ENTREPRENEURIAL DEVELOPMENT THROUGH STANDARDIZATION OF SOCIAL RESPONSIBILITY
Marijan CINGULA, Ph.D.
University of Zagreb, Faculty of Economics and Business
Address: Trg J. F. Kennedy 6, 10 000 Zagreb, Croatia
Phone number: 00-385-1-238-3247
E-mail:
Davor FILIPOVIĆ, MA
University of Zagreb, Faculty of Economics and Business
Address: Trg J. F. Kennedy 6, 10 000 Zagreb, Croatia
Phone number: 00-385-1-238-3275
E-mail:
Dinko PRIMORAC, BA
University of Zagreb, Faculty of Economics and Business
Address: Trg J. F. Kennedy 6, 10 000 Zagreb, Croatia
Phone number: 00-385-1-238-3111
E-mail:
Abstract:
Aim:This paper focuses on the importance of the concept of social responsibility for small and medium sized enterprises in the Republic of Croatia.
Materials and Methods:Analysis and synthesis methods, as well as induction and deduction methods were used in order to examine the role and importance of entrepreneurial development trough standardization of social responsibility. Additionally, theoretically relevant and methodological aspects of current international standards and principles, national laws and ethical codes regarding social responsibility, like OECD Principles, United Nations Norms, Caux Round Table (CRT) Principles, and Occupational Health and Safety Management Systems were analyzed.
Results: After analyzing the majority of international standards and principles it is evident that all of them represent a quality base for standardization of social responsibility in small and medium sized enterprises. When considering a fact that every entrepreneur acts in its own manner, governments should take into the consideration principles, standards and proposals for standardization of social responsibility in order to create legislative framework that would stimulate entrepreneurs to conduct business in socially responsible manner.
Conclusions:Based on the analyzed international standards and principles, Croatian entrepreneurs should realize the importance of standardization of social responsibility in a modern way of doing business. Therefore, proposal for the development of Croatian national standards for conducting business in socially responsible manner should be adopted, especially because of the fact that Croatia will soon enter the European Union where social responsibly plays a key role in entrepreneurial development.
Key words: social entrepreneurship, entrepreneurial development, standardization of social entrepreneurship, ISO.
- INTRODUCTION
Social entrepreneurship is not an idealised picture of entrepreneurship without its ground market components; on the contrary, it is a specific type of entrepreneurship in which entrepreneurial and social components are complemented with new content of a better quality.
Entrepreneur's social responsibility concept in SMEs is analogue with the corporate social responsibility of multinational companies. Corporate social responsibility in large companies is standardized on the global level under national laws; similarly to that in small and medium companies, and for every entrepreneur, there is an institutional framework that encourages socially responsible behaviour. In absence of such framework in Croatia, there is a need for developing of Croatian national standards for conducting business in socially responsible manner. Therefore, analysis and synthesis methods, as well as induction and deduction methods were used in order to examine the role and importance of entrepreneurial development trough standardization of social responsibility. Additionally, theoretically relevant and methodological aspects of current international standards and principles, national laws and ethical codes regarding social responsibility, like OECD Principles, United Nations Norms, Caux Round Table (CRT) Principles, and Occupational Health and Safety Management Systems were analyzed.
- THE CONTEXT OF ENTERPRENEURIAL RESPONSIBILITY
Traditional economical theory is based on the assumption that business activities are initiated with a wish to gain profit and that invested capital moves depending on profit rate a business achieves. French economist, J. B. Say, at the end of the 19th century assembled his thoughts in the following sentence: “The entrepreneur shifts economic resources out of an area of lower and into an area of higher productivity and greater yield” (Dees, 2001).
Later entrepreneurship theoreticians like Schumpeter and Drucker, emphasized risk acceptance and innovations as the main guidelines of entrepreneurial behaviour. It was at the end of the last century when the social component in entrepreneurship was firstly noticed (Martin & Osberg, 2007). Today, entrepreneurial behaviour depends on both economical and non-economical factors, such as public care or social welfare.
Principles defined by Leon Sullivan in 1997 for establishing a rightful social entrepreneurial framework (The GlobalSullivan Principles, 1997)support universal human rights, particularly those of employees, the communities within which they operate, and the parties with whom companies do business. Those principles also provide: equal opportunity for employees at all levels with respect to color, race, gender, age, and a safe and healthy workplace, protect human health and the environment, and promote sustainable development etc. The existence of Sullivan's principlesis the proof that ethical business principles should always be sought and implemented when conducting business.
Social entrepreneurship is expected to develop the new economical model for the 21st century (Dees, Haas, & Haas, 1998). Smith's concept of entrepreneurship is based on individual self-interest, and was later studied by Warsh (Warsh, 2002); however it should be complemented by introducing care for public welfare. Since free will of certain entrepreneurs is not always directed towards public welfare, it is important to establish a mechanism of national legal regulation that would direct individuals' behaviour.
Figuratively speaking social entrepreneur neither gives away fish or bread, nor does he teach anyone how to catch the fish or bake the bread; he introduces changes and advancements in fishing and bread baking; and in doing so he surpasses all the former approaches to business. He does not settle for instant problem solutions but he tries to change its environment: local community, society and the entire world (What is ..., 2008). Bornstein finds an example of social entrepreneurs in people such as Henry Ford and Steven Jobs. These people changed the society by their relation towards business. For him social entrepreneurs are: ... people with new ideas to address major problems who are relentless in the pursuit of their vision, people who simply will not take „no “for an answer, who will not give up until they have spread their ideas as far as they possibly can… (Bornstein, 2004).
In the context of modern entrepreneurship social entrepreneurship has at least two certain components: ethical choice of business activity and ethical performance of business activities. First important component of the social entrepreneurship is an accentuated social responsibility in choosing the business activity. Social entrepreneur achieves his/her social mission through performing socially useful work. The passion for preserving public welfare, together with reasonable market approach, can create a very efficient combination for meeting social needs, and social entrepreneur, at the same time, can achieve his/her personal benefit (Merging, Mission & Money, 2008).
Second important component in social entrepreneurship is increased business responsibility towards social community and individuals. Ethical behaviour is not a sufficient condition for social entrepreneurship even though it is its crucial component. While creating new social values and meeting his/her individual needs, an experienced social entrepreneur will not endanger neither the interests of his /her employees, buyers and suppliers or those of the wider social community. He will voluntarily give up the activity which would for profitable reasons endanger people or their natural surroundings.
According to Sagi Bunic (Sagi, 2000) economy is an element of constructing and humanizing the world, so entrepreneurship should be observed through ethics. This ethics can surpass interests of the predatory capitalism and this ethics develops such production and business relations in which ideas of social entrepreneurship are promoted.
- THE ORIGINS FOR STANDARDIZATION OF SOCIAL RESPONSIBILITY
Development of entrepreneurial social responsibility requires institutional conditions, set by international standards and principles, national laws and special organizational documents (most frequently ethical codes), but also individual characteristics of entrepreneurs and leading managers in public sector and business. Establishment of global corporate social responsibility is not an easy task due to national, religious and cultural differences that define acceptable ethical behaviour. A broader frame needed to establish ethical business, according to principles of corporate social responsibility, is shown in Figure 1 (Cingula, 2008).
Figure 1: Different levels of framework for socially responsible behaviour
Figure 1 shows interaction of different levels that make preconditions for individual ethical action: from international standards and principles, through national laws and other regulations, to organizational documents that have an impact on behaviour of business subjects and their individual representatives, executive and non-executive directors.
3.1.OECD Principles as a basis for modern corporate governance
Entrepreneurial social responsibility is not explicitly included in OECD Principles, though the whole corporate governance concept, but it is clearly based on consideration of what socially responsible business activities should be. Main purpose of the Principles is to serve as a reference point. Both OECD and non-OECD countries have recognized their responsibility for shaping an effective regulatory framework for business community. Therefore, ensuring the basis for an effective corporate governance framework, rights of shareholders and key ownership functions, equitable treatment of shareholders, role of stakeholders, disclosure and transparency, and responsibilities of the board are in focus of the suggested way of corporate governance. Each of the areas helps to build a consistent corporate governance system that enables both market efficiency and acceptance of socially responsible behavior.
OECD Principles are a good example of such standardization because they respect both liberal market expectations and stakeholders interests. Principles are composed on the basis of the best practice in developed countries, so they can be used as the benchmark for the companies in other countries (OECD,2004).
3.2.United Nations Norms on the responsibilities of transnational corporations and other business enterprises
United Nations Economic and Social Council introduced in 2003 Norms on the responsibilities of transnational corporations and other business enterprises with regard to human rights, bearing in mind the principles and obligations under the Charter of the United Nations to promote universal respect for human rights and fundamental freedoms (Norms …, 2003). According to the Norms, national states have the primary responsibility to promote, and protect human rights recognized in international as well as national law. Each country must ensure that transnational corporations and other business enterprises, performing business activities only on national level, respect human rights such as right to equal opportunity and non-discriminatory treatment, right to security, workers' rights, respect for national sovereignty and human rights, consumer protection, and environmental protection.
Human rights are fundamental for establishing corporate social responsibility so each business enterprise should adopt and implement internal rules of operation in compliance with the Norms.
3.3.Caux Round Table (CRT) Principles as improvement of modern approach to social responsibility
The Caux Round Table (CRT) is organization of senior business leaders, academicians and recent elite opinion makers, who gather energy in order to define business and government ethical standards and then introduce them worldwide. CRT is committed to move its ideals and principles into action programs to improve the outcomes of globalization in the world and to enhance the impact of ethical conduct and social responsibility in companies. Founders of CRT believe that the world business community, in addition to the public authorities, should play an important role in improving economic and social conditions in each country. Stephen B. Young, the Global Executive Director CRT, explains theoretically what is essential for the concept of social responsibility (Young, 2004): ...”integration of virtue and self-interest at the level of the firm is possible. Through management decision-making, capitalism can internalize concern for the public welfare without sacrificing the efficient rationality of seeking profitability. Such a form of capitalism can be a more moral one, less deserving of criticism on social justice grounds.”According to their formal power and high level of public responsibility, governments should establish both domestic and international conditions for modern corporate governance, supporting the concept of corporate social responsibility.
- ENHANCING SOCIAL RESPONSIBILITY IN THE EUROPEAN UNION
One of European Union’s priorities is the legal status of Small and Medium Sized Enterprises (SMEs) which should be achieved by reforming the so-called European Private Company Statute (Societas Privata Europaea (SPA), referred to as the Small Business Act for Europe (SBA). The final goal is to facilitate SMEs to enter the unique European market and to improve their performances (Proposal..., 2008).
Unique legal framework for small and medium enterprises is the basis for a unique standardization of ethical standards. If the creation of unique European Private Company Statute (SPA) followed defining of the so-called European Company (Societas Europea-SA), it is only logical that the conceived model of small enterprise follows large company's corporate social responsibility (Rose, 2007). European approach to the corporate governance development tends to stress out the importance of dynamic and flexible company law. Legal corporate governance framework is essential for a modern, dynamic, interconnected industrialized society, such as European market demands. Such an effective and active approach to the regulation on national and global level will help to strengthen stakeholders’ rights and third parties protection, which is a constituent part of corporate social responsibility.
- MANAGING THE SOCIAL RESPONSIBILITY ACCORDING TO INTERNATIONAL STANDARDS
The relation of management toward achieving safe work conditions and environment protection, and especially toward preventing possible work related injuries and foreseeable types of threat to the environment, is conditioned, except by legal regulations, by principles of business ethics and social responsibility.
The international standard SA 8000 sets conditions for establishing and maintaining the system of managing social (public) responsibility. Mission of the standard is global improvement of work conditions, and is based on conventions of the International Labour Organization (Convention on work protection, protection of women, etc.) and UN conventions (Conventions on the rights of children, General declaration on human rights, etc.). By certifying social responsibility, entrepreneurs can exhibit a high level of conscience for a modern way of doing business and care for individuals and the environment. International Standardization Organization (ISO) is preparing the international standard ISO 26000, which would carry out conditions for establishing a system of managing social/public responsibility.
5.1.Social importance of health and safety management and standardization
Modern work protection is composed of a group of measures, methods and processes whose purpose is to prevent work related accidents, professional ails, work related illnesses and maintenance of employees' working abilities (Kacian, 2000). Establishing and maintaining satisfactory level of general occupational protectionwith simultaneous adjustment of work to individual abilities of employees, is possible only through the use of inter-disciplinary connection of experts of various fields, especially those of technical, medical, natural and social sciences. For that reason, occupational protection is also thought of as workplace science i.e. ergology, containing: work organization, ergonomy,work physiology and psychology, work medicine, work culture, work philosophy, labour law, work sociology, cybernetics and occupational protection (Taborsak, 1994).
Occupational protection is a state which allows for a normal flow of business processes and functioning of business systems, and thereby better business results. Human, social and economical reasons demand a better, safer protection of working personnel (Gojanovic, 1977). Safety may be defined as the state in which normal existence of natural and social, i.e. vital and developed functions, is possible, as well as maintenance and development of made or achieved values and quality (Javorovic, 2002). There are two basic international standards (specifications and guidelines) for managing occupational protection including OHSAS 18001:1999 (Occupational Health and Safety Assessment Series Specifications) and ILO-OSH 2001 (Guidelines for the Occupational Health and Safety Management System).The Occupational Health and Safety Assessment Series Specifications, OHSAS 18001:1999 is the industrial standard for introducing and confirming health and safety management system for professionals. Primary goals of the OHSAS 18001:1999 standard areincreasing organizational occupational safety, increased health protection in the organization, and coordination with all legal provisions in the field of occupational and health safety and protection.Guidelines for the ILO-OSH 2001 Occupational Health and Safety Management System are actually based on conditions found within OHSAS 18001:1999. These guidelines were made by the International Labour Organization to stimulate the development of cultural work safety, to help countries in determining the national framework for making a management system for occupational protection and acting as a work safety management instrument in business systems.
- CONCLUSION
Based on the analyzed international standards and principles, Croatian entrepreneurs should realize the importance of standardization of social responsibility in a modern way of doing business. Therefore, proposal for the development of Croatian national standards for conducting business in socially responsible manner should be adopted, especially because of the fact that Croatia will soon enter the European Union where social responsibly plays a key role in entrepreneurial development. After the proposal is made, a research regarding the current state of socially responsible behaviour in Croatian small and medium sized enterprises should be conducted. Results of that research should be used as a base for the improvement of the proposed Croatian national standards and finally for their acceptance among small and medium sized entrepreneurs, and more importantly among legislative entities. It is extremely important that entrepreneurs in Croatia start to behave in socially responsible manner and take care of occupational protection, i.e. work and health safetywhich is essential for successful organization because social rebelling andworker dissatisfaction are as dangerous as client dissatisfaction with high prices and poorquality.