Should the leaders of SMEs be as responsible as their corporate counterparts?
“The case for sustainable development must be reframed… It must be as much about new opportunities for responsible wealth creation as about outlawing irresponsible wealth creation.” Jonathon Porritt
The social, economic and environmental case for corporate responsibility
Unlike many of his fellow environmentalists, Jonathon Porritt believes the goal of sustainable development can be achieved within a profit-driven, market system. In his book, Capitalism as If the World Matters
Why is responsible leadership good for business
The surprise to those leaders who fear the social and legislative pressure to behave more responsibly is that it’s actually pretty good for business too. McKinsey demonstrated this in their 2009 report on the financial value of social responsibility programmes. They showed that when a business behaves responsibly it gains real financial value, as well as achieving the more obvious social and environmental benefits. In other words, the goal of delivering triple bottom-line value (social, economic and environmental benefit) to the organisation is entirely achievable, as well as desirable.
McKinsey also observed that: “these programs can have a strong impact in all three areas that investors typically consider important: leadership strength and development, both at the top and through the ranks; the overall adaptability of a business; and the balance between short-term priorities and a long-term strategic view.”
So when they behave more responsibly leaders of any type of business enterprise are not just improving their company’s overall performance, they are also enhancing their appeal to potential investors. The converse is that irresponsible behaviour, low ethical values and confused management often results in failure.
But that’s just half the story
Almost all of the examples that the authors of the McKinsey report provide, to support their conclusions, are of large global businesses. However, for us to meet the challenge of building the kind of truly sustainable and equitable economy – envisaged by Jonathon Porritt and others – much of this change will have to come from the SME (small to medium sized enterprise) sector because it accounts for so much employment and wealth creation. As evidence of this, BIS, the Department of Business Innovation and Skills, demonstrated that small and medium-sized enterprises (SMEs) accounted for 59.8 per cent of UK private sector employment in 2009 and 49.0 per cent of private sector turnover, giving an estimated SME turnover in 2009 of £1,589 billion. It is likely that, in the US at least, this pattern of employment and wealth creation is replicated
I think it would be fair to say that leaders in the SME sector are subject to different, and arguably fewer, pressures to act responsibly than their counterparts in larger organizations. If we take just one example; the response to climate change, large organizations are under both legislative pressure, through the Carbon Reduction Commitment (CRC) legislation, and moral pressure, through the Carbon Disclosure Project , to reduce their carbon emissions. Given that large public and private organizations account for 10% of UK carbon emissions, this legislative and moral pressure on large organizations to reduce their emissions makes sense. There is no equivalent pressure on leaders of SMEs, other than perhaps the pressure their large customers may put on them, as they seek to reduce the emissions from their supply chain. But, perhaps more importantly, there is the moral pressure leaders and their peers apply to themselves to behave more responsibly, in this case towards the environment.
It is the creation, enhancement and sustaining of this internal pressure to act more responsibly (show more conscience) that I would like to explore in further articles within Footdown’s Entrepreneurs with Conscience initiative.
With thanks to Matthew Clark for his help with this article.
Annette Mercer
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