czech SMEs

9.2.3.1 The Most Frequent Activities of External Dimension of CSR Used by Czech SMEs The most common type of Czech SMEs involvement in wide array of activities of external dimension of CSR was financial or other support of non-profit organizations (exercised by 57 % of SMEs).234 The second and the third most frequently used types of involvement were support of sport activities and support of cultural activities not aimed at SMEs own employees (exercised by 48 %, respectively 46 % of SMEs). 9.2.3.2 The Most Common Way of Czech SMEs Engagement in Activities of External Dimension of CSR The most common way of Czech SMEs engagement in externally aimed social activities was through donations, either financial or in kind gifts, conducted on an ad-hoc basis (used by three quarters of SMEs). The second most selected form was through sponsorship and the third one occupied cooperation with other parties (e.g. non-profit sector, public sector, other private companies, etc) on socially beneficial projects (used by 49 %, respectively 31 % of the surveyed SMEs). The most popular way of Czech SMEs involvement in environmental activities not directly related to consequences of companys own operations was through donations conducted on irregular basis (used by 17 % of all SMEs). The second most selected way was through cause related marketing and the third one was through support of employee involvement in environmental activities on behalf of the company. Surprisingly, almost

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The 2008 Czech Business Leaders Forums survey came to the very same outcomes, which strengthens the validity of the authors results.

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two thirds of all surveyed SMEs were not involved in any environmentally responsible activities under the umbrella of external dimension of CSR. 9.2.3.3 Use of Strategy for External Dimension of CSR by Czech SMEs The Czech SMEs external community activities were in most cases occasional and oneoff, unrelated to the business strategy. According to the available data more than two thirds of Czech SMEs had general business strategy in place, followed by 41 % of SMEs which elaborated strategy for internal dimension of CSR, and only 15 % prepared strategy for external dimension of CSR. The results suggest that both Czech and European SMEs approach to CSR unsystematically and do not utilize the full potential of socially and environmentally responsible activities aimed at external stakeholders as more than half of surveyed SMEs that actually were engaged in these activities did not align management of these activities with their business strategies. Findings further suggest that probably many Czech SMEs do not understand essentials of strategic management and underestimate risks and negative impacts of missing or inadequate strategic management in the company. Tailor-made strategy for internal and external dimension of CSR should undoubtedly form an essential part of overall general business strategy. 9.2.3.4 Manner How Czech SMEs Engage in External Dimension of CSR According to the outcomes, more than half of Czech SMEs carried out CSR activities aimed at external stakeholders independently. A quarter of SMEs participated in these activities in cooperation with some non-profit organization(s), while only 12 % cooperated on external community causes with other companies. The results suggest that Czech SMEs prefer carrying out CSR activities aimed at external stakeholders independently. In the authors opinion SMEs should start forming local alliances that would manage their CSR activities in a coordinated way to overcome their inherent disadvantages (particularly lack of know-how, lack of available resources, and lower communication impact of their activities compared to large companies). 9.2.3.5 Reasons of Czech SMEs for Engagement in External Dimension of CSR According to the surveys results, the main reason behind SMEs involvement in external social activities was related to improvement of positive image of the company. Czech SMEs suggested this reason, only slightly above other frequently quoted reasons such as ethical/moral reasons and improvement of employees job satisfaction. Other reasons (e.g. tradition, improvement of relations with business partners, etc.) were mentioned by less than one third of SMEs participating in external social activities. Concerning engagement in external environmentally responsible activities, the most cited reason

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behind was improvement of positive image of the company. Ethical considerations were the second most important driving force. This evidence suggests that SMEs have some environmental concern and recognition of the responsibility of businesses to help to protect the environment. Also relatively important role played establishment and/or retention of competitive advantage. This reason implies that some SMEs discovered concrete value and competitive advantages from taking environmental initiatives. On the other hand, one third of surveyed SMEs could not identify any motivator for implementing environmentally responsible activities. 9.2.3.6 Benefits Identified by Czech SMEs from Involvement in External Dimension of CSR According to outcomes of the authors survey, the main benefit identified by Czech SMEs from their involvement in external social activities was improvement of positive image of the company. Improvement of employees job satisfaction was the second and improvement of relations with business partners and investors was the third most important business benefit. The previous data allow one to reach an interesting conclusion, in the sense that the business benefits of social activities, often assumed to lie exclusively in the domain of large companies, are in fact also present in the SME sector. However, this important result should be contrasted with the fact that, as already mentioned, only a minority of Czech SMEs involved in community causes have strategy for external dimension of CSR and measure and monitor the effectiveness of their involvement. The most significant business benefit for Czech SMEs stemming from their engagement in environmentally responsible activities within external dimension of CSR was improvement of positive image of the company. Improvement of relations with public authorities was the second and improvement of companys reputation was the third most important benefit. However all above-mentioned benefits were much less quoted as in case of external social activities. This evidence suggests that at least some SMEs can identify some business benefits resulting from their engagement in external environmentally responsible activities, although it is much more difficult for them than in case of socially responsible activities. A possible explanation for low involvement in external environmentally responsible activities and problem with identifying motivators for engaging in these activities can be inability of SMEs to identify real connection between environmental responsibility and prosperity of the company, which can be caused by variety of reasons, for example by lack of know-how, lack of courage to do things differently, lack of public support, personal conviction of owners or managers, etc. Also there can be other obstacles, which can discourage SMEs in environmental involvement.

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According to some authors, as far as the internal barriers are concerned, the most important one is given by a negative company culture towards the environment (despite positive attitudes amongst both employers and employees). Many small firms feel that environmental activity is something to be avoided unless driven by legislative demands. Moreover, a large proportion of SMEs (especially the smallest ones) remains unaware both of the environmental impacts derived from their business activities and of the existing environmental programmes and resources available to them.235 9.2.3.7 Obstacles Identified by Czech SMEs for Involvement in External Dimension of CSR The most quoted barrier by Czech SMEs for behaving in a socially responsible way towards community and environment was lack of financial resources. Absence of state support was the second and lack of human resources and/or capacity was the third most important barrier. Lack of time ranked at the fourth place. The fifth most cited obstacle for SMEs was bureaucracy/red tape. On the contrary almost fifth of Czech SMEs did not identify any obstacles that would impede their involvement in activities of external dimension of CSR, which is a good sign for future development of CSR in the Czech Republic. In the authors opinion the previous results show that, generally speaking, attitudinal reasons (i.e. no consideration, lack of relation to business activities and no benefits expected) are much less important for SMEs in comparison to lack of resources reasons (i.e. lack of money, human resources, time) and lack of state support for explaining the lower activity and inactivity of SMEs in external dimension of CSR. 9.2.3.8 Future Engagement of Czech SMEs in External Dimension of CSR Finally, on average 75 % of Czech SMEs expected to continue as it is, 23 % would like to increase, and only 2 % wanted to decrease their engagement in activities of external dimension of CSR.

9.3 Conclusions - General Steps How to Implement Corporate Social Responsibility in Czech SMEs
9.3.1 Considering Strategic Approach Responsibility in Czech SMEs to Corporate Social

There is no one-size-fits-all method for pursuing CSR. Each company has unique characteristics and circumstances that will affect how it views its operational context and defining of social responsibilities. Each will vary in its awareness of CSR issues and how much work it has already done towards implementing a CSR approach. That said, there
235

For instance, a Belgian study showed that up to 84 % of the Belgian industrial SMEs did not feel that they contribute to pollution.

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is considerable value in proceeding with CSR implementation in a systematic way, i.e. in harmony with the companys mission, and sensitive to its business culture, environment and risk profile, and operating conditions. Many Czech SMEs have already been engaged in activities in the area of customer and employee care, community support and environmental protection. These activities can serve as a good starting point for the development of a more strategic approach to CSR so that a company could maximise competitive as well as social benefits. CSR can be phased in by focusing carefully on priorities in accordance with resource or time constraints. The bottom line is that CSR needs to be integrated into the companys core decision making, strategy, management processes and activities, be it incrementally or comprehensively. Managing CSR is just like managing any other aspect of the business. Whether a company employs five people or is a multinational corporation, there are a number of key principles that generally apply. These all turn on ensuring that a company has the right policies, the right processes, and that it gets the right performance.

9.3.2 Proposal of Ten Steps How to Implement Corporate Social Responsibility in Czech SMEs
Based on results of own research, authors professional knowledge and experience, and review of professional literature, the author prepared a set of ten steps for turning all this into action, i.e. implementing CSR into SME company. Proposed implementation tenstep approach is based on the well-known PDCA concept: Plan = plan ahead; Do = execute your plan; Check = evaluate the results; Act = act on the results by trying to improve. The individual steps are following: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Management commitment to CSR; Identifying of key stakeholders; Analysis of current situation; Setting of values and principles; Setting of objectives and CSR approach; Preparation of action plan; Implementation phase; Monitoring of CSR; Communication and reporting on CSR; and Preparation and implementation of improvement measures.

It will take much hard work to develop a comprehensive CSR approach tailored to current and future needs and situation of a given SME. However, partnerships and good scope of joint activities including government, civil society, non-profit sector and private sector can significantly contribute to the success.

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APPENDIX
Appendix I: Glossary of Terms

Brundtland Commission The Brundtland Commission, formally the World Commission on Environment and Development, named by its Chair Gro Harlem Brundtland, was convened by the United Nations in 1983. The Commission was created to address growing concern about the accelerating deterioration of the human environment and natural resources and the consequences of that deterioration for economic and social development. In establishing the Commission, the UN General Assembly recognized that environmental problems were global in nature and determined that it was in the common interest of all nations to establish policies for sustainable development.

Business, Company, Enterprise In accordance with Articles 48, 81 and 82 of the Treaty establishing the European Community, as interpreted by the Court of Justice of the European Communities, an enterprise should be considered for the purposes of this dissertation paper to be any entity, regardless of its legal form, regularly engaged in economic activities on an individual or family basis, partnerships or associations. Terms enterprise, company and business are used in this paper as synonyms and do not differ in their meaning. Business Leaders Forum The Business Leaders Forum, which has been operating in the Czech Republic since 1992, started from scrap and over the time has become influential. It is the Czech affiliate of the Prince of Wales Business Leaders Forum, which among others, acts as a National Partner of CSR Europe. Corporate Citizenship In the business community, corporate social responsibility (CSR) is alternatively referred to as corporate citizenship, which essentially means that a company should be a good neighbour within its host community. Or in other words corporate citizenship is a company's sense of responsibility towards the community and environment (both ecological and social) in which it operates, and draws resources and sustenance from. Terms corporate citizenship and corporate social responsibility are used in this paper as synonyms and do not differ in their meaning.

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Corporate Social Responsibility (CSR) The Green Paper of the European Commission published in 2001 defines corporate social responsibility (CSR) as a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis.

CSR Europe CSR Europe is the leading European business network for corporate social responsibility with around 75 multinational corporations and 25 national partner organisations as members. The organisation was founded in 1995 and it has since grown to become an inspiring network of business people working at the very forefront of CSR across Europe and globally. CSR Europe's Toolbox CSR Europe's Toolbox includes information, ideas and advice designed to help companies and their stakeholders address socio-economic and environmental challenges and integrate corporate social responsibility (CSR) into mainstream business practice. The Toolbox is based on the first results of the CSR Laboratories, crosssectoral business-stakeholder cooperation projects under the umbrella of the European Alliance for CSR.

EMAS - EU Eco-Management and Audit Scheme EMAS - the EU Eco-Management and Audit Scheme is a management tool for companies and other organisations to evaluate, report, and improve their environmental performance. Fair Trade Fair trade has been defined by its practitioners as a trading partnership, based on dialogue, transparency and respect that seeks greater equity in international trade. It contributes to sustainable development by offering better trading conditions to, and securing the rights of, marginalized producers and workersespecially in the South.

Global Compact The Global Compact (GC) was initiated by the Secretary-General of the United Nations at the Davos World Economic Forum in January 1999, encouraging the private sector to exercise Corporate Social and Environmental Responsibility (CSER) by adhering to nine

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principles drawn from international conventions or declarations on conditions of work, respect for human rights and the protection of the environment. In broad terms, CSER is seen as constituting demonstrable ethical, socially responsive and environmentally sensitive business practice. Membership of the Compact is voluntary. United Nations Industrial Development Organization (UNIDO) was inducted as the fifth partner UN Agency of the Compact in May 2003. The association of UNIDO with the Global Compact was sought in order to cater to the need for a growing membership of Small and Medium Enterprises (SMEs) in the Global Compact. Global Reporting Initiative (GRI) The Global Reporting Initiative (GRI) is a large multi-stakeholder network of thousands of experts, in dozens of countries worldwide, who participate in GRIs working groups and governance bodies, use the GRI Guidelines to report, access information in GRI-based reports, or contribute to develop the Reporting Framework in other ways both formally and informally.

Green Paper Promoting a European framework for Corporate Social Responsibility The Green Paper published in 2001 aimed to launch a wide debate on how the European Union could promote corporate social responsibility at both the European and international level, in particular on how to make the most of existing experiences, to encourage the development of innovative practices, to bring greater transparency and to increase the reliability of evaluation and validation. It suggested an approach based on the deepening of partnerships in which all actors (stakeholders) have an active role to play.

International Organization for Standardization (ISO) The International Organization for Standardization (ISO) is the world's largest developer and publisher of International Standards. ISO is a network of the national standards institutes of 159 countries, one member per country, with a Central Secretariat in Geneva, Switzerland, that coordinates the system. ISO is a non-governmental organization that forms a bridge between the public and private sectors.

Non-Governmental Organization (NGO) Non-governmental organization (NGO) is a term that has become widely accepted for referring to a legally constituted, non-governmental organization created by natural or legal persons with no participation or representation of any government.

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Non-Profit Organization A non-profit organization (abbreviated NPO, also not-for-profit) is an organization that does not distribute its surplus funds to owners or shareholders, but instead uses them to help pursue its goals. Examples of NPOs include charities (i.e. charitable organizations), trade unions, and public arts organizations. Terms non-profit organization and nongovernmental organization (NGO) are used in this paper as synonyms and do not differ in their meaning. Small and Medium-Sized Enterprise (SME) According to the definition of the European Commission the category of micro, small and medium-sized enterprises (SMEs) is made up of enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding EUR 50 million, and/or an annual balance sheet total not exceeding EUR 43 million. A small enterprise is defined as an enterprise which employs fewer than 50 persons and whose annual turnover and/or annual balance sheet total does not exceed EUR 10 million. And finally a micro enterprise is defined as an enterprise which employs fewer than 10 persons and whose annual turnover and/or annual balance sheet total does not exceed EUR 2 million. Social Accountability International (SAI) The Social Accountability International (SAI) was established in 1997 and convened an expert, international, multi-stakeholder Advisory Board to partner in developing standards and systems to address workers rights. Representatives of trade unions, human rights organizations, academia, retailers, manufacturers, contractors, as well as consulting, accounting, and certification firms, by consensus, cooperated to develop the Social Accountability 8000 (SA8000) Standard. Published in late 1997 and revised in 2001, the SA8000 Standard and verification system is a credible, comprehensive and efficient tool for assuring humane workplaces. Stakeholder Stakeholder is a person, group, or organization that has direct or indirect stake in an organization because it can affect or be affected by the organization's actions, objectives, and policies. Key stakeholders in a business organization include creditors, customers, directors, employees, government (and its agencies), owners (shareholders), suppliers, unions, and the community from which the business draws its resources. Although stake-holding is usually self-legitimizing (those who judge themselves to be stakeholders are de facto so), all stakeholders are not equal and different stakeholders are entitled to different considerations. For example, a firm's customers are entitled to

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fair trading practices but they are not entitled to the same consideration as the firm's employees. Sustainable Development In 1987 the Brundtland Commission offered its initial definition of sustainable development, which is development that meets the needs of the present, without compromising the ability of future generations to meet their needs. Triple Bottom Line According to John Elkington, author of the book Cannibals With Forks and the inventor of the term, triple bottom line (or in other words "People, Planet, Profit") captures an expanded spectrum of values and criteria for measuring organizational (and societal) success: economic, environmental and social. In practical terms, triple bottom line accounting means expanding the traditional reporting framework to take into account environmental and social performance in addition to financial performance.

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Appendix II:

Example of the Questionnaire on Corporate Social Responsibility Designed for Small and Medium-Sized Companies

Academic Research
Dear Sirs, I kindly would like to ask you for filling in an attached questionnaire (it should take you to complete only approximately 10 to 15 minutes), which surveys Corporate Social Responsibility of small and medium-sized enterprises in the Czech Republic. Nowadays Corporate Social Responsibility (hereinafter also CSR) is constantly growing in its importance, particularly due to the fact that it represents a factor of further growth and sustainable development of enterprises. Main objectives of this research are following: How small and medium-sized enterprises perceive and carry out CSR; To what degree are enterprises involved (active) in CSR; What main barriers/obstacles enterprises encounter when carrying out CSR. Results of the survey and further research will be incorporated in doctoral dissertation named Corporate Social Responsibility in Small and Medium-Sized Companies in the Czech Republic. Simultaneously I would like to assure you that results of this survey will not be misused in any way and that obtained information will be considered as strictly confidential. If you decide to fill in my questionnaire, I will be glad to send to you results of the survey and doctoral dissertation. I believe both materials (results of the survey and doctoral dissertation) may provide you with useful information on CSR and in this way may contribute to creation or strengthening of competitive advantages of your enterprise. I am kindly asking you for sending a completed questionnaire either via e-mail or by post to the below stated address. In case of any question, please, do not hesitate to contact me. I thank you for your cooperation and your valuable time in advance very much. David Polek, M.B.A. Czech Management Institute Praha - ESMA Barcelona Contact information (addresses where you can send completed questionnaires): E-mail: dapol@tiscali.cz or d_polasek@cbox.cz Mobile phone: +420-732-477-946 David Polek Tereznsk 701/4 190 00 Praha 9, Letany

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Instructions for completion of the questionnaire: next to the answer, which you identify with the most, make a cross or write a text where an underline is. In the questionnaire use only tabulators or mouse when moving from one question to another (do not use Enter key). After completion, please, save the questionnaire and send it to my return address. Thank you very much.

I. GENERAL INFORMATION ABOUT THE COMPANY

Seat/residence of the company (only city): Your working position in the company:

1. How long has your company been running/operating?

Less than one year 1 to 3 years 4 to 9 years 10 and more years

2. How many employees have your company? (Without parent company or other
companies in the group) (Only one answer allowed; in case your company has no employees, please, mark the answer 1 to 9)

1 to 9 10 to 49
(Only one answer allowed)

50 to 249 More than 249

3. What is the ownership structure of your company?

Solely Czech owner Czech owner with a foreign investor
(Only one answer allowed)

Part of an international corporation Solely foreign owner

4. What kind of business is your company in?

Production Retail sale Wholesale Transport IS/IT Consultancy R&D Construction Other: Financial services Tourism

5. Is your company certified according to some standards (e.g. ISO 9000, ISO 14000, EMAS, Standard Responsible Company)?
(Only one answer allowed; please, write a name of the respective certificate)

Yes, company is certified according to: Currently not, but my company is considering the following certification: No

6. Has your company defined strategy in writing (or at least mission and vision for the future)?
Yes No Do not know

II. SOCIALLY RESPONSIBLE ACTIVITIES OF THE COMPANY

1. Do you agree with the following statement: In order to assure a long-term prosperity, a company has to behave responsibly and ethically to its employees, environment, and community, in which it undertakes its business.
Yes, fully/completely Rather yes No Rather no

2. Have any of the following measures/arrangements been implemented in your company?

(More answers allowed)

Employee motivation and education system Process to ensure steps are taken against all forms of discrimination, both in the

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workplace and at the time of recruitment Sufficient health and safety arrangements are implemented at the workplace Top management discusses/consults important matters with employees Rules for recruitment of disabled or handicapped people are set up in the company Possibility/option of flexible working hours Possibility to work part-time for mothers taking care of small children Code of Ethics is worked out and implemented in the company Company contributes to pension insurance and/or life insurance of its employees 1 or more extra weeks of holiday above the standard legal length (4 weeks) None of these measures/arrangements are implemented in the company

3. Has your company prepared strategy for above mentioned measures/arrangements, which are implemented in your company (Please, see question no. 2 above)?
Yes No

4. Indicate in which of the following activities your company has been supporting its employees and/or its family members.
(More answers allowed)

Sport activities Education Cultural activities Other: Health care None Environmental protection ecological activities (other than directly related to consequences of the companys own operations)

5. Which forms of further education of employees has your company been supporting?
(More answers allowed)

Professional education (short-term courses, trainings) Language courses Training in managerial techniques Other: Further long-term education (secondary/high school, university, post-graduate education)

6. How important is for your company socially responsible and ethical behaviour towards its employees?
(Only one answer allowed)

Very important Important Less important Unimportant

7. Indicate which have been the major drivers/motivators for your company for implementing socially responsible and ethical behaviour towards its employees.
(More answers allowed)

Ethical/moral reasons Tradition Recruitment and retention of qualified employees (Improvement of employees loyalty) Improvement of employees job motivation Improvement of employees job satisfaction Improvement of economic performance of the company (costs reduction, sales
increase)

Application/implementation of business code of conduct Pressure from third parties (i.e. clients, competitors, governments) Use of existing public incentives (tax incentives, subsidies, others) Other: None

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8. Indicate which have been in practice the major benefits for your company regarding socially responsible and ethical behaviour towards its employees.
(More answers allowed)

Recruitment of new qualified employees Increase of current employees loyalty (reduction of staff turnover/fluctuation) Improvement of employees job satisfaction Improvement of relations with business partners and investors Improvement of customer satisfaction Improvement of economic performance of the company (costs reduction, sales
increase)

Use of existing public incentives (tax incentives, subsidies, others) Improvement of companys reputation (better image) Other: None

9. Indicate which have been the major barriers/obstacles for your company for behaving socially responsibly and ethically towards its employees.
(Maximum 3 answers allowed)

I havent thought about a possibility that my company could behave in such a way
(responsibly) Such (responsible) behaviour doesnt benefit to the company in any way

Lack of time (not enough time) Lack of financial resources Absence of state/government support Absence of public support/pressure Lack of know-how for establishment of such a system/program in the company Other: None

10. How important is for your company socially responsible and ethical behaviour towards environment and its community?
(Only one answer allowed)

Very important Important Less important Unimportant

11. Is your company aware of problems/thorny issues that trouble its close community?
No. If no, is your company willing to take more interest in communitys problems/issues? Yes. If yes, is your company willing to offer help? Yes Yes No No

12. Has your company been supporting any of the following activities (not its own employees and/or its family members)?
(More answers allowed)

Sport activities (not own employees) Cultural activities (not own employees) Health care (not own employees) Education and training activities (not own employees) Financial or other help/support to non-profit organization Environmental protection ecological activities (other than directly related to consequences of the companys own operations) Creation of good conditions for socially or in other way deprived groups for their involvement in community and work process Participation in public affairs or political process on behalf of the company Other: None

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13. Indicate in which way your company has supported social activities (do not include activities for or support to your own employees).
(More answers allowed)

Sponsorship Financial or in kind gifts (ad-hoc or once only) 236 Cause related marketing Cooperation with other parties on socially beneficial projects (i.e. non-profit sector, public sector, other private companies) Employee involvement in social/community activities (on behalf of the company) Other: The company does not support any social activity

14. Indicate in which way your company has supported environmental activities (other than directly related to consequences of the companys own operations).
(More answers allowed)

Sponsorship Financial or in kind gifts (ad-hoc or once only) Cause related marketing Cooperation with other parties on environmentally beneficial projects (i.e. non-profit sector, public sector, other private companies) Employee involvement in environmental activities (on behalf of the company) Other: The company does not support any environmental activity

15. Did your company receive any public support (i.e. incentive, subsidy) for its socially and environmentally responsible activities (CSR) not aimed at its own employees during the last 3 years?
Yes, in a form of Tax incentive Subsidy/grant Free of charge consultancy service Other:

No

16. Your company carries out socially and environmentally responsible activities (CSR) not aimed at its own employees:
(Only one answer allowed)

Independently (only your company) In cooperation with other companies

In cooperation with non-profit organization CSR is not supported by our company

17. Is involvement of your company in socially and environmentally responsible activities (CSR) occasional or regular? And is it related to business strategy or not?
(Only one answer allowed)

Occasional activities, unrelated to business strategy Occasional activities, related to business strategy Regular activities, unrelated to business strategy Regular activities, related to business strategy CSR is not supported by our company

18. Has your company prepared strategy for socially and environmentally responsible activities (CSR)?
Yes No

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Cause related marketing: the utilization of marketing means for the purposes of supporting and promoting a good cause and simultaneously supporting the commercial goals of the company.

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19. Indicate, which have been the major drivers/motivators for your company for support of: A) Social activities B) Environmental activities

A)

B)

(More answers allowed) Ethical/moral reasons Tradition Improvement of relations with public administration (public/state authorities) Improvement of customers loyalty Improvement of relations with business partners and investors Improvement of employees job satisfaction Improvement of positive image of the company Improvement of economic performance of the company (costs reduction, sales increase)

Establishment and/or retention of competitive advantage Application/implementation of business code of conduct Pressure from third parties (i.e. clients, competitors, governments) Use of existing public incentives (tax incentives, subsidies, others) Marketing and Public Relations Other: None

20. Is your company planning to decrease or to increase its participation in external social and environmental activities over the next 3 years?
(Only one answer allowed)

Decrease participation Continue as it is

Increase participation

21. Indicate, which have been in practice the major benefits for your company from the support of: A) Social activities B) Environmental activities

A)

B)

(More answers allowed)

Improvement of relations with public administration (public/state authorities) Improvement of customers loyalty Improvement of relations with business partners and investors Improvement of employees job satisfaction Improvement of positive image of the company Improvement of economic performance of the company (costs reduction, sales
increase)

Establishment and/or retention of competitive advantage Use of existing public incentives (tax incentives, subsidies, others) Improvement companys reputation Other: None

22. According to your opinion, which of the following groups has been influenced/affected by your companys Corporate Social Responsibility the most?
(Maximum 3 answers allowed)

Employees Customers/Buyers Suppliers Shareholders/owners Community of the company

Competitors Public administration Other: None

23. Has regularly been your company providing information about companys Corporate Social Responsibility to above-mentioned groups (see question no. 22)?
Yes, fully Partly No If yes or partly, in which way (e.g. Report on CSR)

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24. Do you agree with the following statement: Small and medium -sized companies can more effectively and in a more suitable way apply Corporate Social Responsibility on a local level than large and multinational corporations due to a better familiarity with local community.
Yes, fully/completely Rather yes No Rather no

25. Indicate which have been the major barriers/obstacles for your company for behaving socially responsibly towards its community and environment (i.e. supporting of social and environmental activities) ? (Maximum 3 answers allowed)
I havent thought about a possibility that my company could behave in such a way (responsibly) I do not see relation to the activities of my company Such (responsible) behaviour doesnt benefit to the company in any way Lack of time (not enough time) Lack of human resources/capacity Lack of financial resources Absence of state/government support Absence of public support/pressure Lack of information on Corporate Social Responsibility Lack of know-how for implementation of Corporate Social Responsibility in the company Bureaucracy None Other:

III. CORPORATE SOCIAL RESPONSIBILITY CONCLUDING QUESTIONS

1. Have you ever heard about Corporate Social Responsibility (CSR) before getting this questionnaire?
Yes No

2. Does your company measure and evaluate Corporate Social Responsibilitys related activities (i.e. social and environmental activities)?
Yes No No, but the company is planning to do so

3. Would your company appreciate generally accepted and transparent methodology how to effectively implement CSR in your company?
Yes No No, CSR has already been implemented in our company

4. Do you know any documents or organizations (particularly non-profit) dealing with CSR?
Yes, e.g.: No

5. Is any of your companys employees (or yourself) authorized/responsible for the coordination of CSR (i.e. social and environmental activities)?
Yes. If yes, please indicate his/her job position: No

In case of having interest in the results of this survey, please, fill in the following information. Name: E-mail:

Thank you very much for your time and your attention you paid to this questionnaire.
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Appendix III:

Examples of Company Values and Principles

Company Kovohut Pbram237 Mission of the company Kovohut Pbram We provide environmentally friendly services with wastes of lead, precious metals and electronic equipment with the best available technologies in recycling. We are traditional and faithful supplier of products and alloys based on lead, tin and precious metals. Our aim is to be in a leader position as regional employer. CSR mission statement of the company Kovohut Pbram Having a friendly approach to people and to the environment.

Company Plastia s.r.o.238 CSR mission statement of the company Plastia We profess a belief in corporate social responsibility. This principle of work rests in a responsible approach to our neighbourhood, the society, our employees and the environment.

CSR commitment of the company Plastia Plastia, out of choice, has accepted an obligation to apply the principles of corporate social responsibility as part of its activities. This decision has practical implications: some part of financial assets that we have gained from our economical activities is donated to selected projects in a long-term support campaign. The sphere we are engaged in is parenthood, motherhood and children. It is children who will once follow in our footsteps, and it is just them who will be creating the future world. Children welfare thus represents the most effective investment in the future we can make. In a joint project, therefore, we are trying to support maternity centres which help mothers with babies come out of isolation that they tend to get in due to day-long care of their children. At the same time the project helps those mothers keep in touch with their professions and boost selfconfidence. We also give support to a nursery school in Nov Vesel, as it makes one part of our village community, and they give back something in services they provide to our employees too.
237

Kovohut Pbram (2009), Mission of the Company (Posln spolenosti), available at: http://www.kovopb.cz/cz /poslani_i.html
238

Plastia (2009), Corporate Social Responsibility (Spoleensk odpovdnost), available at: http://www.plastia.cz /index.php?option=com_content&task=view&id=34&Itemid=68

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Company TPCA239 CSR commitment of the company TPCA We want to be a good neighbour and a partner playing an important role in economical and cultural development of the region of Koln. It also concerns good relations and open communication with employees, institutions, local government and individuals. We feel our role in gradual participation in various fields of the public life of the region of Koln.

CSR principles of the company TPCA 1. We care about the local region. 2. We respect the local culture and traditions. 3. We make life better by providing safe products. 4. We develop technologies that allow us to fully satisfy our customers needs. 5. We support a corporate culture built around creativity and teamwork. 6. We strive for growth that doesnt negatively impact society. 7. With our business partners, we strive for sustainable development.

239

TPCA (2009), A green factory (Zelen tovrna), available at: http://www.tpca.cz/cz/zelena-tovarna and TPCA (2009), TPCA and the region (TPCA a region), available at: http://www.tpca.cz/cz/tpca-a-region

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