Investigating Stakeholder Theory

and Social Capital: CSR in Large Firms

and SMEs
Angeloantonio Russo
Francesco Perrini
ABSTRACT. The concept of corporate social responsi-
bility (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 under-
standing 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 com-
parison 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 CSRthat
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 CSRpractices 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 accom-
plished.
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 theo-
retical 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 questionof 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 CSRapproachof large rms. We propose
a comparison of large rmand 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 lit-
erature 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
Journal of Business Ethics (2010) 91:207221 Springer 2009
DOI 10.1007/s10551-009-0079-z
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. Onthe one hand, the CSRSMErelationship
couldbe better explainedif the notionof social capital is
takenintoaccount, but this shouldalsobe accompanied
by a stakeholder view of the SME; on the other hand,
social capital and stakeholder theory should be taken as
alternative andnot complementary for explaining CSR
in both large rms and SMEs.
We organise our ndings by rst discussing the
theoretical evolution of CSR, highlighting its mile-
stones to clarify the relationship between stakeholder
theory and large corporations. We then focus on the
specic literature onCSRand SMEs that encompasses
the relevance of social capital to our research. We next
present our research questions and discuss the differ-
ential analysis, focusing on the approaches of large
rms and SMEs toward responsible strategic orienta-
tion. 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 concentrationoncorporate 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 def-
initions 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
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 envi-
ronment (CEC, 2001) and a concept whereby
companies integrate social and environmental con-
cerns in their business operations and in their inter-
action 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 environ-
mental concerns into their strategies, their manage-
ment 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 cor-
porations is to generate prots and, in this process,
prioritise their cashows. 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
(Garriga and Mele, 2004), and business becomes
responsible for its activities within society in its long-
term economic operations and creation of value.
The theoretical framework advanced to the
conclusion that where a company has many oppor-
tunities to increase its performance, many actors can
inuence it. Within this context, the importance of
stakeholder management increased. Stakeholders
208 Angeloantonio Russo and Francesco Perrini
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 pres-
sures, 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 contem-
porary 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 corpora-
tions. 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 rele-
vant stakeholders are and whether we are talking
about stakeholders or relationships among stakehold-
ers. 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) Stake-
holder identity is critical as well, since stakeholders
have different relationships to the organisation, most
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 character-
istics, SMEs tend to be independent, multitasking,
cash-limited, and based on personal relationships and
informality (Spence, 1999), as well as actively man-
aged 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 opportuni-
ties 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
Kuhne, 2008). Ortiz Avramand Kuhne (2008) use the
term responsible business behavior instead of CSR
to describe their proposal for a strategic and holistic
Investigating Stakeholder Theory and Social Capital 209
concept that should help SMEs to discover what
constitutes their real economic, social, and environ-
mental 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 distin-
guishing 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 con-
text (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, religious-
based 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 stan-
dards 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).
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 Kuhne, 2008). A
growing number of sociologists, political scientists,
economists, and organisational theorists have inves-
tigated 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 reci-
procity 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
goodcitizenship (Spence et al., 2003). Inthis paper, we
refer tothe notionof social capital provided by Putnam
(2000, p. 19): Whereas physical capital refers to
physical objects and human capital refers to the prop-
erties of individuals, social capital refers to connections
among individualssocial networks and the norms of
reciprocity and trustworthiness that arise fromthem
that canimprove the efciency of societyby 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
210 Angeloantonio Russo and Francesco Perrini
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).
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 man-
agement policies, and nonnancial reporting), but
they are not part of structured and explicit man-
agement systems. SMEs, on the other hand, are
more immediately exposed to the potential eco-
nomic 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 com-
munity 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 strate-
gies (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 shar-
ing, 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 seemto be
the collective answer. On the one hand, the same basic
principles apply whether you are small or large, mini-
mising your negative environmental andsocial impacts,
and maximising your positive impacts. On the other
hand, there are differences since SMEs rarely use the
language of CSRto 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
Investigating Stakeholder Theory and Social Capital 211
orientation of rms that behave responsibly.
Following the natural evolution of the CSR para-
digm, 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. More-
over, 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 idio-
syncrasies 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
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.
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 com-
paring 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 rele-
vance to some idiosyncrasies of large rms CSR
strategies. Therefore, this analysis aims toward dif-
ferent 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 con-
solidated 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.
212 Angeloantonio Russo and Francesco Perrini
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 part-
nerships in the long term. Large rms, on the other
hand, reveal a strong aptitude for managing external
relationships, which start within the group of subsidi-
aries that often characterises their organisational struc-
ture, 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 approachfor 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 histori-
cally 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. There-
fore, 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
TABLE I
An analysis of SME and large rm idiosyncrasies
Strategic orientation SMEs Large rms
Consolidated Independence Group
Joint ventures
Alliances
Internally nanced
Cash-limited
Externally nanced
Multitasking Diversied
Flexibility Rigidity
Economies of scope Economies of scale
Ownermanagement External management
Emerging Competitiveness-keeper Competitiveness-maker
Informality Formalised
Invisible to the media and NGOs Visible to the media and NGOs
Largely local National
Multinational
Global
Relational Transactional
Personal relationship Structured relationship
Trust Branded
Openness
Investigating Stakeholder Theory and Social Capital 213
might be a source of external nancing. The bio-
technology 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 stake-
holders, 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 practi-
tioners 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
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 begin-
ning 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, thena
different framework would be necessary. Social capital
simply consists of the relevant stakeholders sur-
rounding SME relationships, mostly based on a rela-
tional 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.
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 provid-
ers. Within this context, SMEs and large rms play
very different roles, since SMEs are generally sup-
pliers 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
214 Angeloantonio Russo and Francesco Perrini
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 Responsi-
bility (LSR) (Carter and Jennings, 2002b) and Pur-
chasing 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 environ-
mental 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 envi-
ronment 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-
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 account-
ing 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 rec-
ognises 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 behav-
iour toward their stakeholders. SMEs also lag behind
large companies in updating their responsible man-
agerial processes. Therefore, SMEs need to imple-
ment 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 com-
munity. 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 crit-
ical 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
Investigating Stakeholder Theory and Social Capital 215
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 followthe 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 con-
cept 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 sustain-
able development. In reality, however, few large
corporations are embracing this perspective, still
managing their relationships with different stake-
holders, both internal and external, mainly as trans-
actions. 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 instru-
ments 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 rela-
tionships 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 inno-
vative relationship with suppliers or customers,
through which both sides take advantage of a sus-
tainable knowledge ow. This should be the
emerging strategic orientation of large rms, as it is
for SMEs by nature. Often, ownermanagers con-
duct 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 forma-
lised 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).
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
216 Angeloantonio Russo and Francesco Perrini
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 there-
fore 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, inter-
nally nanced and cash-limited, multitasking and
exible, largely local, and based on informal rela-
tionships inside and outside the rm; large rms, on
the other hand, are externally nanced, diversied,
with a rigid organisational structure made up of for-
malised processes and transactions inside and outside
the rm, and generally oriented toward internation-
alisation. If we analyse these differences from the
perspective of CSR, two different strategic orienta-
tions 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 con-
solidated 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 con-
text 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 consid-
ered as social capital developers, even though they do
that intentionally by managing CSR according to a
stakeholder approach.
2
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 com-
petitiveness-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 rmthat
has been described as chronically cash-limited, and
able to manage a consolidated and protable rela-
tionship 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
rmmay 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 man-
agement in a sustainable way, given the limited
nancial resources. The paradox emerges that,
although SMEs are supposed to hold the keys to sus-
tainability 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 orienta-
tion toward responsible behaviours justies the
argument that stakeholder theory is sufcient to
Investigating Stakeholder Theory and Social Capital 217
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 col-
lective action through increased condence. These
close relationships help to create security or mutual
help relationships with suppliers or even rival com-
panies (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 long-
term 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 stra-
tegic orientation, formally or informally but inten-
tionally.
Of course, this study does not have the normative
expectation of building a new theoretical model, but
aims to promote additional efforts by researchers
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, research-
ers 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.
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
Investigating Stakeholder Theory and Social Capital 221