Journal of Business Ethics (2010) 91:207221 DOI 10.

1007/s10551-009-0079-z

Springer 2009

Investigating Stakeholder Theory and Social Capital: CSR in Large Firms and SMEs

Angeloantonio Russo Francesco Perrini

ABSTRACT. The concept of corporate social responsibility (CSR) has been widely investigated, but a generally accepted theoretical framework does not yet exist. This paper argues that the idiosyncrasies of large firms and SMEs explains the different approaches to CSR, and that the notion of social capital is a more useful way of understanding the CSR approach of SMEs, whereas stakeholder theory more closely addresses the CSR approach of large firms. Based on the extant literature, we present a comparison of large firm and SME idiosyncrasies suggesting that both consolidated and emerging strategic orientations toward responsible behaviours exist. Idiosyncrasies of large firms and SMEs are also discussed to provide an assessment of the firms strategic CSR orientation, suggesting the key drivers upon which CSR strategies must be based. A twofold consideration emerges. First, the CSRSME relationship could be better explained if the notion of social capital is taken into account, but this should also be accompanied by a stakeholder view of the SME; second, social capital and stakeholder theory should be taken as alternative ways of explaining CSR in both large firms and SMEs. KEY WORDS: corporate social responsibility (CSR), idiosyncrasies, small and medium-sized enterprises (SMEs), social capital, stakeholder theory

Introduction The concept of corporate social responsibility (CSR) has been widely investigated throughout the last few decades. Nevertheless, researchers and practitioners are still far from identifying a generally accepted and reliable theoretical framework to explain issues related to the activity of a broad range of rms. The CSR that characterises large corporations has already been researched (Bowen, 1953; Carroll, 1979; Clark, 1939;

Kreps, 1940), but the need to shift from theory to practice has focused attention on the CSR practices of small and medium-sized enterprises (SMEs) (Brown and King, 1982; Wilson, 1980). Therefore, several studies have compared the concept of CSR among large rms and SMEs, but a clear representation of the main issues relevant to such a new strategic option for both large rms and SMEs remains to be accomplished. Large rms and SMEs differ in critical ways (Welsh and White, 1981), so that a complex issue such as CSR must encompass the many disparities. Additional effort is needed to acquire more theoretical insight into the CSRSME relationship and more practical knowledge about the most effective management of large rms and SMEs through responsible behaviours. Given the above considerations, this paper addresses the question of whether the idiosyncrasies of large rms and SMEs explain the different approaches to CSR used by large rms and SMEs and whether the notion of social capital is a useful way of understanding the CSR approach of SMEs, as stakeholder theory addresses the CSR approach of large rms. We propose a comparison of large rm and SME idiosyncrasies that are the base of what we call the consolidated and emerging strategic orientation of large rms and SMEs. We begin by analysing the main characteristics of large rms and SMEs and investigate the most relevant literature on the CSR practices of large rms and SMEs, also studying the economic conditions that distinguish large rms from SMEs. Analysis of both stakeholder theory and social capital suggests that the former explains and considers CSR as the antecedent of the relations by large rms with their stakeholders. The latter, for SMEs, suggests that CSR is the outcome of

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Angeloantonio Russo and Francesco Perrini conditions of society. Nevertheless, this perspective soon generated scepticism, which insisted that the principal social responsibility of corporations is to generate prot (Friedman, 1962). An institutional interpretation has been recently offered by the European Union (EU). To them, CSR is a concept whereby companies decide voluntarily to contribute to a better society and a cleaner environment (CEC, 2001) and a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis (CEC, 2006). Firms are encouraged to consider their responsibilities toward several stakeholders with the goal of integrating economic, social, and environmental concerns into their strategies, their management tools, and their activities, going beyond simple compliance. It is due to such scepticism that companies and researchers still stress that the main objective of corporations is to generate prots and, in this process, prioritise their cash ows. What is different today is that prots can no longer be a corporations sole objective, in that their success is based also on their stakeholder relationships, which encompass many interests, chief among them social and environmental issues. This conclusion is the result of many attempts throughout the years to dene the distinctive features and rules of CSR (Manne and Wallich, 1972). These efforts have built the CSR paradigm on specic issues that emerged as crucial. First, socially responsible companies had to act voluntarily to conform to CSR paradigms, going beyond legal prescriptions (Davis, 1973). Second, the symbiotic relationship between business and society became the central issue of the debate, and one conclusion was that such a relationship had to be long term (Ackerman, 1975; Preston and Post, 1975). Soon, the relationship developed into a kind of necessary integration of business in society in which society interacts with business at large, lending its legitimacy and prestige , 2004), and business becomes (Garriga and Mele responsible for its activities within society in its longterm economic operations and creation of value. The theoretical framework advanced to the conclusion that where a company has many opportunities to increase its performance, many actors can inuence it. Within this context, the importance of stakeholder management increased. Stakeholders

the relational accumulating process through which SMEs build their social capital. On the other hand, an emerging strategic orientation of the rm that we present in this paper does not necessarily follow the above logic, which means neither stakeholder theory nor the concept of social capital can exclusively and respectively explain large rm and SME responsible behaviours. In more detail, a twofold consideration emerges. On the one hand, the CSRSME relationship could be better explained if the notion of social capital is taken into account, but this should also be accompanied by a stakeholder view of the SME; on the other hand, social capital and stakeholder theory should be taken as alternative and not complementary for explaining CSR in both large rms and SMEs. We organise our ndings by rst discussing the theoretical evolution of CSR, highlighting its milestones to clarify the relationship between stakeholder theory and large corporations. We then focus on the specic literature on CSR and SMEs that encompasses the relevance of social capital to our research. We next present our research questions and discuss the differential analysis, focusing on the approaches of large rms and SMEs toward responsible strategic orientation. Finally, we offer some conclusions that emerge from the analysis of this comparison.

From CSR to stakeholder theory At the beginning of the third millennium, the concept of CSR is gaining increasing momentum, progressing from its initial focus on the shallow considerations of temporary fashion and window dressing to a serious and critical concentration on corporate strategic orientation. Therefore, the interpretation of CSR evolved according to and due to some of the most recent academic literaturea knowledge ow that has generated many particularly interesting academic definitions of CSR. The rst denition of CSR was presented by Bowen (1953, p. 6), who stressed the obligations of businessmen to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society. This perspective developed in response to the progressively widening range of activities implemented by large companies that had potential and severe repercussions on the welfare and general

Investigating Stakeholder Theory and Social Capital were dened as those groups who can affect or are affected by the achievement of an organisations purpose (Freeman, 1984, p. 49), and they are the fulcrum of the stakeholder theory. Several interpretations of the stakeholder theory have been proposed, but the bottom line agreed upon was that it can be useful to explain as well as to guide the structure and operations of the established corporation (Donaldson and Preston, 1995). This is not only to say that corporations have to act in a responsible way to avoid growing stakeholder pressures, but to achieve a better or good society. Moreover, it became clear that the CSR paradigm is not only the nal result of a process, but also a process itself that must be considered in all decision making, as well as evaluated and measured (Jones, 1980). CSR has therefore to be considered as a strategic orientation of corporations, which are capable of implementing socially responsible behaviours while pursuing their activity; in addition to moral values and ethical codes, nonnancial reports are the means through which corporations become accountable for their strategy toward relevant stakeholders. From a practitioner perspective, stakeholder theory taught good managerial and instrumental practices to rms. Today, CSR is focused on a stakeholder model, which has become widely accepted among contemporary business organisations. Nevertheless, it is extremely dynamic, in that stakeholders change as the companys context of reference changes (Dunfee, 1991; Hasnas, 1998). At this very beginning of the third millennium, the attention has shifted to a new perspective on stakeholders proposed by Post et al. (2002a, b) while investigating several large corporations. This new perspective stresses the importance of inter-stakeholder relationships, which involve a complex web of relationships rather than just a series of dyadic connections between stakeholders and the corporation. Crucial questions still are who the relevant stakeholders are and whether we are talking about stakeholders or relationships among stakeholders. Two sorts of stakeholder legitimacy have been postulated (Phillips, 2003): (1) certain stakeholders are of crucial importance to the organisation and are therefore, at the least, legitimate (derivatively), but this legitimacy derives from the moral obligation owed to other (normative) stakeholders. (2) Stakeholder identity is critical as well, since stakeholders have different relationships to the organisation, most

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depending on the communities in which they operate (Dunham et al., 2006).

CSR language in SMEs CSR is a different issue when applied to SMEs, because of the intrinsic differences between large rms and SMEs. In other words, it is not the CSR that differs between large rms and SMEs, but the fact that SMEs are not little big rms (Tilley, 2000). Enderle (2004) underlines that standards to implement CSR may prove inappropriate for small rms because they have been developed thinking of large businesses. Size represents but one criterion; others include legal form, sector, orientation toward prot, national context, historical development, and institutional structures (Spence, 1999; Spence and Rutherfoord, 2003). In terms of specic characteristics, SMEs tend to be independent, multitasking, cash-limited, and based on personal relationships and informality (Spence, 1999), as well as actively managed by the owners, highly personalised, largely local in their area of operation, and largely dependent on internal sources to nance growth (Lepoutre and Heene, 2006; Vyakarnam et al., 1997). The relevant extant literature on the knowledge gap that exists in the CSRSME relationship is still far from constructing a consolidated and generally accepted model to investigate such relationships as well as providing a responsible perspective on the management of SMEs. Even though it is accepted that CSR is not a prerogative of large rms, there is a lack of consensus on the managerial tools and opportunities that SMEs should derive from CSR. The current understanding of it still fails to encourage most SMEs to decidedly implement sustainable management (Murillo and Lozano, 2006; Roberts et al., 2006), as most studies and literature on CSR or business ethics focus on specic characteristics of large rms (Spence et al., 2003). Even though the CSR movement offers some good hints for SMEs, the implementation of a standardised CSR concept in an SME cannot be considered as the best alternative for any company that wishes to embed social and environmental issues efciently in its company strategy (Ortiz Avram and Ku hne, 2008). Ortiz Avram and Ku hne (2008) use the term responsible business behavior instead of CSR to describe their proposal for a strategic and holistic

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Angeloantonio Russo and Francesco Perrini Within the above theoretical context, many authors have considered the concept of social capital as essential when nding an argument for SMEs to engage in CSR (Ortiz Avram and Ku hne, 2008). A growing number of sociologists, political scientists, economists, and organisational theorists have investigated the concept of social capital (for a synthesis of theoretical research undertaken in various disciplines on the concept of social capital, see Adler and Kwon, 2002). Social capital is a multidimensional concept (Paldam, 2000) that has been investigated by distinct approaches prevalently in terms of trust and reciprocity norms (Putnam, 1993), relation networks (Burt, 1992; Coleman, 1988, 1990), and relational competences (Araujo and Easton, 1999; Glaeser et al., 2000). Social capital relates to various important aspects of business ethics, such as transparency, goodwill, and good citizenship (Spence et al., 2003). In this paper, we refer to the notion of social capital provided by Putnam (2000, p. 19): Whereas physical capital refers to physical objects and human capital refers to the properties of individuals, social capital refers to connections among individualssocial networks and the norms of reciprocity and trustworthiness that arise from them that can improve the efciency of society by facilitating co-ordinated actions (Putnam, 1993, p. 167). Moreover, stocks of social capital, such as trusts, norms, and networks, tend to be self-reinforcing and cumulative. Virtuous circles result in social equilibria with high levels of co-operation, trust, reciprocity, civic engagement, and collective well-being. These traits dene the civic community. Conversely, the absence of these traits in the uncivic community is also self-reinforcing (Putnam, 1993, p. 177). This notion has been explored with the aim of investigating the CSRSME relationship (Habisch et al., 2001; Spence and Schmidpeter, 2003; Spence et al., 2003). Of course, it is not possible to assume a winwin condition for those who are engaged in and contribute to the common good under different competitive conditions (van de Ven and Jeurissen, 2005), even though formal institutions, networks, and mutual relationships can develop social capital for the SMEs (Spence and Schmidpeter, 2003). Due to their particular dependency on the network of interpersonal relationships that determine how they function, SMEs are especially interested in investing in social capital (Murillo and Lozano, 2006). From a

concept that should help SMEs to discover what constitutes their real economic, social, and environmental responsibilities. Responsible business behavior describes a holistic, stakeholder-oriented approach for companies of all sizes and sectors, encouraging them to focus on ethical and responsible issues linked to their core business. These conclusions proceed from the recent relevant literature on the CSRSME relationship. Nevertheless, several other recent trends in research on the CSRSME complex remain to be discussed. In the 1990s, researchers, but not practitioners (i.e., SME entrepreneurs and SME ownermanagers), began to take into consideration the specic distinguishing traits of SMEs and the need to investigate the CSRSME relationship from different perspectives. Four main contextual problems were soon identied, providing evidence that a more structured form of research was needed to investigate SMEs in this context (Spence, 1999, p. 169): (1) denition of SMEs; (2) assumptions of comparability between small and large rms; (3) clarity of focus and wider implications; (4) methods used. The literature to date has focused on specic ethical issues in the CSRSME relationship. In particular, ethical issues have been recognised by small rm ownermanagers as key drivers of SME development. Such ethical issues are openness and trust, religiousbased references to ethics, selected relationships with suppliers, and honest dealings with employees. On the other hand, the likely ineffectiveness of formal tools such as codes of conduct and social and ethical standards is also suggested, since they often require a larger proportionate investment of time, nances, and energy from small rms than from large rms (Spence et al., 2000). Moreover, external issues also inuence small business ownermanagers, such as cultural, institutional, and political systems. Graaand et al. (2003) integrated this perspective, suggesting four main motivations to explain the differences in socially responsible behaviours between SMEs and large rms: visibility to the public and the media, economies of scale, more need for instruments that facilitate the communication of values and norms within the rm and to its customers, and stronger competitiveness in the output market for small enterprises. In sum, much work is required to develop better ethical tools and connect new theories to small-rm practice (Tilley, 2000).

Investigating Stakeholder Theory and Social Capital socio-economic perspective, economic action is embedded in structures of social relations and order is found in the market because of personal relations and networks of relations between/within rms (Granovetter, 1985). This also means that for SMEs social capital accrues through formal engagement, networking within sectors, networking across sectors, volunteerism, and giving to charity (Spence et al., 2003).

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A differential analysis of large firm and SME idiosyncrasies The research question We have discussed two different perspectives that emerged and evolved throughout the past decades to explain, respectively, responsible behaviours by large corporations and the relationship between CSR and SMEs. One would expect to nd a greater degree of formalisation in large-rm CSR strategies (Perrini et al., 2007; Russo and Tencati, 2009). Considering large rms, some formal initiatives are carried out (e.g., with regard to environmental and HR management policies, and nonnancial reporting), but they are not part of structured and explicit management systems. SMEs, on the other hand, are more immediately exposed to the potential economic loss that may occur from a failure to adopt responsible strategies, just because of their need to pursue, conrm, and strengthen their community relations (Russo and Tencati, 2009). In other words, small businesses need such relations with the community to survive, whereas, in general, large rms do not. Therefore, it is the community that wants CSR from small businesses, and as a consequence small businesses pursue CSR. Once again, we are not assuming that CSR is an exclusive prerogative of large rms, since SMEs are increasingly revealing their CSR aptitude (CEC, 2002). As well as their unawareness of CSR strategies (Jenkins, 2004), SMEs could be stimulated and supported toward expanding their responsible behaviours. Governments and public authorities can be one of the agencies through which the CSRSME relationship can be further analysed, but the rst agent within this process should be the SMEs themselves. In line with what has been recently dened as an

implicit approach to CSR (Matten and Moon, 2008), compared with the explicit US model, the European Commission is betting that as they become more socially aware and responsible, SMEs can make Europe a pole of CSR excellence (CEC, 2006), and this process has been based on specic steps such as cooperation, networking, alliances, knowledge sharing, formation and information, internationalisation, and SMEs, of course. Recent research raises the question of whether CSR differs in the settings of large businesses and SMEs, but an afrmative as well as negative conclusion seem to be the collective answer. On the one hand, the same basic principles apply whether you are small or large, minimising your negative environmental and social impacts, and maximising your positive impacts. On the other hand, there are differences since SMEs rarely use the language of CSR to describe what they do. The drivers usually start with the personal beliefs and values of the people running the SME, who are usually the owners (Grayson, 2004). Nevertheless, when the stakeholder claims his/her rights or legitimate stakes, the rm must account for them, formally or informally but intentionally.1 Given these considerations, our next step in this paper is to provide an alternative interpretation of the extant literature on CSR, through the twofold lenses of both large rms and SMEs. Starting from the above review of the literature, we question whether the stakeholder theory and social capital do account for the main differences between large rms and SMEs and therefore investigate how intentionally both large rms and SMEs act in a responsible way through their strategic management. In particular, we provide specic research questions:
Do the idiosyncrasies of large rms and SMEs explain the different approaches to CSR used by large rms and SMEs? Is social capital a useful way of understanding the CSR approach of SMEs? Is stakeholder theory a useful way of addressing the CSR approach of large rms?

A differential analysis While investigating the CSR paradigm, researchers have taken into due account several critical issues through which they have also explained the strategic

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Angeloantonio Russo and Francesco Perrini common to both large rms and SMEs. On the other hand, the emerging strategic orientation of the rm takes into account a new strategic concept, which is directly related to those concerns that arise from a sustainable strategic approach. Therefore, researchers and managers can learn about the extent to which a rms distinctive traits drive its strategies, and, in particular, its responsible behaviours.

orientation of rms that behave responsibly. Following the natural evolution of the CSR paradigm, today we can acknowledge that in general CSR is not just a matter of responsibilities, but also the strategic vision that characterises many rms worldwide; nevertheless, many companies think of and implement social responsibility issues in a standardised way instead of aligning CSR with their strategic objectives (Porter and Kramer, 2006). This also means that in order to untangle the origins of the CSR paradigm, researchers have studied the dynamics of the CSR concept activated by rms at the national, multinational, and global level. Moreover, the CSR concept is but one expression of the strategy of these rms, revealing their own distinctive traits. Therefore, evaluating the extant literature on CSR is one way to synthesise the rms main characteristics, which evidences their socially responsible strategies. In Table I, we present a comparison of the main features of large rms and SMEs, representing what in this paper we refer to as the strategic orientation of both large rms and SMEs, to assess the relevance of rms distinctive characteristics against their socially responsible strategies. Both a review of the literature on CSR and empirical analysis of the worldwide economic scenario provide evidence of the differences between large rms and SMEs. They differentiate from larger rms by their structural, social, and functional characteristics (Spence and Schmidpeter, 2003). Criteria such as employees, assets, nancial turnover, market share, and ownership (Lepoutre and Heene, 2006) constitute some of the differences with larger rms. The idiosyncrasies presented in Table I, which will be discussed in more detail in the following paragraphs, suggest the linkage that is supposed to exist between theory and practice. In other words, large rm and SME features are herein considered as the key drivers leading and constraining managers and ownermanagers in charge of the strategic orientation of the rm in addressing specic CSR strategies; managers have the obligation of responding to the claims of different stakeholders; ownermanagers are activating their new opportunity to formalise their corporate strategy. The consolidated strategic orientation of the rm is based on those idiosyncrasies of the rm that, even if associated with specic issues emerging from the CSR paradigm, are generally recognisable as

Discussing the consolidated and emerging strategic orientation of the firm In order to investigate the differences between the consolidated and emerging strategic orientation of the rms, a differential logic has been used comparing the stakeholder view of the rm and the notion of social capital with large rm and SME idiosyncrasies. Such differential logic implies that stakeholder theory explains the CSR issues generally associated with large rms, but this does not mean that stakeholder theory has no relevance to SMEs. On the other hand, it might also be the case that the notion of social capital explains the idiosyncrasies of the CSRSME relationship, but again this does not imply that the notion of social capital has no relevance to some idiosyncrasies of large rms CSR strategies. Therefore, this analysis aims toward different implications for researchers and managers as well, who strive for a clearer representation of CSR strategic orientation. First, it identies and relates specic CSR strategies to specic, differentiating characteristics of SMEs and large rms. Second, it claries whether or not the differences between stakeholder theory and social capital explain the different approaches toward CSR of large rms and SMEs, respectively. Third, it provides an assessment of the rms strategic CSR orientation, suggesting the key drivers upon which CSR strategies must be based. Here we present the most important insights provided by the analysis, rst considering the consolidated strategic orientation of the rm and then the emerging strategic orientation. Moreover, in light of the knowledge gap explained above and characterising the CSRSME relationship, priority is given to SMEs idiosyncrasies, especially compared with those of large rms.

Investigating Stakeholder Theory and Social Capital

TABLE I An analysis of SME and large rm idiosyncrasies Strategic orientation Consolidated Independence SMEs Large rms Group Joint ventures Alliances Externally nanced Diversied Rigidity Economies of scale External management Competitiveness-maker

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Internally nanced Cash-limited Multitasking Flexibility Economies of scope Ownermanagement Emerging Competitiveness-keeper Informality Invisible to the media and NGOs Largely local

Formalised Visible to the media and NGOs National Multinational Global Transactional Structured relationship Branded

Relational Personal relationship Trust Openness

Consolidated strategic orientation Independence SMEs are generally considered as independent rms compared to large rms (Spence, 1999). This means that SMEs do not exploit the chance of co-operating with external stakeholders through established partnerships in the long term. Large rms, on the other hand, reveal a strong aptitude for managing external relationships, which start within the group of subsidiaries that often characterises their organisational structure, and continue to relevant external stakeholders, such as suppliers, clients, and competitors. Although the theory of social capital predicted that for SMEs social capital accrues through networking within and across sectors (Spence et al., 2003), herein the new stakeholder view presented above provides a clearer understanding of the importance of engaging in external durable relationships for large rms (Post et al., 2002b), which is possible through partnerships and joint ventures, as well as alliances, perhaps the

rms only sustainable approach for managing external relationships. Exceptions exist of course regarding the structural independence among SMEs; examples are the so-called Italian districts (Pyke et al., 1990), where many SMEs work together in naturally and historically bounded areas with a potentially high impact on the local environment. Internally nanced and cash-limited Often, CSR is criticised as an expensive strategy that provides only long-term results. In this context, SMEs do not nd it easy to invest in responsible strategies, since SMEs are chronically cash-limited (Lepoutre and Heene, 2006; Vyakarnam et al., 1997). On the other hand, SMEs are not, or do not want to be, attractive to external investors. Therefore, SMEs are not generally able to obtain the nancial resources that are required for long-term growth (Vyakarnam et al., 1997). Moreover, few SMEs recognise the importance of codifying specic values, such as a higher level of innovation, which

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Angeloantonio Russo and Francesco Perrini behaviour among others, and this allows them to break in and build strong relationships with local communities. In terms of such social capital, however, SMEs are part of their local community and are recognised as an embedded entity by citizens. Ownermanagement It is widely accepted that SMEs are not burdened by obligations to their shareholders; in fact, shareholders are in charge of managing the rm, minimising the well-known agency conicts rampant at the beginning of the 1930s among large corporations (Berle and Means, 1932). As clearly suggested within stakeholder theory (Donaldson and Preston, 1995), large rms are responsible for their action toward shareholder claims, and usually devote more attention to analysing these core stakeholders than do other groups (Post et al., 2002b). SMEs, as mentioned above, do not experience such obligations toward stakeholders, since ownermanagers are instead oriented toward responding to different stakeholders embedded in their social capital. Therefore, a knowledge gap is evident between stakeholder theory and the concept of social capital, though both account for the need for responsible behaviour by large rms and SMEs. If a stakeholder perspective were adopted by SMEs, then a different framework would be necessary. Social capital simply consists of the relevant stakeholders surrounding SME relationships, mostly based on a relational mechanism that characterises SMEs. The new stakeholder perspective of the rm, on the other hand, encompasses important issues, such as relationships, which might therefore be considered more suitable for and more easily applied by SMEs than by large rms.

might be a source of external nancing. The biotechnology industry is an example in which large rms enter into different kinds of relationships with research-intensive SMEs (Arora and Gambardella, 1990) in order to acquire specic skills. SMEs, therefore, squander their opportunity to increase their cash ows because of their limited openness to external capital. Multitasking and exibility SMEs are characterised by a higher degree of involvement with employees at different levels within the organisation. SMEs organisational structure is simple rather than complex, often requiring exibility from employees to adapt their competences and skills to different tasks in their day-to-day work. Owner managers are likely to organise employee training programmes, as well as allow them to manage their time through exible work hours (Perrini et al., 2007). On the other hand, it is very difcult to nd SMEs likely to organise their activities through structured managerial practices. This is what might limit SMEs attractiveness to relevant external stakeholders, including potential employees (Greening and Turban, 2000); SMEs are generally recognised as critical training environments for young workers at different levels, but they present constraints as well that have to be managed in light of their position within their local community (Kotler and Lee, 2005). Exploiting their exible structure, SMEs are more likely to react to external threats from different sides, but this does not necessarily diminish specialisation or lead to excessive economies of scope. Large rms, on the other hand, are limited by their rigid organisational structure, but often benet from diversication strategies and economies of scale as well as other responsible behaviours directed toward important stakeholders. For example, community volunteering, and corporate support of this, comprise one of the most satisfying of all forms of corporate social involvement (Kotler and Lee, 2005). But CSR strategies are generally acknowledged among practitioners as expensive; volunteer programs do indeed provide managers with several concerns, including costs, realisation of business benets in the most appropriate way, and effective social impact that can be tracked and measured, all of which put pressure on the large rms rigid structure. Large rms, of course, have more resources to spread around responsible

Emerging strategic orientation Competitiveness keeper The practice of CSR is increasingly evolving, and its scope now often extends to supply chain partners including suppliers, customers, and logistics providers. Within this context, SMEs and large rms play very different roles, since SMEs are generally suppliers and/or logistics providers, as well as customers of large rms along the supply chain, therefore responding to the rules of competition in their industry. According to a sustainable approach, rms

Investigating Stakeholder Theory and Social Capital might nd it more practical to anticipate future CSR issues in their supply chains and integrate these standards into daily operations (Maloni and Brown, 2006). Nevertheless, large rms, which we here refer to as competitiveness-makers, are not necessarily able to exploit their inuence along the supply chain, but are instead expected to behave responsibly (Carter, 2000). Even if they have more power than do SMEs to inuence supply relationships, large rms do not disclose their CSR strategies to relevant stakeholders such as suppliers and customers (Perrini and Russo, 2008; Russo and Tencati, 2009). On the other hand, strong ownermanager relationships with their suppliers and customers might drive emerging CSR strategies along the supply chain. According to the stakeholder perspective, the supplier relationship can be part of that dynamic evolution of positive-sum strategies that create benets for all of the most important stakeholders over the long run (Post et al., 2002b). Starting from evolutionary concepts of Logistics Social Responsibility (LSR) (Carter and Jennings, 2002b) and Purchasing Social Responsibility (PSR) (Carter and Jennings, 2002a), rms increasingly understand the need to extend CSR behaviours along the supply chain. Supply management should take the form of a partnership approach among rms, their suppliers, and their customers to promote respect for human rights, general working conditions, and environmental issues (Perrini et al., 2007). In this context, networking and trust, both aspects of social capital, can be the key facilitators of SMEs commitment to responsible behaviours within a competitive environment and along the supply chain while managing their relationships with suppliers and customers. Informality and invisibility to the media Ethical codes and nonnancial reports are vehicles through which corporations become accountable for their strategy toward relevant stakeholders, the output of a managerial process embedded in the rms organisational structure. Values and sustainable performances must rst be dened and attained before they can be communicated to relevant stakeholders. Adoption of the SME perspective that such formal tools as codes and social and ethical standards are ineffective has been suggested, since CSR strategies are so expensive (Spence et al., 2000). For example, the publication of environ-

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mental reports requires several steps, starting from the need to transmit the environmental policy to the employees, next collecting additional data and information within the rm, and ending with the development and implementation of new accounting procedures for which new competences have to be created and taught. Indeed, the generally accepted informality characterising SME managerial processes (Russo and Tencati, 2009) does not have to lead to unprotable inertia. The literature recognises that many SMEs are already socially aware and active, but not at the CSR level, nor do they claim to be (Jenkins, 2004). Here the focus is not theories behind responsible behaviours by large rms and SMEs, but rather rms openness to new strategic orientations that support the long-term value-creating process for multiple stakeholders. We suggest this perspective, assuming that both social capital and stakeholder theory identify the relevant contexts SMEs and large rms, respectively, have to focus on. SMEs, of course, are behind large rms in this respect, but not in terms of responsible behaviour toward their stakeholders. SMEs also lag behind large companies in updating their responsible managerial processes. Therefore, SMEs need to implement formalised processes that integrate responsible strategies into the corporate strategies through which they can create consensus on external markets to target and maximise their value for multiple stakeholders. Largely local concentration Today, rms comprehend the importance of building and managing a positive relationship with the community. This is no longer conned to social concerns, that is, providing aid to civil society. Firms are also becoming aware that social initiatives share certain features with corporate strategy; they are therefore not just a matter of community relations (Hess et al., 2002). Nevertheless, differences exist between the relationships that large rms and SMEs build with local communities. In particular, large rms have more resources to invest in their community, which means that large rms can foster the development of local economies, which are now recognised as a critical stakeholder. Within the socio-political arena, large rms must evaluate and respond to claims by the local community relevant to their license to operate in local venues (Post et al., 2002b). Although this has

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Angeloantonio Russo and Francesco Perrini corporations are embracing this perspective, still managing their relationships with different stakeholders, both internal and external, mainly as transactions. Consider, for example, the relationship between large rms and their employees as well as with suppliers or customers. Often, employees are not considered as stakeholders, but rather instruments in critical transactions, which can spell danger for the rm if not managed responsibly (Russo and Tencati, 2009). Here we use the term manage to emphasise the implicit conict that exists in such an old and questionable perspective: transactions are not managed, but concluded; if transactions need to be managed, then they are not transactions, but relationships that must be managed throughout the long term. Consider the additional example of those large rms that get their supplies to the market by means of formalised transactions with intermediaries. No responsible business activities are apparent if rms do not consider the opportunity to establish an innovative relationship with suppliers or customers, through which both sides take advantage of a sustainable knowledge ow. This should be the emerging strategic orientation of large rms, as it is for SMEs by nature. Often, ownermanagers conduct their relationships with different stakeholders (employees and suppliers can easily relate to the above examples) as a constraint more than a source of competitive advantage (Perrini and Russo, 2008). Therefore, talking about the need for more formalised managerial tools for SMEs is not to say that relationships should be transactions; SMEs need to maximise the value of their relationships through formalised managerial tools that will highlight their responsible strategic orientation. In light of these considerations, relationships, trust, and openness are examples of key drivers toward sustainability from the SME perspectivethat is, the concept of social capital (Spence and Lozano, 2000).

not been their responsibility in the past, large rms have taken up this new challenge as a key competitive factor within the national, international, and global arenas. Of course, the faster such an expansion process proceeds, the more difcult integration with the local community is, where large rms often provoke cultural clashes that can limit their growth (Kotler and Lee, 2005). Large rms that believe that their responsibility is to follow the rules of the local country are very sensitive to understanding local behaviours and social systems, but others are just obviously playing by the rules of the game (Tencati et al., 2008). On the other hand, SMEs have a more direct connection with the local community. They benet from being recognised as an embedded part of the community in which they do business, and therefore they have to work to improve their reputation, trust, legitimacy, and consensus within and among citizens (Vyakarnam et al., 1997). Those intangible assets are all aspects of social capital (Spence et al., 2003, 2004), upon which SMEs base their long-term performance. Peculiarities can exist of course at the national level; an example comes from the evidence in UK, where small business owners tend to be detached from the locality and from local economic initiatives. This appears to be due to historical trends that have reduced the role of small business in local political and economic processes (Curran and Blackburn, 1994; Curran et al., 2000). In general, SMEs seem to be one step ahead of large rms, in that the latter are now experiencing the need to go back to local communities to meet their obligations. In other words, we assume that large rms have to enlarge their social capital, having now realised that the local community is a highly relevant stakeholder. Relationship, trust and openness Together with the development of stakeholder theory, another strategic orientation is gaining momentum. Recognising the necessity to include in the business agenda the rms relationships with stakeholders, focus is moving to the relational concept that such linkages imply. Post et al. (2002b, p. 7) suggest that the long-term survival and success of a rm is determined by its ability to establish and maintain relationships within its entire network of stakeholders. Here, then, is the ultimate essence of a strategic orientation of the rm toward sustainable development. In reality, however, few large

Conclusions In this paper, we addressed the question of whether the idiosyncrasies of large rms and SMEs explain the different approaches to CSR used by large rms and small and medium-sized enterprises and whether the notion of social capital is a useful way of understanding the CSR approach of SMEs, as stakeholder theory

Investigating Stakeholder Theory and Social Capital addresses the CSR approach of large rms. We have highlighted these by means of a differential analysis that presents the strategic orientations of large rms and SMEs, classifying them as either consolidated or emerging. The central argument in our study is that CSR is not solely a prerogative of large rms and that therefore large rms and SMEs must be treated as two different constructs to examine their responsible corporate strategies. This argument is the product of our analysis of the extant literature on CSR in both large rms and SMEs. Researchers focusing on CSR have basically investigated the responsible strategies of large rms that contribute to the critical development of business ethics and responsible corporate strategies; today, the rise of, for example, CSR, triple bottom line, and stakeholder theory constructs represents the natural evolutionary actions large corporations take in response to their obligations toward the claims of different stakeholders. Nevertheless, we cannot assume that SMEs should embrace the same strategies and managerial tools while activating their own responsible behaviours, as suggested by those researchers that focus on the concept of social capital. Large rms and SMEs have always differed from each other. SMEs are basically independent, internally nanced and cash-limited, multitasking and exible, largely local, and based on informal relationships inside and outside the rm; large rms, on the other hand, are externally nanced, diversied, with a rigid organisational structure made up of formalised processes and transactions inside and outside the rm, and generally oriented toward internationalisation. If we analyse these differences from the perspective of CSR, two different strategic orientations emerge that suggest a consolidated as well as an emerging approach to responsible behaviours by both large rms and SMEs. In general, rms with a consolidated strategic orientation to CSR represent the ideal scenario presented by the literature, in which the stakeholder view of the rm predicts extensive and responsible behaviours. SMEs follow the principles of social capital, operating within a less structured context made up of trust, informality, and networking. This statement doesnt deny that social capital can also be relevant to the large rms, which can be considered as social capital developers, even though they do that intentionally by managing CSR according to a stakeholder approach.2

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Examining the emerging strategic orientation of SMEs, we argue that the notion of social capital is useful to explain why SMEs are referred to as competitiveness-keeper and remain largely local. In other words, SMEs exploit their strong relationship built out of trust, reputation, and legitimacy with specic stakeholders (e.g., the suppliers, customers, competitors, and local community) sufciently to improve their license to operate. Nevertheless, SMEs remain unable to formalise such relational capital through specic managerial tools (e.g., ethical codes, nonnancial reports, and in general organisational and managerial procedures), which might be helpful to the long-term process of value creation. An example will make this statement clearer. Consider a small rm that has been described as chronically cash-limited, and able to manage a consolidated and protable relationship with its employees. This relationship increases the social capital of the rm, but it does not allow the rm to easily implement a specic CSR program, such as the SA8000 certication. This small rm may as a result of improved employee relations be able to improve, for example, the efciency of the production process. Nevertheless, the small rm wont be easily able to restructure its strategic management in a sustainable way, given the limited nancial resources. The paradox emerges that, although SMEs are supposed to hold the keys to sustainability such as relationships, trust, and openness, they do not exploit these advantages so deeply embedded in their social capital. A more focused stakeholder approach might help ownermanagers to manage such relational capital more effectively. The SMEs social involvement will result in an enhanced reputation, a professional image, and an increase in condence and loyalty. These are all elements that guarantee a stable workforce, an improvement in relationships with nancial bodies, and, all in all, the companys sustainability over time (Vyakarnam et al., 1997). It is precisely the daily battle for survival in the market that conditions the SMEs needs to strengthen its networking (Enderle, 2004). Large rms, on the other hand, comprehend the relevance of identifying their relationships with stakeholders, but still lack the ability to integrate the management of these specic relationships into their corporate strategy. Their emerging strategic orientation toward responsible behaviours justies the argument that stakeholder theory is sufcient to

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Angeloantonio Russo and Francesco Perrini and managers interested in the development of CSR. Many research questions remain unanswered and require further investigation. The focus of future research should be on the integration of stakeholder theory and social capital, with the main goal of providing additional knowledge to SMEs and ownermanagers about sustainable strategies and managerial responsibility tools. Moreover, researchers can take advantage of the insights presented in this paper to work on additional empirical research with the aim of testing the characteristics of large rms and SMEs studied in this paper and their relationships with responsible strategies.

identify stakeholders that are part of the value-creating process of the large rm. Nevertheless, what is crucial to a sustainable strategy is the relationship with those stakeholders and the way it is managed. Therefore, relationships, trust, legitimacy, openness, and in general the key drivers of sustainability that researchers are promoting as the basis of social capital should be more prioritised by large rms. The cultivation of close relationships with workers and the social or business environment makes it possible to establish expectations in social relationships and ensures collective action through increased condence. These close relationships help to create security or mutual help relationships with suppliers or even rival companies (Murillo and Lozano, 2006). In sum, a twofold consideration emerges in this paper. On the one hand related to the management of SMEs, the CSRSME relationship could be better explained if the notion of social capital is taken into account, but this should also be accompanied by a stakeholder view of the SME, which specically considers the idiosyncrasies related to the SMEs emerging strategic orientation. The stakeholder view of the rm has to be managed by ownermanagers as the way to accumulate social capital. This means that managing the relations with relevant stakeholders through specic managerial procedures might allow SMEs to exploit their social capital with a positive impact on the triple bottom line. In order to align the rms responsible behaviour with its strategic objectives, managers, and ownermanagers should operate following the bases of a sustainable strategy: rst, identifying the relevant stakeholders of the rm; second, considering the returns associated in the long-run with such networks of stakeholders. Although this process should seem easier for large corporations that hold the resources, a sustainable strategy should be based on specic drivers, such as networking, innovation, trust, and legitimacy, which are all aspects of social capital embedded in the longterm SME business model. Therefore, depending on the idiosyncrasies of the rm, large rms and SMEs should learn from both stakeholder theory and the notion of social capital to manage a sustainable strategic orientation, formally or informally but intentionally. Of course, this study does not have the normative expectation of building a new theoretical model, but aims to promote additional efforts by researchers

Notes
1

This crucial statement has been provided by an anonymous reviewer. 2 An anonymous reviewer provided especially helpful comments on these arguments.

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Angeloantonio Russo Parthenope University, Naples, Italy E-mail: angelo.russo@uniparthenope.it Francesco Perrini Bocconi University, Milan, Italy