Nada Kakabadse, Linda Lee-Davies and Nicholas Theodorakopoulos
Whilst in the past large enterprises were seen as the motor of industrialization and economic development, in the post global financial crisis there is a growing awareness in Europe that the main source of employment, growth and innovation is found in the entrepreneurial activities of small and medium-sized enterprises (SMEs). More than 99% of all European businesses (i.e. some 20 million) are SMEs which accounts for about 67% of the total employment and 60% of the EU’s gross domestic product.
Over the last generation Entrepreneurship and enterprise itself have, been viewed more in economic terms and less so in ethical ones. Now though this gap is closing as corporate behaviours and emphases change. The strategies of big enterprises have generally carved success from conventional business criteria, supported by structures formed to achieve this. Notably, the addition of ethical criteria into the success mix in the past has been more random, determined by prevailing forces at play, including structural and cultural enablers and constraints. Currently, there is more recognition that ethics are becoming more important for the SMEs sector as the success of such firms depends, among other factors, increasingly on their integrity (i.e. ethical behaviour)and the founder-entrepreneur’s acumen and benevolent character. Studies of European SMEs and social and environmental responsibility show a higher percentage of sustainable-oriented SMEs in Nordic Countries (i.e. Finland, Denmark, Ireland, Norway, The Netherlands and Sweden) notably characterized by a more “feminine” and a low “power-distance” culture.
Given that the SMEs sector constitutes the backbone of the socio-economic system, the role of the entrepreneur is paramount, as he/she is both the driver and nurturer of values. For example, the process of orientation towards CSR and sustainability is in fact normally promoted by the owner-manager/entrepreneur and depends on his/her ethical orientation and values. Moreover, in SMEs, the presence of ethical values of the entrepreneur represents a fundamental driving force in determining the spreading of a philosophy of governance and corporate management, as well as guiding towards the adoption of CSR and sustainability practices.
Such values of entrepreneurship are expressed by way of active attitudes and refer to typically entrepreneurial attributes such as spirit of initiative, creativity, leadership, charisma, enthusiasm, passion, ambition, desire, commitment, responsibility and imagineering. However, the ethicality of the entrepreneurship role depends on the moral conscience of the entrepreneur and their ability to make sustainability itself sustainable in a profit oriented environment.
The entrepreneur is rarely motivated by purely short-term economic factors, although they are important drivers. Values and attitudes towards the social context are central factors in the SME strategic system and are expressed by the vision and by the ‘entrepreneurial formula’. In turn, values nourish the organization and enhance the spirit of entrepreneurialism. Values are roots, which inspire the strategic orientation and constitute the most important source of identification inside the firm and the primary basis of how the outside world sees them. The importance of values and business ethics for SMEs rests on three essential aspects of entrepreneurship:
• The influence of the entrepreneur’s subjective sphere, in the small firm is maximized. Usually values are adopted in the firm as a ‘way of life’ and a founder with a strong personality plays an important role by prompting the adoption of these values. The entrepreneur’s “personal” element in SMEs is more contiguous because of the tight network of interpersonal relations. The business is nearly always linked to the family or individual and their values. The firm’s values, usually represented by the founder of the company, are key success factors in SMEs as a whole.
• The more intrinsic relational factor is a distinctive aspect of the smaller-sized business and is the driver of specific strategies not always, nor necessarily, aimed directly at financial growth. Often constant striving is for excellence in products, services, organization. They diverge from more human and qualitative life cycles of the firm and focus instead on emotional values, as there is general agreement that hard work and complete dedication are necessary to succeed. These relationships are at the base of “relational goods” that have to do with altruism, moral gratification, the logic of happiness, gratuitousness and gifts.
• Entrepreneurs are often very active members of a social community in which they reinvest part of the economic wealth they generated as well as their personal energies. They become the custodians of CSR and embed it into their communities. Their successful strategies are not only focused on profits but also on creation and management of personal relationships within their community, which simultaneously constitutes a source of supply of resources as well as a consumer market.
Seen in this way, entrepreneurship is a particularly strong vehicle for moral activity and this applies in the external and internal communities. As well as benefitting the community in which the firm sits, the entrepreneur has a direct effect on their employees, one which is very much magnified by the proximity and intimacy in an SME. Positive attitudes pervade and examples are set to those in situ; but more than this employees are valued as individuals working for the firm and as a part of the plural community in which they sit. Conversely, employees are able to enjoy and own the responsibility for their own and their community’s sustainability. This can make them an organic part of their business and subsequently the business an organic part of the community. When that happens, profit and people coexist in a much more sustainable way than some short term target measures forced in some larger companies. In this case ‘small is beautiful’ with employees – the most valuable firm resources - identifying with the firm and remaining committed. A sense of belonging to a precise cultural and ethical context, a proximity to internal and external networks, resultant flexibility, innovative drive and adaptive competences - as attributes underpinning competitive advantage - are enhanced. Finally and crucially, when ethical values/CSR stance become an element of the firm’s positioning, then the SME can effectively differentiate its product offer (goods/services) to compete more effectively in an increasingly complex and dynamic competitive landscape.
Prof Nada Kakabadse, Northampton Business School, Linda Lee Davis, Northampton Business School, Dr Nicholas Theodorakopoulos, Aston Business School