Why CSR might matter to SMEs and why it should matter to Ghana too
Corporate Social Responsibility (CSR) is a term that has caught attention among businesses, governments, international donor agencies and many others over the last years. Some have questioned the usefulness of the term in a developing country context like Ghana pointing out that CSR is a Western concept. Others have described that CSR is most a large firm – a Multinational Corporation – term which has little relevance to small businesses (which we often term SME’s, and even less relevance to SMEs in developing countries.
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It is correct that CSR is a term which originated from the Western countries, and surely has been devised based on experiences from MNCs and we should not just apply ‘CSR’ uncritically to a business context like the Ghanaian. However, with this in mind, we should not confuse this with the impossibility of identifying responsible business practices among small businesses – or with what citizens in Ghana expect small businesses to show.
Small businesses see their responsibilities as being several like preserving the environment, securing a safe and healthy workplace and having proper labour standards in place in terms of paying the required wages, overtime fees and other required benefits to employees. But owners and managers of SMEs will not call such practices ‘CSR’, but rather say that they are simply following the rules and expectations that governments and the population at large have of them. So, yes, if we ask SMEs if they ‘know and do CSR’, they will say ‘no’ – at least many of them would. But if we ask the question in a different way as proposed above, most of them will say ‘yes’.
In addition to fulfilling the responsibilities mentioned above, SMEs often have a number of other responsible practices, but these tend to be other than what we from a Western MNC perspective will include as CSR. These practices are hidden, meaning informal, and include a range of things like providing loans to employees (e.g. in times when school fees or health bills need to be paid), allowing employees to take leave when important social events like marriges and funerals take place in their villages, giving donations to churches and different kinds of community organisations, whether youth clubs, sport clubs or similar. These practices are very important to the functioning of the small businesses as they ensure that management and employees stay on good terms and that the SMEs retain conducive relationship with the community.
So, while CSR is a somewhat alien and inappropriate term among small businesses, responsible practices are found among these firms.
This is again not to state that all SMEs necessarily only do good – obviously and of course not.
Given that SMEs constitute at least 90 per cent of all businesses in an economy, including in Ghana, we talk about the vast majority of firms. This means that there obviously will be some that don’t do anything and show irresponsible practices. And these ‘wrong doings’ are clearly something to worry about and seek to address.
While governments, industry associations, trade unions, donor agencies, consultants, researchers, NGOs and many others can influence SMEs to do better – if they are not doing so already, is a key issue, I first deal with what the positive outcome of undertaking responsible business practices can lead to and why this is and should be of interest to SMEs. The first area, and probably one with most potential is what we can call ‘common household keeping’ or ‘common business sense’. This is about finding what often is termed ‘win-win opportunities’. It includes looking for initiatives, where the small business makes a saving which at the same time helps the environment. One example could be to save on electricity and hence cut expenditure in the field. As energy prices and electricity rates go up, up and up in many countries, also in Ghana, all firms will be looking at increasing cost if they don’t do anything. So, investing in equipment, machinery and similar items come with a cost, but if the business can see the savings on this, well it makes sense. In the tourism industry, an example is to change light bulbs to new energy-saving bulbs, which have a quick return on investment time. Firms in water-consuming industries, like agro processing and garment have the same possibilities of making savings, again often with a short payback time like a year or two. To other small firms more efficient use of the raw materials and/or input into production will lead to savings in itself, but an ‘extra saving’ can be that fees for sending waste to the landfill site go down too, because the amounts of waste (in weight and volume) are reduced.
But it often also makes a lot of sense to ensure a safe and healthy working environment. While some small businesses pay their employees low wages, nearly all employees, after a short period of employment in a particular firm, will have firm-specific knowledge which a new employee will not have.
So, having an unsafe working environment where employees get injured and have to go to hospital means fines to be paid plus loss of efficiency in production, all in all a loss of money. Investing in safety (protection gear at machines, gloves, boots and so on) is a cost, but pays off in the long run.
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Some will say, ‘but the employees will not wear this because it is inconvenient’! Yes, this is an issue, but maybe it is an issue because the cheapest equipment has been bought. If better, though more expensive gear is bought, the chances of employees using it also increases. Secondly, it might be because management has forgotten to ask the employees how they think that the safety could be improved. Being involved in such decisions always creates appreciation among employees, which in itself is useful to ensure a better functioning firm.
Paying proper wages including overtime payment is also important, though again meaning extra costs. But if the other small firms don’t do so, why should I, the small business owner might ask.
Well, a good question. However, paying more often leads to appreciation among employees. Such employees are more efficient and more prone to conduct work in a responsible manner e.g. remembering to sort waste (so stuff that can be recycled is sorted from stuff that needs to go to the landfill site, or put off light or machines when they are not in use, as well as turn off water taps.
While small businesses may like to be assured that if they pay extra they get more – which is reasonable if you work on low profit margins – a possibility is to have bonuses if certain targets and certain practices are conducted. So, the bonuses could be tied to reductions in electricity use, use of input to production, water and even awarding people to come to work on time and/or for being present at all.
The opportunities are plentiful and the good stories of how many small firms have improved their performance and e.g. decreased their environmental impact are many.
So, apart from the SMEs can do themselves, what can other stakeholders do? They can do a lot. First of all, many SMEs will only undertake some of the above mentioned practices if they are assured that government has ensured that other firms do the minimum requirement.
This is also called to level the playing field. While some fell that government is not useful for these matters and this is something to be left to the small businesses and the private sector as such, experience shows differently. Lots of good examples show that when government intervenes and ensures a levelling playing field, it has a lot of positive effects.
The key issue is to ensure enforcement of the legislation. However, if this enforcement only leads small businesses to pay more taxes, more licenses and more fees, they will resist this – they need to see something in return. The benefits could be that the small firms get some advices when they pay taxes and fees which in turn improve their operations.
This could be in the field of waste handling. So the small business pay for waste collection, but in return either the government (effluent/waste control) officer or a consultant paid by government will come by the business, assess the situation and give advices on how to reduce the waste amounts.
Of course, we see problems with enforcement in many developing countries, including Ghana, so yes, we need to assess how can this situation be changed to the better? While donor agencies have tried to assist governments in upgrading capacity, with some success in some cases, this is a question both of governments to provide more funds to fulfil their responsibilities as well as industry associations, businesses and civil society, including individual citizens to put pressure on government to do this. Only through such pressure, we see change.
Industry associations can also be an important actor in this field. This takes that the industry associations have a fair representation among the businesses that it seeks to represent and that the associations provide quality services to their members.
Such services could obviously be the good advices on how to undertake the responsible business practices mentioned above – simply because it makes good business sense.
So, industry associations have an important role to play, also in terms of spreading the good examples among their members and to lobby government to either have proper legislation and/or support schemes in place as well as undertaking enforcement of the legislation.
Unfortunately, industry associations are often weak in many developing countries, including in many countries on the African continent. The reasons are many, one being lack of representation, another that the services to the members are too poor and a third is that many associations are working more as a personal instrument to individuals to pursue political careers rather than doing something for their members.
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So, yes, CSR is probably not the most appropriate term to use when we talk about responsible business practices among SMEs, but such practices certainly are relevant also to small businesses. How can we then move forward with the spread of such practices? Several routes are possible.
The ongoing discussion of a CSR policy in Ghana could be one instrument, but it will be important that such policy reflect key issues as a) the differences between industries and that difference practices are found among firms from different industries, so a policy need to be rather general and provide for industry specific elements to be drawn in e.g. cocoa, mining, agriculture, fisheries and so on, b) practices differ among small businesses.
We don’t yet fully know why but we know that while the smallest firms have the fewest responsible practices, the small one have and the medium-sized even more and c) the market of the firms matters. If firms engage in exports or have international customers, they have a higher likelihood to have more responsible practices in place compared to small firms which solely sell in the domestic market. One reason being that the local customers do not ask for specific product features similar to what international customers might do. Then it is imported to start small, e.g. with a well defined geographical area and one or two industries.
When experiences have been gained, adjustments can be made, and the initiative can be rolled out to more areas and more industries. Again, new learnings need to recorded, adjustments made and yet again, improved initiatives can be taken further – both for the benefits of the small firms, employees and society at large.
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There are many good reasons why additional effort should be placed on this, but we often see government, industries and other stakeholders shy away from this, because they do not believe in the benefits. This will hopefully not be the case in Ghana in the years to come.
Soeren Jeppesen an Associate Professor and SME expert at the Copenhagen Business School and writes for the Centre for Sustainability and Enterprise Development (CSED) at the same School. CSED is a training, research and advocacy center specializing in marketing; communications, sustainability and social responsibility. Soeren can be reached at sj.ikl@cbs.dk and the CSED can be reached at csed@ug.edu.gh