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Corporate Social Responsibility in Small and Medium-Sized Companies in the Czech Republic
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 author’s own survey exclusively oriented on SMEs operating in the Czech Republic. Author’s 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
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 long-term 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 author’s 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 Union’s 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 Institute, 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 surveys on this topic forms the content of the first four chapters. The following four chapters are focused on summarizing results of the author’s 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 author’s 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 author’s own research focused on internal dimension of CSR. Chapter 7 consists of six key subchapters and it provides specific results of the author’s 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.
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.
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. 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 CSR’s 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 anti-corruption. 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 Development, and the United Nations Convention against Corruption. 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 Principle 1: Businesses should support and respect the protection of internationally proclaimed human rights; and
o Principle 2: make sure that they are not complicit in human rights abuses.
· Labour Standards:
o Principle 3: Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining;
o Principle 4: the elimination of all forms of forced and compulsory labour;
o Principle 5: the effective abolition of child labour; and
o Principle 6: the elimination of discrimination in respect of employment and occupation.
· The Environment:
o Principle 7: Businesses should support a precautionary approach to environmental challenges;
o Principle 8: undertake initiatives to promote greater environmental responsibility; and
o Principle 9: encourage the development and diffusion of environmentally friendly technologies.
o Principle 10: Businesses should work against corruption in all its forms, including extortion and bribery.
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 resources”. 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 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.” Thus, beyond making profits, companies are responsible for the totality of their impact on people and the planet. People in Chandler’s definition constitute the company’s 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, enterprise-driven initiative, which refers to activities that are considered to exceed compliance with law”.
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”.
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 EU´s 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
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.
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