You are on page 1of 80

Center for Corporate Social Responsibility Development

CORPORATE SOCIAL RESPONSIBILITY of SMALL AND MEDIUM ENTERPRISES IN UKRAINE: EXPERT SURVEY

Kyiv - 2009

CONTENTS
List of abbreviations 3 Introduction 4 Section 1. Understanding of the term "responsible business practices" and "CSR" for SMEs in Ukraine Section 2. Prospects and obstacles to the implementation of CSR for small and medium enterprises in Ukraine Section 3. Evaluation perception of the importance of CSR activities among small and medium enterprises in Ukraine Section 4. Expectations of the outcome from the CSR for SMEs in Ukraine Section 5. The role of trade unions and collective bargaining for SMEs in 14 24 29 39

Ukraine 45 Section 6. CSR Activities implemented by SMEs 57 Section 7. Participation of small and medium-sized enterprises in the activities of large national and international companies Section 8. SME ability to invest in CSR activities Recommendations 62 65 74

List of Abbreviations CSR - Corporate Social Responsibility SME - Small and Medium Enterprise UNIDO - United Nations Industrial Development Organization NGO - non-governmental organization SLR - social-labor relations

Introduction CSR practices in Ukraine demonstrate that the main CSR projects are implemented mainly by large domestic and multinational companies. Expert communities havent paid sufficient attention to development CSR among SMEs. However, this does not mean that SMEs were not involved in the process of CSR. Their corporate social responsibility practices are focused at such issues as philanthropy, social entrepreneurship, staff professional development and others. But these actions are not determined as CSR by SMEs themselves and SMEs do not have a clear CSR strategy yet. This report studies the expert opinions to track and assess the peculiarities of the achievements and prospects in the development of CSR among SMEs in Ukraine. A survey was conducted by the Center for Corporate Social Responsibility Development 1 jointly with the United Nations Industrial Development Organization (UNIDO)2 with the support of the State Committee for Regulatory Policy and Entrepreneurship 3 under the Project "Establishment of regional network of corporate social responsibility in Central, Southern and Eastern Europe. UNIDO project is implemented in four countries: Bulgaria, Bosnia and Herzegovina, Ukraine, Croatia. Small and medium enterprises (SME) in the economic structure of Ukraine. SMEs business sector in independent Ukraine witness fast growth: for over 16 years the number of small businesses increased seven times, from 47,084 in 1991 to 380,789 in 2007. It should be noted that in Ukraine since 1991 only small and large enterprises were calculated, and only with the adoption of the Commercial Code in 2003 the term of medium enterprises appeared in statistics reports. According to the Commercial Code of Ukraine from 16.01.2003, 436-IV the term small enterprises is defined as the enterprises of any kind of ownership with the average number of employees up to 50 in the reporting financial year. The term medium-sized businesses means businesses with the number of employees from 51 to 250 people. Although the category of medium enterprises existed in 2003, a system for monitoring medium-sized businesses in Ukraine was imperfect, and overview information about trends in its development was limited. Unlike detailed statistics of small enterprises, the official statistics on the development of medium business in Ukraine is given in the table 1.1.
1 2

www.csr-ukraine.org www.unido.org 3 www.dkrp.gov.ua

Table 1.1 Economic Development Results in 2007 (Source: State Statistics Committee of Ukraine)
Total number of enterprises, Number of enterprises, units Number of companies per population of 10 thousand people Average number of part-time employees, thousands Average number of full-time employees, thousands Payroll fund, mln. of UAH Average monthly salary of one full-time employee, hr. The number of purchased products, works and services (without VAT and excise duties), mln. of UAH Operational costs services), mln. of UAH of 2312792,6 610769,8 1594502,4 107520,4 9154,3 9075,2 140948,6 1294,27 2414715,3 3131,2 3131,2 66157,3 1760,69 663033,5 4275,0 4269,8 60971,0 1189,97 1645632,3 1748,1 1674,2 13820,3 687,91 106049,5 including 380789 82 Large enterprises 770 Medium enterprises 56008 12 Small enterprises 324011 70

purchased products (works,

In the overall economic structure of enterprises in Ukraine in 2007 the part of small enterprises was 85.1% (324 thousand), medium - 14.7% (56 thousand), and only 0.2% of large enterprises (770 units). Table 1.2 Number of enterprises in 2007 (Source: State Statistics Committee of Ukraine)
Total Number of enterprises, units Enterprises part, %4 number of Large enterprises 770 0.2 Medium enterprises 56008 14,7 Small enterprises 324011 85.1

enterprises, Including 380789 100

To compare, in developed and other developing countries SMEs constitute 99 percent or more. Thus, quantitative indicators of small and medium enterprises in the total economic structure of Ukraine correspond to the average level of SMEs indicators, for instance, in the EU member states. However, the further analysis of statistics and comparison with EU countries shows a significant lag of Ukraine in qualitative and quantitative indicators of SME development, i.e. for number of
4

State Statistics Committee of Ukraine//http://www.ukrstat.gov.ua/

SMes per population of 1000 people. In particular, according to State Statistics Committee, in 2007 per population of 10 thousand people there were 12 medium and 70 small enterprises in Ukraine, which accounts for only 8.2 SMEs per population of 1000 people (Table 1.3.). In Central and Eastern Europe this indicators equals 40. Table 1.3 Number of companies (2007) (Source: State Statistics Committee of Ukraine)
Total number of enterprises, Number of enterprises by 10 thousand people, units including 82 12 Large enterprises Medium enterprises Small enterprises 70

There is a significant misbalance in the SME structure. The medium business sector in foreign countries produced about half of gross domestic product, however in Ukraine the part of the medium business in total cost of purchased products (works, services) equals 68%, and the part of the small business - only 4%. Table 1.4 The amount of sales and services of companies in Ukraine in 2007
Total The production volume number of Large enterprises 663033,5 Medium enterprises 1645632,3 Small enterprises 106049,5

enterprises, including 2414715,3

(excluding VAT and excise duties), mln. of UAH The production volume (excluding VAT and excise duties),,%5 100 27.5 68.1 4.4

In general, small and medium-sized enterprises in Ukraine can not be described as the economy driving force, as SMEs in the EU create 40 - 67% of GDP, while in Ukraine only 5 - 7%. However, taking into account recent positive trends in development of small business in Ukraine, the presence of the sufficiently large informal sector of small enterprises, which accounts for 60% according to some expert views, and distortion of the primary reporting data made by entrepreneurs themselves, analytics consider SME sector as an important segment of the country economy and powerful force for social and environmental development of Ukraine. Overview of corporate social responsibility development in Ukraine.

State Statistics Committee of Ukraine//http://www.ukrstat.gov.ua/

Understanding CSR is built on the Global Compact principles and key provisions of ISO 26000, a new international standard developed by the International Organization for Standardization, according to which social responsibility is a responsibility of an organization for the impacts of its decisions and activities on society and the environment, through transparent and ethical behavior that contributes to sustainable development, including health and the welfare of society; takes into account the expectations of stakeholders; is in compliance with applicable law and consistent with international norms of behavior and is integrated throughout the organization and practiced in its relationships6. The beginning and the first stage in CSR development in Ukraine can be considered in December 2005. Then the representatives of the Ukrainian government, business community, the united Nations, international and local NGOs, media, schools held the International Forum on CSR. The Forum's goal was in fact to promote dialogue on CSR in society and mobilize core group of companies to sign the Global Compact, which was officially launched in Ukraine 25th April 2006. The first of the Global Compact - a 34 leading Ukrainian and multinational companies, associations and NGOs. Simultaneously, at the end of 2005 Forum was held socially responsible business (CSR) in Ukraine. Ukrainian company leaders united in the CSR. The second stage is characterized by its focus on understanding of CSR and companies first effort in developing CSR strategies. As a result, many activities held to discuss issues of CSR, including two major events in 2007, conducted with foreign experts. The international conference "Corporate Social Responsibility: How to build relationships with staff, public authorities, organized by business magazine" Expert Ukraine "and the International Media Forum on Corporate Social Responsibility Media and Corporate Social Responsibility, organized by the UN Office in Ukraine partnership with the business magazine "Expert Ukraine". The third main event of this phase was 1st November 2007 - Ukraine joined the global initiative of the International Organization for Standardization ISO 26 000. The third and most valuable stage in the development of social heralded CSR reporting companies, two of which were prepared according to standard GC - social report of the bank "Nadra" and DTEK. Global Compact Network was institutionalized in the country and is recognized as the most dynamic network of Global Compact in Eastern Europe. It was created by the Board of the Global Compact and the elected representatives of the companies participating in its work from companies, trade unions and of association of employers of
6

DRAFT INTERNATIONAL STANDARD ISO/DIS 26000, www.iso.org/wgsr

Ukraine. The first emphasis was placed on problems of climate change and action, which was supported by 23 leading companies and organizations, the Global Compact initiative was the "Green Company. Gold sponsor of the Conference on CSR in Europe (Prague) became the first Ukrainian company "System Capital Management The second feature of this stage is a rational approach to CSR and understanding the differences between CSR as a business strategy and own funds and philanthropy. The concept of CSR becomes widespread in the provinces. Fourth stage 2009-2010 characterized by signs of slow development and particular attention to environmental issues. Global Compact in Ukraine held its first Business Summit on climate change. Another peculiar to this stage of CSR development factor is a shift in priorities from business to educational institutions to develop a sustainable framework of CSR in the country. Center for the development of CSR has created a network of "CSR in education, joined by 22 universities. Survey methodology. The study was conducted among small and medium-sized Ukrainian enterprises to obtain information on the understanding of "corporate social responsibility (CSR) and the implementation of CSR in their activities. The study is the first step of the Project aimed at establishing the Regional SME network of corporate social responsibility in Central, Southern and Eastern Europe (hereinafter - the Region). The CSR network of such kind will contribute to sustainable development and improve environmental, social and economic performance indicators of the industry in the region, increasing its competitiveness and export capacity through support of peer organizations and advisory institutions (business associations, chambers of commerce and industry, universities, NGOs) in promoting CSR. The survey results will help in adapting the planned training and consultation courses to the realities of small and medium businesses in the country. Criteria for selecting companies for participation in the project. The expert survey was conducted by questioning the target group of 104 representatives of small and medium enterprises of Ukraine, mostly the owners or top managers. Selection of companies taken part in the survey was made in cooperation with the regional branches of the State Employment Center, which provided information about the leading regional SMEs to meet the following criteria: active participation in public or social life, 8

financial stability, innovative approaches of making business and availability of foreign investments if any. Interviews were conducted by the Centres experts through the combined method - self-filling questionnaires and personal or phone interviews with representatives of small and medium business. The obtained information was processed with national statistics software OCA

(www.oca.com.ua) and program software SPSS (statistical package for social sciences). The detailed structure of indicators was developed. These indicators helped to evaluate the overall situation of CSR development among SMEs and identify the level of impact on CSR promotion amongst SMEs made by such factors as sectoral affiliation, scale (micro-, small-, medium-sized enterprise), financial-economic background, geographic location of the company. Industrial structure of SMEs involved in the Survey The business sector of the company has a considerable impact on its development. According to official statistics, nearly one third (35.5%) of companies in Ukraine are working in the field of trade and services, 18.4%. - in real estate, 15.8%. - industry, 9.4% - in construction. A similar situation is in the small and medium-sized enterprises sector structure. Therefore, within the Survey, the SME sector structure is different which can be explained by inequal level of CSR integration in the companies (Fig. 2.1) of different industrial sectors. Fig.2.1. Sectoral distribution of surveyed enterprises

The study covered SMEs in 13 economic sectors, which can be grouped into 4 main sectors: industry (27.1%), commerce (22.4%), construction (6.8%) and services (22.4%). Grouping of enterprises in economic sectors can be seen in the table 2.1. Table2.1. Distribution of surveyed SMEs by economic sector and their sector grouping
SECTOR OF THE ECONOMY, (%) Branches of economic activity, (%) .INDUSTRY 12.6 Industrial production 8.7 Food industry 2.9 extiles 2.9 Technologies . TRADE 11.7 Retail trade 10.7 Wholesale . CONSTRUCTION 6.8 Building materials V. SERVICES 6.8 Tourism 3.9 Finance and Insurance 4.9 Transport 3.9 Automotive 1.9 Aircraft 1.0 Science and Pharmacology V. OTHER SECTORS 21.4 Others

27.1

22.4

6.8 22.4

21.4

As one can see, the most represented enterprises in the survey are the industrial enterprises (27.1%), trade enterprises (22.4%) and service enterprises (22.4%). A large proportion of respondents (21.4) have indicated their enterprises belonged to other economic sectors. However, 6.8% construction companies involved in the Survey quite fully mirror the situation of CSR development in the construction sector with part in the country economy of 9.4%. Indicators of interviewed SMEs The size of enterprise is one of its strategically important characteristics. Statistics of foreign countries, as well as in Ukraine, use the different indicators to define the size of an enterprise, but the leading indicator is number of employees, because SMEs ensure about 50% of productive employment (45% in the EU and North America, 66% in Japan, 72%, Asia 65% Africa and 77% in South America) [8]. According to official statistics in Ukraine SMEs provide the jobs for 66% of population, among which 47% - in medium, and 19% - in small enterprises (Table 2.2). Table 2.2. The average number of employees occupied in the Ukrainian enterprises (2007) 10

Total The average number thousands number of of of 100

number

of

Large enterprises 3131,2

Medium enterprises 4275,0

Small enterprises 1748,1

enterprises, including 9154,3

employees, persons The average employees, %

34.2

46.7

19.2

In our opinion, the size of the company in some way affects the willingness of its owners and management to implement CSR activities - the companies with the greater number of employees are more actively involved in CSR. The detailed analysis of enterprises under Survey with the number of employees can disclose the level of such impact. Table 2.3. Classification of the enterprises by the number of employees
Number of employees 10-50 <10 51-100 101-250 >250 Total Number 42 33 12 11 6 104 Part, % 40.4 31.7 11.5 10.6 5.8 100

Fig.2.1. Classification of the enterprises by the number of employees

In the structure of our Survey sample the part of small enterprises is 71,7%, considerably less than the part of such enterprises in the economic structure of Ukraine (85.1%). However, representation in our sample of medium-sized businesses (22.1%) is slightly higher than their 11

representation in the country structure of the economy (14.7%). Thus, quantitatively, the most represented in our survey are small enterprises with number of employees up to (50 people 71.7%, more of which are with staff of 10-50 people and microenterprises (up to 10 people) account for 31.7%. Another indicator of the enterprise is the financial stability which is the key factor in understanding the specific context of SMEs attitude to CSR, especially at the present stage of the global economic downturn that had a serious impact on the financial and economic situation in Ukraine. Table 2.4.Classification of enterprises in terms of financial stability
Aspect of Financial stability Minor financial difficulties Financial stability over 3-5 years Financial stability during 3-5 years Financial stability during 1-3 years Regular financial difficulties Financial stability of less than 1 year Total Number 31 24 21 13 9 6 104 Part, % 29.8 23.1 20.2 12.5 8.7 5.8 100

Almost a third part of SME respondents in our survey experienced a minor financial difficulties (29.8%), yet 8.7% - reported about the regular financial difficulties of their enterprises. However, the vast majority of SME entrepreneurs interviewed stated the stable financial situation of their enterprises. Obviously, the CSR issues are more integrated in the companies with financial stability of more than 5 years (23.1%) and 1-3 years (20.2%). It is a proven fact of the statement that CSR activities also serve a solid foundation for SME financial stability. Socio-economic and environmental conditions of SMEs, as well as implementation of their CSR activities usually differ from region to region proving the statement about the regional specifics. In particular, SME representatives from 14 regions of Ukraine participated in the Survey which were divided into three regional groups: Central and North West, East and South. The most CSR active SMEes are located in Donetsk (11 SMEs), Cherkassy (10 SMEs), Kherson (10 SMEs), Lviv (9 SMEs), Lutsk (9 SMEs), Chernigiv (8 SMEs), Kharkiv (8 SMEs) and Mykolaiv (8 SMEs). Conclusions. 1. The report is based one-dimensional and two-dimensional analyses of data obtained from 104 SMEs experts in Ukraine.

12

2. The sample included SMEs in 13 economic sectors grouped into 4 main blocks, most of which represented industry (27.1%), commerce (22.4%) and services (22.4%). Quite well represented in the sample are the enterprises of the construction sector (6.8%), whose part in the economy is 9.4% 3. The sample classification of enterprises by size demonstrate 71.7% of small enterprises in comparison with 85.1% of such enterprises in the economy of Ukraine. However, representation of medium (22.1%) and large (6%) enterprises is higher than their representation in the economic structure (14.7% and 0.2% respectively). Obviously, the larger enterprises show the higher interest toward CSR. 4. The vast majority of experts reported about the stable financial situation of their enterprises. Therefore, financial stability can be regarded as a warranty for CSR in SMEs, and vice versa CSR can be a solid basis for financial stability of SMEs in Ukraine. 5. The survey covered small and medium-sized enterprises in 14. regions of Ukraine divided into three geographical clusters when analyzed: Central and North West, East and South.

13

Section 1. Understanding of the term "responsible business practices" and "CSR" for SMEs in Ukraine Among Ukrainian SMEs the understanding of responsible business practices has not yet formed. The question How do you understand the term :responsible business practices? What activities they provide? was put to the interviewed SMEs, and the reply options are shown in Table 3.1. Table 3.1. Interpretation of the term "responsible business practices" How do you understand the term :responsible business practices? What activities they provide?

1. 2. 3.

The obligation of the company due to the labor and environmental legislation Responsible attitude to its work, no problems with tax and legal consideration

Responsibility for its activities, including ethics and law. The responsibility for the consequences of their activities 4. Responsibility for its production activities to staff and community 5. Responsibility for its activities to employees, customers, partners and government 6. Developing the business in such a way, that it would not harm the environment, bring benefits to society and community 7. Participating in different spheres of communitys development 8. Conduct for business development, based on the principles of the needs of the community, employees, quality of production, environmental protection 9. Voluntary initiatives of the company on its obligations to employees, customers and society 10. Participation of companies in solving social and environmental problems, charity 11. Responsibility of employer to people, with whom he collaborates 12. Balance of 3 concepts: people, money, nature

The responses can be divided into two main groups. To the first group we can refer the definitions which characterized more conditions for CSR rather than an element of responsible business practices, e.g. company's obligation due to labor and environmental legislation or payment of taxes and legal consideration. Overwhelming majority of the answers contains definitions that include the scope and characteristics of a socially responsible company, such as "for its production activities to the staff and the community," for its activities to employees, customers, partners, government. Sources of information about CSR. According to Survey results, the most popular source of obtaining information about CSR for small and medium enterprises in Ukraine is the media (44%). A significant number of respondents also reported that they first learnt about CSR from other companies (16%) and local NGOs (9%). Around 3% of SMEs first learnt about corporate social responsibility from business associations, Chamber of Commerce and the UN Global Compact. If to divide by sectors, SMEs 14

of trade and industry learnt about CSR from media (65.2% and 48.0% respectively), the construction companies the same from media (42.9%) and other companies (42.9%). Fig. 3.1. Sources of information about CSR

15

Fig.

3.2.

Sources

of

information

about

CSR

in

SMEs

of

different

sectors

SMEs from service sector actively used information about CSR from media (26.1%), other companies reports (21.7%) and NGOs (17.4%), and also mentioned . UN Global Compact as a source of information on CSR (8.7%). In general, such criteria as SMEs size, financial stability and regional location have no effect on the sources of obtaining information on CSR. Fig. 3.3. Sources of information about CSR in SMEs with different financial situation

16

Significantly lower level of participation of other potential actors in promoting the principles of CSR among small and medium business in Ukraine, in particular - business - associations. This is an important finding as according to official data of 2006 in Ukraine operated a solid business support infrastructure consisted of 421 business center, 70 business incubators and 305 leasing centers, 763 credit unions, 204 Entrepreneurship Support Fund, 1539 audit firms, 762 auditing private companies and 412 insurance companies. Description of CSR by respondents: Almost one third of respondents believe that CSR could be best described as: a way to manage companies economic, social and environmental results and to interact with its stakeholders (28.8%); promoting corporate fairness, transparency and accountability through the use of certain rules and processes, with the help of which the business is managed (27.9%); a set of policies, practices, programs and integrated through business operations to reduce negative impact on social and environmental surroundings of the company (26.9%); a way to achieve commercial success, which is not contrary to the welfare of employees and local communities"(23.1%). Interestingly, that among the respondents there is an opinion that CSR can not be a set of random philanthropic CSR practices or initiatives motivated by public relations or marketing reasons (1.9%) as well as a voluntary charitable activities of the company, which the company introduced only in some cases for needs of local communities (7.7%). 17

Besides, some respondents described CSR as SME responsibilities due to labor and environmental legislation (20.2%), not taking into account the fact that global concept of CSR provides additional and higher standards of doing businesses in the social and environmental spheres than legally established norms. SMEs do not view CSR as a part of the formal process of management through which companies collaborate with stakeholders (1.9%), reflecting the real situation. Respondents also pointed that in modern Ukraine CSR has not become yet a component of the overall business strategy. Only large companies or the representative offices of foreign companies operating in Ukraine try to implement CSR practices and policies, unlike SME sector. Table 2. Which of the following definitions in your opinion, best describes the CSR (the amount is higher than 100% because respondents were able to choose up to 2 definitions)
9. CSR describes the way the company manages its economic, social and environmental relations and interacts with its stakeholders (including employees, customers) 3. CSR promotes the corporate fairness, transparency and accountability through the use of certain rules and processes, with the help of which the business is managed 5. CSR is the set of policies, practices, programs that are integrated through business operations to reduce the negative impact on social and environmental surroundings of the company 7. CSR is a way to achieve commercial success, which is not contrary to the welfare of employees and local communities 2. CSR is the duty of the company due to the labor and environmental legislation 8. CSR describes the process of decision making based on ethical values and conformity to legal terms 1. CSR is the charitable activities of the company, which are implemented only in some cases for the needs of the community 4. CSR is a set of random philanthropic practices or initiatives motivated by public relations or marketing considerations 6. CSR is a formal process of management through which companies collaborate with stakeholders 28.8 27.9 26.9 23.1 20.2 12.5 7.7 1.9 1.9

SME sector analyses demonstrate the following trends: the service sector respondents believe that this is a set of policies, practices, programs, integrated to reduce the negative impact on social and environmental surroundings of the company (47.8%), construction enterprises representatives are convinced that CSR promotes corporate fairness, transparency and accountability, with the help of which the business is managed (42.9%),

18

employees of the commercial enterprises consider CSR as a way to achieve commercial success, which is not contrary to the welfare of employees and the local community (34.8%) and decision making based on ethical values and compliance with legal conditions (34.8%). Fig. 3.4. Description of CSR by SME representatives of various sectors

CSR and SME size: The figure shows that the enterprises employing over 50 persons have better

understanding of CSR, and the microenterprises have scattered understanding of this concept. Fig. 3.5. Description of CSR by representatives of SMEs of different sizes

19

Geographical location: If representatives of SMEs in Western region give preference to description of CSR as a way of achieving commercial success (33.3%), how the company manages its economic, social and environmental relations (33.3%), respondents from Eastern and Southern region tend to believe that CSR is primarily a set of policies to reduce the negative impact on social and environmental surrounding of the company (30.8%). The Center and the North believe that the most significant is that CSR promotes corporate fairness, transparency and reporting (32.1%).

20

3.6.

Description

CSR

representatives

of

SMEs

from

different

regions

Financial stability: Different level of understanding of CSR can be witnessed among representative from SMEs with different financial stability. Fig.3.7. Description of CSR by representatives of SMEs of different financial situation

Experts from the most financially stable companies chose options demonstrating a fundamental approach to the CSR concept, where CSR is regarded as the way the company manages its 21

economic, social and environmental relations (40.0%) and to reduce the negative impact on social and environmental surrounding of the company (31.1%). Companies representatives of financial stability for less than 3 years understand CSR as activities that promote corporate fairness, transparency and reporting (26.3%) and provide policies to decrease the negative impact on social and natural environment (26.3 %). Companies with financial difficulties tend to descriptions determinations, according to which CSR promotes corporate fairness, transparency and reporting (30.0%). Respondents views on statements on CSR

Under survey the respondents were proposed to evaluate the different statements on CSR. The popular statement about CSR among small and medium enterprises of Ukraine is that the condition of social responsibility must be in compliance with labor law and environmental protection (82.5), and responsible companies perform much more than that under the law for a positive impact on society and environment (70.8). The majority of respondents think that the legislation on CSR should exist to speed up its promotion among companies and general public (78.2). Another popular opinion is that CSR activities should include practices of environmental protection (77.7), thus demonstrating that SMEs think responsibly and understand the environmental impact their activities. Table 3.3. Respondents views on statements about CSR
Percentage Indicate whether you agree with the following statements respondents agreed with the statement 28.3 32.7 43.9 51.5 78.2 82.5 70.8 53.1 60.2 38.8 77.7 7.3 of

1. CSR is a very expensive concept 2. CSR is more obligatory to large companies than for small and medium enterprises 3. CSR has to be promoted by the government 4. Small and medium enterprises can implement CSR in the availability of resources provided by state or other institutions 5. CSR should be resolved on the legislative level to fasten its spread 6. Responsible company is a company that complies with labor and environmental legislation 7. Responsible companies perform much more than it is needed by the legislation 8. CSR is an important issue to establish business relations with the Western companies 9. CSR is an equivalent of the corporate governance 10. CSR is the equivalent of the charity 11. CSR includes activities for protection of the environment 12. SME (small and medium enterprises) could implement CSR only with the help of foreign

22

advisers 13. CSR includes activities for protection of the environment 14. CSR is the new unusual name for the activities that companies have made before 15. CSR is more important for the companies from developed countries than for the companies from developing countries 16. CSR is more important for the field of production than for the service sector 17. CSR is motivated by the public relations and marketing considerations of the company 18. CSR can increase the profit

61.1 38.5 32.0 20.0 55.8 54.6

It should be noted that only 7.3% of respondents believe that CSR can be implemented only with the assistance of foreign advisers, 20% of respondents agree that CSR is more important in the production than service sphere. Almost a third of respondents (28.3%) consider CSR as a costy and expensive thing to have, and 32.0% of them support the statement that CSR is more important for companies from developed rather than developing countries. Regional aspect: Despite of some differences of aassessment of the statements about CSR among SMEs representatives from different regions, they all agree on the following: 1. CSR should be resolved on the legislative level to fasten its spread. 2. Responsible company is a company that complies with labor and environmental legislation. 3. Responsible companies perform much more than it is needed by the legislation. 4. CSR includes activities for protection of the environment.

23

Fig.3.10. Assessment of statements about CSR among SMEs from different regions

The least popular among experts from different regions are the following statements: 1. CSR has to be promoted by the government. 2. CSR is the equivalent of the charity. 3. SME (small and medium enterprises) could implement CSR only with the help of foreign advisers. 4. CSR is more important for the companies from developed countries than for the companies from developing countries. 5. CSR is more important for the field of production than for the service sector.

Conclusions. 1. The most popular source of obtaining information about CSR for SMEs of different sectors, sizes, regions, and with different financial situation in Ukraine is the media (44%), other used sources are other companies (16%) and local NGOs (9%). 2. Significantly lower is the level of participation of other potential actors in promoting the principles of CSR among small and medium enterprises in Ukraine. In particular, according to the survey, not much attention to CSR is paid by business associations which is an important finding as Ukraine in 2006 established a well-developed business support infrastructure, which 24

included 421 business centers, 70 business incubators and 305 leasing centers, 763 credit unions, 204 Entrepreneurship Support Funds, 1539 audit firms, 762 private auditors, 412 insurance companies. 3. The survey respondents proved the fact that CSR is, above all, the way the company: a) manages its economic, social and environmental relations and interaction with its stakeholders, and b) promotes corporate fairness, transparency and accountability; c) achieves commercial success, not contradicting employees welfare and the welfare of the local community. An important contribution to the development of general CSR concept is understanding of the necessity to develop and implement CSR mechanisms with appropriate policies, practices, programs, integrated through business operations to reduce negative impact on social and environmental companies (26.9%). 4. The general undertanding of the terms "CSR" and "responsible business practices" among Survey respondents vary depending on industry affiliation, size, financial position and geographical location of the company that they represent. This can be explained by different CSR practices, as well as the lack of the holistic vision of CSR as a strategic concept for the development of modern enterprises among Ukrainian SMEs.

25

Section 2. Prospects and obstacles for the the implementation of CSR among small and medium enterprises in Ukraine The continuous dissemination of the corporate social responsibility concept and UN Global Compact principles (support for human rights, labor standards, environmental protection) , CSR implementation by the leading companies in Ukraine encourage SMEs to engage in the process of developing effective programs of corporate social responsibility. Assessment of SME experts views and CSR practices in their companies revealed that 53.6% of them, the process of implementing CSR may take from 6 months to 1 year (Table 4.1). Table 4.1 Respondents views on the question: "How much time can take the implementation of CSR in your company?"
# 1. 2. 3. 4. 5. 6. period 2-3 weeks 1 month 2-6 months 6-12 months 1 year Other % 1.0 3.9 17.6 20.6 33.3 23.5

As one can see from the table, period from 2-3 weeks to 1 month is obviously insufficient for the implementation of CSR in most of SMEs. Fig.4.1.Time required to implement CSR in SMEs

26

More time (from 6 months to 1 year inclusive) for the implementation of CSR in their companies' activities are required in the trade companies (65.2%) and industrial enterprises (62.9%) (see Figure 4.2). Fig . 4.2. Prospects of the implementation of CSR in SMEs of different sectors

Experts explain readiness of construction companies (28.6%) to implement CSR in a rather short period of time (from 1 month to 2-6 months) by to the dynamic nature of their activities. Regional aspect: Among SMEs highest readiness for the implementation of CSR (1 month to 26 months) was shown by the companies from the Central and Northern regions (28.6%). Fig . 4.3. Prospects of the implementation of CSR in SMEs in different regions

More long-term plans on implementation of CSR within the company is shown by the SMEs from Eastern and Southern regions. According to the majority of the respondents in these regions (64.1%) the process will take place from 6 months to 1 year.

27

Number of employees: There is no significant differences in terms of the period for CSR implementation found among enterprises with different number of employees (Figure 4.4.). Fig . 4.4. Prospects of the implementation of CSR in SMEs of different sizes

SME and Financial stability: Practically no difference in terms of the period of CSR implementation within companies can be seen among Ukrainian SMEs of different financial stability (Figure 4.5.). Fig.4.5. Prospects of the implementation of CSR in SMEs of different financial stability

In general, quite a balanced position on the period of CSR implementation within companies can be explained by the awareness of the SME representatives about the capacity needed for CSR implementation. Indeed, a successful system of CSR implementation is a complex, long-term strategy for any company, including SMEs. It involves changes in its overall business strategy and structure for integrating social and environmental priorities in the company's activities at all levels of decision-making process, which should lead to improving the management of the company and its activities in general.

28

Barriers / obstacles to the implementation of CSR in SMEs in Ukraine Implementation of corporate social responsibility in SMEs can not only bring some achievements but also some obstacles to overcome. The main reason to hinder the development of social responsibility among small and medium enterprises in Ukraine is the lack of funds (Table 4.2) which is strongly connected with the lack of legislative promotion of responsible SMEs Table 4.2. SME representatives answers to the question "What is the biggest obstacle to the implementation of CSR in your company?
Percentage of responses, % Lack of human resources Lack of funds Lack of know-how Lack of technology Lack of support from management Lack of employees motivation Lack of profit from CSR Other 10,8 37,3 14,7 13,7 3,9 5,9 7,8 5,9

The idea of corporate social responsibility in Ukraine requires legislative support. Western standards and norms motivate the entrepreneurs to make voluntary social investments. In contrast, some domestic laws are compulsory or some are not yet developed Ukrainian legislation imposes a series of mandatory business social functions which shows their only fiscal nature. Social insurance, which in fact takes up to 41.7% of revenues of enterprises, built on the principle of lack of alternativeness. It compels employers to use the scheme of "grey" wages which will results in reduction of social benefits in the future. In addition, Ukrainian legislation provides small set of preferences to encourage spendings on social actions. Therefore, only 4% of the profits of the company paid to the charitable foundation or organizations is not under taxed. Financial support provided to research, cultural, sports institutions and religious organizations is VAT-exempted7. It should be noted that the problem of lack of funds for CSRT implementation is of high importance for both small and medium enterprises (Figure 4.6.). Fig.4.6. Obstacles to the implementation of CSR in SMEs

.. : //

. 2008, . 18.6, -.200-204.

29

Logically, for smaller companies another problem is appears lack of human resources. Representatives from companies with the number of employees up to 50 people also tell about the problem of knowledge deficit more than others, while companies with the size of 10-50 employees indicate a lack of technologies for implementing CSR. Conclusion 1. According to the majority of experts, the period necessary for implementing CSR into SMEs management system can take in from 6 months to 1 year. That's the period needed to implement CSR according to the experts of trade and industry enterprises in Eastern and Southern regions. 2. Readiness for dynamic implementation of CSR (1 month to 2-6 months) was shown by the companies of the construction sector in the Central and Northern regions. 3. The main obstacle to the implementation of CSR in SMEs is the lack of funds and human resources.

30

Section 3. Evaluation perception of the importance of CSR activities among small and medium enterprises in Ukraine The specific cases could tell us much about the principles of corporate social responsibility in the company. And therefore, crucial for the implementation of CSR in SMEs is the task to identify appropriate measures and implement the most important activities within the CSR concept. SMEs experts were evaluated according to the importance of 47 types of companies CSR activities on a scale from 1 to 6 points, where 1 - is the most important, and 6 - is the least important (Figure 5.1). Experts responses proved the prevailing role of the CSR activities in the following areas: working environment, product quality, satisfaction of employees, certification and evaluation of employees. Fig. 5.1. The importance of CSR for SMEs

Analyzing the evaluation results of the evaluation, it is worth noting that only 11 among 47 of the proposed activities were recognized at a level below the average (more than 3 points). Detailed analysis reveal that among these positions of the less importance there are such important practices as activities under the national criminal law (3.1), interaction with schools and universities (3.1), the cleaning procedure (3.1), social assessment (3.2), gender-balanced environment (3.3), freedom of associations (3.3) and charitable contributions (3.4). The fact of great concern is understanding by the SME experts of the collective bargaining (3.4), non31

financial reporting (3.5), non-use of child labor (3.6) and the existence of trade unions (4.0) as the least important practices. SMEs and sectors: Further review of the results showed the polar understanding (the most important and least important) of the CSR issues for representatives of particular sectors. For the industrial enterprises, the most important activities in view of CSR is evaluation of staff, rationalization of water use, working environment, improvement of working conditions for employees and energy efficiency. Fig.5.2. The importance of CSR for SMEs of industrial sector

The least important activities for SME experts from the industrial sector, is to resolve the issue of gender balance, collective bargaining, child labor and trade unions - which generally corresponds to the rating of these positions in the overall results of the Survey sample.

32

Another variety of the most important practices of CSR emerges in the commercial sector. It is, first of all, the satisfaction of employees, health and safety, employee training, leadership style, business ethics and transparency. Fig.5.3. The importance of CSR for SMEs of trade industry

The least important for this sector are such practices as charitable contributions, non-financial reporting, and expert analysis and, as in the previous results from other sectors, non-existence of child labor and trade unions. An analysis of expert opinions from the sphere of construction reflects the priority target for development of their social relations, which have a condition to ensure satisfaction of customers and employees. Fig.5.4. The importance of CSR for SMEs in construction industry

33

Specific for this group of experts, the least important are such practices as working hours overtime work, interaction with schools and universities, traditionally, the issue of child labor and the existence of trade unions. Almost in parallel with the previous groups, experts, SMEs of service sector are willing to acknowledge the important role of such activities as satisfaction of customers and employees, work environment, health and safety for CSR in their business. High ranking place in this group received a such issue as certification. Fig.5.5. The importance of CSR for SMEs of service sector

Among the least important - traditionally repeated in the rankings of other sectors of the practice of CSR (Figure 5.5.). Overall, survey results found some specific significant CSR practices to each type of economic activity of enterprises. In particular, industrial companies put the focus on practices to ensure the development of effectiveness of their activities, business commerce focused on improving the social (labor, economic) relations and the construction sector companies and the services sector are working on improvement of system of human resources, quality of service. What is interesting that practically all sectors of SMEs agree on the least important CSR practices within 34

SMEs - improvement of labor practices, the existence of trade unions, freedom of association, collective bargaining, working hours overtime work, not using of child labor, gender-balanced environment. Besides, such important CSR practices as non-financial reporting and social assessment are underestimated by SMEs respondents. SMEs and numbers of employees: The results confirm the certain differences SMEs with different number of employees in regard to the importance of CSR activities. Fig.5.6. The importance of CSR for micro, small and medium-sized enterprises

Interesting to know that that unlike larger enterprises, micro ones (up to 10 employees) are more focused on external CSR practices and feel the need to address such issues as customer satisfaction, corruption overcoming and compliance with tax obligations. Fig.5.7. The importance of CSR for micro SMEs

35

Less attractive to micro enterprises in terms of CSR practices is the establishing of trade unions, non-financial reporting, charity donations and freedom of associations. The enterprises with the number from 10 to 50 employees are mostly concerned about issues of certification, product quality, customer satisfaction, which can be solved by forming an appropriate work environment and proper salary. Fig.5.8. The importance of CSR for small SMEs (10-50 employess)

36

Recognizing the role of labor relations in CSR development, representatives of SMEs ignore the importance of such issues as the existence of unions, collective bargaining, child labor, gender balanced work environment. It is worth stating that among the most important CSR activities in medium-sized enterprises is the internal CSR: health and safety, staff satisfaction, improvement of working conditions for employees, working environment, respect of national labor and environment legislation.

37

Fig.5.9. The importance of CSR for medium-sized enterprises

However, it should be noted that the medium enterprises in Ukraine have not yet paid the proper attention to the issues of child labor, national criminal law, non-financial reporting, and traditionally under-estimated issue of the establishing of trade-unions. Regional aspect: There are also different opinions of SME experts from different regions on the importance of CSR. Fig.5.10. The importance of CSR for SMEs by region

Financial stability and SMEs: Financial situation of the company also has an impact on understanding of the CSR importance. 38

Fig.5.11. The importance of CSR for SMEs, which have different financial situation

Assessing the importance of activities of the CSR issues in accordance with ISO 26000 (new international standard on social responsibility)8 The grouping CSR practices according to their importance was made on the base of ISO 26000 issues which include human rights and labor practices, fair operating practices, social development, consumer issues, environment and organizational governance. Table 5.1. The importance of CSR activities according to ISO 26 000 (based on the scale from 1 to 6 points, where 1 - very important, and 6 - are not important)
Consumers issues 2.4 Certification Customers satisfaction Product quality Fair operation practices 2.8 Business ethics and transparency Taxes Corruption National criminal law Financial reporting CSR assessment of business partners ENVIRONMENTAL PROTECTION 2.82 . Cleaning procedures Decreasing of Industrial Pollution Energy efficiency Renewable energy sources Water consumption Waste handling National environmental law Environmental impact assessment Sourcing policies/requirements Human rights/labour practices 2.91 Human resource policies
8

2.5 2.4 2.4 2.7 2.6 2.6 3.1 2.8 3.0 3.1 2.7 2.7 2.8 2.7 2.9 2.7 3.0 2.8 3.0

Planned to be adopted in May, 2010

39

Fatigue at work Harassment at workplace Gender-balanced work environment Wages Trade-unions Child labor Signing collective bargaining Working hours and over-time Hygiene at workplace National labor law Health and safety Employee satisfaction Work-life Balance Maternity privileges Level of noise and dust at workplace Ergonomics of workers Freedom of association Working atmosphere Training of employees Staff performance evaluation Management style Social development 3.13 Social impact assessment Charity donations Stakeholder engagement Community work Cooperation with schools and universities International standards Non-financial reporting

3.0 3.0 3.3 2.6 4.0 3.6 3.4 3.0 2.7 2.7 2.4 2.5 2.9 2.9 3.0 2.5 3.3 2.4 2.5 2.6 2.7 3.2 3.4 2.9 2.9 3.1 2.9 3.5

As one can see, SMEs are primarily interested in CSR practices aimed at meeting the demands of consumers, and the most important issues is the issue of the quality of products and services for consumers. These data clearly support the fact that SMEs connect implementation of CSR strategies with economic development of their companies, which is also proved by the fact that business ethics and protection of the environment are also very important issue for SMEs. Besides, it should be noted that SME representatives pay less attention to human rights and labor practices (2.9 points) and social development in general (3.1 points). Conclusions. 1. Generally interviewees pointed out the importance of CSR practices in their activities. Thus, the results of evaluation of 47 types of different CSR activities on their importance for company found out that majority of SME experts rank as the top such issues as working environment, product quality, satisfaction of employees, certification and evaluation of employees. Only 11 types of activities were evaluated below the average (they got more than 3 points according to scale where 1 is the most important activity and 6- is the least important one). However, the 40

survey demonstrated that SME experts dont pay much attention to such important activities as freedom of associations, collective bargaining, the establishing of trade unions, non-financial reporting, child labor, gender-balanced work environment and charitable contributions. 2. The considerable interest of SME experts in CSR practices aimed at meeting consumers can prove the fact that SMEs closely link the implementation of CSR strategies to the economic development for their companies. However, the least important issues for experts are human rights and labor practices, and social development practices. 3. Such indicators as the economic sectors of SMEs, size of the enterprise, geographic location and financial stability also have an impact on determination of the importance of CSR practices for small and medium enterprises.

41

Section 4. Expectations of the results of the implementation of CSR and benefits for SMEs in Ukraine. The level of awareness of our experts about the possible results from the CSR implementation among Ukrainian SMEs could be shown by analysis of their answers to the question: "What impact has CSR on the following indicators?". The experts were asked to evaluate the expected results of CSR implementation in 22 directions. Evaluation was carried out by the 5-stage scale: significant positive impact; medium positive impact; significant negative impact; medium negative impact and no effect; According to survey results, all experts have great expectations for the positive impact of the CSR implementation for their enterprises (see table 6.2). Almost all of the experts have opinions that the most positive results from CSR implementations are improvement of the reputation (93.6% of respondents), raising awareness of the brand (86.2%), establishing relations with the government (85.3%). Also, CSR implementation within the company will have a positive impact on the quality (85.3%), competitive advantages (83.3%), innovations (83.0%), productivity (80.4), sales (80.2%), income (77.7) and other indicators of economic development of the company. Table 6.2 SME evaluation of the positive impact of CSR
Possible Results Reputation of the company Level of brand awareness Government relations Quality Competitiveness Innovations Media presence Customer satisfaction Productivity Sales Investors relations Profit Market access Market share Export Risk management Employee turnover Credit arrangements Absenteeism rate Respondents views, % 93.6 86.2 85.5 85.3 83.3 83.0 82.8 81.7 80.4 80.2 78.9 77.7 71.3 68.4 68.1 67.8 64.9 63.1 55.2

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19.

42

20. Value added per employee 21. Operational costs 22. Pricing

51.6 51.2 41.5

According to the SME representatives the CSR implementation is also associated with certain risks, most of which are increased operating expenses, turnover, absenteeism levels, value added per employee and pricing (see table 6.3). Table 6.3 SME evaluation of the possible negative impact of the CSR activities
Possible negative impact Operational costs Employee turnover Absenteeism rate Value added per employee Pricing Respondents views, % 20.0 17.0 16.1 15.1 13.8

Some SME experts have the opinions that CSR does not affect the enterprises activities and certain indicators, primarily economic ones: pricing, additional cost loans, export share of the market, risk management, operational costs, and access to markets. Table 6.4. Respondents opinions on no-impact of CSR implementations for SMEs.
Indicators of enterprises activities Pricing Value added per employee Credits Export Market share Risk management Operational costs Absenteeism rate Market access Government relations Investors relations Employee turnover Profit Sales Media presence Customer satisfaction Innovations Productivity Competitiveness Level of brand awareness Quality Reputation of the company No CSR impact, % of respondents 44.7 33.3 32.6 29.8 29.3 29.0 28.9 28.7 27.7 19.4 18.9 18.1 17.0 16.7 16.1 15.3 14.9 14.1 13.5 12.8 12.6 5.3

Conclusions. 1. Evaluation of the possible impacts from the CSR implementation on SMEs based on 22 indicators revealed a high level of expectations among respondents about the positive impacts in 43

such areas as improved reputation, increasing brand awareness, establishing relationships with the government. Also SMEs expect the positive impact of CSR on quality improvement, competitive advantage, innovation, productivity, sales, profits and other indicators of economic development. 2. Respondents view the negative impact from the CSR activities in terms of increasing operating expenses, turnover and absenteeism levels, value added per employee and others. The benefits for implementing CSR within small and medium enterprises in Ukraine According to the matrix of business opportunities for social responsibility, composed in 2004 by SustainAbility International for emerging markets, companies receive such benefits from CSR activities: improvement of manufacturing processes increase of productivity, revenue, cost savings with the use of environmentally friendly equipment; formation of the company's reputation - increasing customer loyalty, brand value, partnerships; stability of workforce, saving resources for attracting and retaining qualified personnel; access to new markets - standardization according to international standards (ISO); effective risk management - a timely and efficient access to specific information, an opportunity to respond to risky situations; fundraising from special funds - "social investments" for social programs for the responsible companies. Situation of the awareness on the benefits of implementing CSR in SMEs is represented by the answer to the question: "Briefly describe the benefits that your company can get from the implementation of CSR?" Responses of the experts about the potential benefits from the implementation of CSR are related to four main business areas: labor practices, business practices, consumer issues and social development (figure 7.1). Fig.7.1. Benefits from the CSR implementation for SMEs. Due to the experts evaluations, most benefits are expected from the CSR implementation in the area of labor practices, which include: discipline improvement; 44

reducing of staff turnover; improvement of working conditions; employees motivating; improvement of productivity; promoting employees responsibility; providing social packages;

The SME experts as well have great expectations in the areas of fair operating and transparent business policies of the companies, such as: business ethics; brand advertising; support from foreign investors; new markets; reputation, cost reduction; promoting cooperation with international companies; access to media; competitiveness; financial benefits in the future.

SME experts believe that the implementation of CSR will improve product quality, satisfy customers and bring benefits to businesses in matters of customer loyalty. The SME representatives expect that the implementation of CSR will have the effect of increased prosperity, improved relationships with the community, increasing funds for promotion of social projects and contribution to social development in general. Only three experts from 104 respondents think that the CSR implementation has no benefits at all. CSR practices in the SME. Only 13 respondents reported about the CSR practice at their enterprises. The most popular in SMEs are the CSR activities related to labor practices, environmental issues, fair operating practices and community development. Most CSR activities related to the labor practices are: - activities to ensure safe working conditions; 45

- opportunity for studying; - a training center at the enterprise; - reward system for the best workers; - health-care system; - creating new working places; - sport events and tournaments for the employees and the management; organization of the family entertainment;

Besides, SMEs also try to improve CSR practices in the area of fair operating and transparency practices including: - respect to the business partners; - anticorruption policy; - implementation of the ethics code; - service improvement. SME experts also report on the CSR practices aimed at the community development, such as: - charity; - community support; - providing residents with low accommodation prices; - aid to the orphanages. Also, the environment protection activities are developed nowadays: - implementation of environment-friendly technologies; - cleaning the territory around the company; - careful attitude to the environment; It should be noted that SME respondents also pointed out as CSR practices the activities they have to do under the law: tax payment, collective bargaining and salary payment. Conclusions. 1. CSR is an effective tool for corporate SME policy, which assists in updating the modern management style to a new level with its own corporate philosophy and pre-conditions for numerous competitive advantages. The SME respondents state such potential benefits fro SMEs from the CSR implementation as improved corporate policy in labor practices, improved business activities, customer satisfaction and promote social development. 46

2. Studying the CSR practices of the SMEs showed that they are implemented in the areas of labor relations, environmental protection, fair operating practices and community development.

47

Section 5. The role of trade unions and collective bargaining for SMEs in Ukraine Analysis of the situation on the level of social dialogue and status of trade unions within SMEs in Ukraine is based on the responses to the following Survey questions: - Does the company have a trade union? - If it has, what problems does it solve? - If it hasnt, then, is there a need of establishing trade unions at the small and medium enterprises? If not, why? - Does your enterprise have a collective bargaining? According to the Survey, there is a low number of SME trade unions in Ukraine. Only 20.2% of respondents stated that their SME has a trade union (see Fig. 8.1). Fig.8.1. The number of trade unions within SMEs in Ukraine

More usual are the trade unions for SME of industrial sector (28.6%) and trade unions are least represented in the commercial sector (8.7%). Fig.8.2. Trade-unions within SMEs of different sectors

48

Also, a direct correlation between size and density of trade unions could be seen. In particular, trade unions were formed within every third medium-sized enterprise (27.6%), and only every tenth micro ones (12.5%). Fig.8.3. Trade unions within SMEs of different size

According to survey results, financial stability of SME hardly influence the establishment or absence of trade unions. Fig.8.4. Trade unions within SMEs of different financial stability

However, Survey results show that trade unions are more usual for SMEs in Central and Northern regions (28.6%), while the smallest representation of them is in the Western region (10.0%). Fig.8.5. Trade unions within SMEs in different regions

49

In general, the status of trade unions in SMEs in Ukraine reflects trends that have developed in many countries - the majority of SMEs, especially micro and small ones, is not covered by the employees representation organizations, and relations between employees and employers are made mostly via direct personal agreements. Relevance of trade unions for SMEs Respondents find it necessary to promote trade union activities as more than 40% of respondents are confident that trade unions should be established within SMEs. Fig.8.6. The necessity for development of trade unions in SMEs

Most representatives of the construction sector considered the development of trade unions as an important CSR task. Most opponents of trade union activity are in trade area (fig. 8.7.). Fig.8.7. The necessity for development of trade unions in SMEs in different sectors

50

The greatest need for the establishment of trade unions was expressed by the representatives of the microenterprises (41.4%) and small enterprises (37.5), slightly lower is this the need for medium-sized enterprises (28.6%). Fig.8.8. The necessity for development of trade unions in SMEs of different size

A bit more willingness to establish trade unions was shown by the enterprises with long-term stable financial situation. Fig.8.9. Necessity for development of trade unions in SMEs of different financial stability

51

Regional data demonstrate that moods towards development of trade unions are more usual for the East, South (48.4%) and the North 40.0%). The SME representatives in the Western region mainly show the little interest to establishment of trade unions (78.9%). Fig.8.9. Necessity for development of trade unions in SMEs in different regions

The main activities of trade unions in SMEs According to the survey, SMEs often deal with several trade union issues: collective bargaining, social protection of workers, improvement of working conditions, employee training and informing. Fig.8.10. The main objectives of trade unions activities in SMEs

52

The most complex and representative is the work of trade unions in industry and construction sectors. The highest level of credibility and transparency of the activities of trade unions is demonstrated by the larger enterprises. The survey results show that regional differences exist not only in the number of trade unions. Obviously, the SME employees in Central, Northern, Eastern and Southern regions feel positive impact of trade unions on their work. Logocally, the major objective of the activities of trade unions is defending the interests of workers at enterprises that are experiencing financial difficulties. While taking into consideration the different level of activities of SME trade unions across various sectors, sizes, financial situation and geographical location, one general characteristic could be seen - low level of respect towards trade unions. In fact, all activities of trade unions are not widely popular, as even the most common among them were chosen by a very small percentage of SME respondents (from 3% to 16,2%)(see fig.8.10). Perspectives for trade-union activities. SME experts helped us define the most needed activities of trade unions: an improvement of working conditions (30.3%), collective bargaining (30.3%), social protection of employees (27.3%), improvement of wages system (27.3%), legal protection of employees ( 24.2%), transparency of corporate policies (24.2%) and training for employees (24.2%).

53

Fig.8.15. Current issues of trade union activities in SMEs

SME in different economic sectors: The SMEs in construction sector mostly have a need to promote trade union activities. Fig.8.16. Current issues of trade union activities in SMEs of different sectors

SMEs of different size: Micro and small enterprises tend to support the trade unions.

54

Fig.8.17. Current issues of trade union activity among SMEs of different-size

SMEs and financial stability: Respondents from financially stable enterprises have higher expectations for activities of trade unions. Fig.8.18. Current issues of trade union activities in SMEs of different financial stability

SMEs in different regions: There are also significant differences of willingness to involve trade unions in resolution of important issues of social and labor relations among SMEs in different regions. Unlike Western region, the more prospects for establishing the trade unions can be seen in Eastern and Southern regions. Fig.8.19. Current issues of trade union activities in SMEs in different regions

55

Thus, the number density of trade unions among SMEs in Ukraine, as well as the awareness of about trade-unions and importance of issues solved by them are determined by the economic sectors of SMEs, their size, financial situation and regional location. Motives to deny trade union activities in SMEs In the situation where the number of trade union on SMEs is ~ 20, while the proportion of respondents who opposed the establishment of trade unions is 60 percent, the logocal question was put to SME experts: Why do SMEs have no need in trade unions? In response to this question, the following reasons were mentioned: - employees dont want to pay contributions; - it is more appropriate to have an Employee council; - trade union requires extra financial costs and time; - very small staff number; - distrust in trade union leaders; - the easier way is a direct personal agreement between the parties; - company takes the main responsibility from the trade unions to protect the rights of employees; - companies dont like the state principles of trade unions; - the collective bargaining could be made instead of establishment of trade unions; - with a small staff the compromise can be reached through negotiations. Collective bargaining in SMEs. SMEs in Ukraine are important employers and collective bargaining and collective agreements serve as a proven tool for improving the social and labor relations.

56

The Law of Ukraine "On Collective Contracts and Agreements" concretize the requirements for maintenance of the collective agreement. It establishes mutual obligations of the parties to regulate the production, employment, socio-economic relations, including: - changes in production and employment; - providing of the productive employment; - wages rationing, establishing the form, system and rate of wages and other employment benefits (bonuses, premiums); - establishing of guarantees, compensations and benefits; - employees participation in formation, distribution and usage of profits; - working hours and leisure; - environment and health; - providing residential, cultural, medical care and recreation for employees; - guarantee of the trade union or other employee organization; - conditions of salary funds regulation and setting of interqualificational ratios in payment; According to the Survey, 60% of SMEs in Ukraine are building social-labor relations on a contractual basis. Fig.8.20. Collective bargaining in SMEs

Rather high (over 60%) is the number of collective bargaining in SMEs in all sectors, except of trade sector where the figure is 39%. Fig.8.21. Collective bargaining in SMEs in different sectors of economy

57

Collective agreements are more frequent in medium-sized enterprises, and the least - in microenterprises. Fig.8.22. Collective bargaining in SMEs of different-size

Despite significant regional imbalances in the number of trade union, the survey found out that collective agreements are quite popular among SMEs in all regions of the country. Fig.8.23. Collective bargaining in SMEs of different regions

58

Collective agreements are an important tool for social protection for employees as its provisions apply to all employees without exception, regardless of whether they are union members, and are mandatory for both the employer and employees. Conclusions 1. The remarkable peculiarity of small and medium enterprises is their internal structure, which indicates the system of social and labor relations and number of representative organizations of workers at these enterprises. According to SME experts, numbers of trade unions in the SMEs in Ukraine reaches 20.2%, from 28.6% in SMEs of industrial sector to 8.7% in the trade area, from 27.6% among medium enterprises up to 12.5% in the micro, from 28.6% among SMEs in Central and Northern region to 10.0% of the SMEs of the Western region. The established trade unions often pay attention to collective bargaining, social protection of employees, improvement of working conditions, employee training and informing of employees. 2. Large proportion of SME respondents (60%) told their negative opinion on the prospects of trade unions among SMEs with justification of their denial. 3. The results show that trade unions is to optimize their activities and adopt them to the most actual needs in the labor relations, including improvement of working conditions, collective bargaining, social protection of employees, improvement of wages, legal protection for employees, transparency of corporate policies and training for employees. 4. While rejecting the establishment of trade unions, SME experts, however, support collective bargaining and contractual regulation of labor relations. Number of contractual 59

regulation of social-labor relations among SMEs is 60%, including 39% - in enterprises of trade sector and over 60% of SMEs in all other sectors.

60

Section 6. CSR Activities implemented by SMEs. CSR employment practices among small and medium enterprises. Internal corporate social responsibility is the main condition for the success of companies in the world. The main directions of internal corporate social responsibility are defined by the international standards of social policy in the area of labor relations. The basic rules and principles of the corporate and public policy in the area of labor relations are outlined in the documents of the United Nations (UN), conventions and recommendations of the International Labor Organization (ILO), declared in acts of the Council of Europe and other international and regional organizations. The right to work and protection against unemployment are proclaimed in the Universal Declaration of Human Rights (UN, 1948), the International Covenant on Economic, Social and Cultural Rights (UN, 1966), conventions and recommendations of the International Labor Organization (ILO). At the European level the right to work is declared by the European Social Charter (Council of Europe, 1961., Revised in 1996) and others. Working conditions and social and labor relations, according to the results of our survey are very important direction of CSR in Ukrainian SMEs. Table 9.1 SME responses to the question: "Which of the below listed activities of labor practices are the part of CSR?"
, Question 7. Improvement of working conditions 5. Training for employees 4. Working places for people with disabilities 8. Activities for employees motivation improvement 19. Development of reward system for the best employees 1. Employees inclusion in decision-making process 2. Code of ethics 10. Collective bargaining 18. Activities for reducing the noise at the workplace 15. Implementation of part-time employment for mothers with small children 14. Keeping workplaces clean 6. Prohibition of smoking at the workplace 17. Providing some free time to employees for blood donation and public work 9. Trade union at the enterprise 11. Appointment of women to senior positions 3. Free lunches for the employees 12. Improvement of rooms isolation 16. Hiring personnel among ethnic minorities 13. Anonymous complaints mechanisms for the employees % 96.0 92.0 89.1 89.0 86.1 73.8 73.7 73.2 73.2 68.7 66.3 57.0 56.6 51.5 48.0 46.4 44.3 43.3 30.6

61

20. Reducing of the working hours to minimum

22.7

For SMEs, the most important are the activities focused on improving working conditions for employees (96.0), developing opportunities for staff training (92.0), creating working conditions for people with special needs (89.1), improving motivation system - improvement of employees motivation - 89.0%, development of the rewarding system for the best employees - 86.1, including employees in decision-making process - 73.8. However, the statement on reducing working hours to a minimum with 22.7% of respondents views showed that free time is not considered as an important part in the system of values by Ukrainian SMEs representatives. Less than half of respondents stated such CSR practices as appointment of women to senior positions (48.0%), providing free lunches for employees (46.4%), recruitment among ethnic minorities (43.3%), the introduction of anonymous complaints mechanisms for personnel (30.6%). Environment protection. Today, responsible attitude to the environment is becoming more common among socially responsible companies. Almost a unanimous position was shown by the SME respondents on the emerging importance of all CSR activities aimed at protecting environment. Table 9.2. SME responses to the question: "Which of below listed activities are a part of CSR in the sphere of environment protection?"
1. Waste separation 2. Installing air condition and heating systems at workplace 3. Improving data collection, measurement and filing systems 4. Utilizing energy saving light pulps 5. Reducing air pollution caused by company cars 6. Cleaning procedures with reduced water consumption 7. Reducing the need for artificial light at workplace 8. Collecting sold products from customers after the product life span for recycling 9. Introducing electronic filing systems 73.7 74.0 60.8 69.4 80.6 63.6 62.2 72.3 72.2

Community Development.

62

The largest part of SME respondents agreed that the construction of sport grounds for the local community, interaction with universities and assessment of CSR commitment of potential partners are the part of the CSR community development. Table 9.3 SME responses to the question: "Which of the following community activities are the part of CSR?
1. Building of playgrounds or sport yards for the local community 4. Interaction with universities 5. Investigating CSR commitment of potential partners 2. Sponsorship of the local soccer team 3. Non-financial reports for stakeholders 85.7 72.4 66.0 38.1 30.9

CSR measures to combat corruption and the activities related to the product quality The problem of corruption is of high importance in the country. According to the IMD World Competitiveness Yearbook, Ukraine is one of the most corrupted countries in the world. Principled position of SMEs representatives is crucial to combat and overcome this phenomenon in our country. Table 9.4 SME responses to the question: " Which of the following activities are the part of CSR in product quality and corruption fighting?
5. Enhancing of quality of products and services 7. Proper labeling of products 6. Introducing proper storing and inventory management policies 1. Introduction of anti-corruption policies 3. Regular donations 2. Providing small occasional gifts to officials dealing with companys matters such as registration or permits 93.1 92.0 91.1 88.1 42.4 19.4

Almost all respondents (88.1%) agreed that implementation of anti-corruption policies is an important part of CSR. However, symptomatic are the concerns of the respondents that regular donations (42.4%) and small gifts to the officials, dealing with company issues (19.4%) are also a part of CSR. Although the issues to improve the quality of products and services, proper labeling of products, proper storage of products are not directly related to corruption, however, entrepreneurs unanimously declare that compliance with these rules reduces the occasions for corrupted behavior by representatives of permitting and regulatory authorities.

63

Importance of introduction of incentive schemes for implementing CSR SME respondents believe that the state financial aid and free consultations on CSR could stimulate the implementation of CSR practices. Fig.9.2. Incentives for implementing of CSR in SMEs

The following activities are important for encouraging CSR implementation: - recognition of the companies by the community citizens as responsible ones; - desire of the employees; - needs of business partners; - access to an international fund to support social services in the region; - access to concessional loans. Conclusions. 1. Labor practices, according to SME experts, are an extremely important area of CSR implementation by Ukrainian SMEs. Especially significant task is improving working conditions, training employees, creating working conditions for people with disabilities, improving motivation structure, involving employees in decision-making process. Less popular are the activities related to the appointment of women in the senior positions, free meals, staff recruitment among ethnic minorities, anonymous complaints mechanisms. 2. CSR activities aimed at environmental protection are also popular among which the most important ones are to reduce air pollution from companies cars. 3. Priority activity in the development of relations with community is the construction of sports grounds for the local community. 64

4. Anti-corruption measures are an important part of CSR. However, a significant portion of respondents named small gifts to officials as the part of CSR as well, despite the fact that this is a corruption in itself. 5. Customers of Ukrainian SMEs are not familiar with CSR practices. Under the best conditions, customers can be informed about safety and security of working conditions, certification, storage conditions, education level of workers, code of ethics. 6. SME respondents believe that the state financial aid and free consultations on CSR could stimulate the implementation of CSR practices.

65

Section 10. Participation of small and medium-sized enterprises in the activities of large national and international companies Collaboration of SMEs with large Ukrainian and international companies can serve as a powerful impetus to the implementation of social responsibility among SMEs. And vice versa, compliance with the modern world standards of socially responsible businesses is an important factor for cooperation of SMEs with the big companies. Analysis of the participation of Ukrainian SMEs in the supply chain of major national and international companies. Today, only a small proportion (12.1%) of SMEs in Ukraine is suppliers to major national or international companies. Fig.10.1. Cooperation of SMEs with large national or international companies
ARE YOU A SUPPLIER TO THE NATIONAL OR INTERNATIONAL COMPANY?

High level of cooperation between SMEs and large companies is in the industrial sector (39.3%), while, the lowest level is in the construction sector. Fig.10.2. Cooperation of SMEs of different sectors with large national or international companies

66

Most effective in establishing cooperation with large companies are SMEs with number of employees from 10 to 50 people (30.8%). Fig.10.3. Cooperation of SMEs of different sizes with large national or international companies

Whats interesting, the highest level of cooperation with large companies have the SMEs with the financial stability of three years (38.9%), while the enterprises with long term sustainable development have lower level of cooperation (22.7%). The lowest level of involvement in the cooperation with large companies was shown by SMEs with temporary financial difficulties (17.9%). Fig.10.4. Cooperation of SMEs of different financial stability with large national and international companies

More flexible in the cooperation with large companies are SMEs in the Western region (30.0%). Less integrated in the supply chain are SMEs of Eastern and Southern regions (15.4%). Fig.10.5. Cooperation of SMEs from different regions with large national or international companies 67

Impact of CSR on development of SMEs cooperation with large companies CSR is the most modern an effective mechanism for reaching cooperation with major national companies. Especially important is the implementation of CSR by companies seeking to expand their activities, reach the world markets, attract new investments. CSR enables business to ensure the effective management of their intangible assets and generally integrate reputational factor in the development and implementation strategies of SMEs. Conclusions. 1. According to the Survey, only 12.1% of SMEs in Ukraine are suppliers to major national or international companies, most of them are financially stable companies with employees from 10 to 50 people, which operate in industrial sector and are located in the Western region. Minimum experience of cooperation with large companies was shown by the financially unstable SMEs, that work in construction sector, employing up to 10 people and located in the Eastern or Southern region. 2. SME experts stated to the question on the level of interest of partners-large companies in the development of CSR practices in SMEs, the level of requirements from the partners-large companies to SMEs on CSR and the support of partners-large companies- to measure CSR implementation in SMEs that large national and foreign companies do not conduct such activities and thus do not demonstrate any initiative in promoting CSR practices among SMEs in Ukraine. 3. In such circumstances, the responsibility of most SMEs in adapting best CSR practices within their companies and active integration into the world of social responsibility is largely needed.

68

Section 8. SME ability to invest in CSR activities The ability and willingness to introduce CSR by SMEs can be shown by analyses of the answers to the question: "Would you like to hire a professional consultant / adviser to help your company on the CSR if: a) services were provided free of charge; b) services were provided at market price. Fig.10.6. Willingness to appoint a professional consultant / adviser to help SMEs on CSR: A) if services are provided free of charge

B) if services are provided at market price

The vast majority of respondents (75%) has shown a high commitment to hire a professional consultant to help their companies on CSR, if the advisory services are provided free of charge. Situation among SMEs of different economic sector, financial stability, size and geographical location is presented on fig.10.7. 69

Fig.10.7. SMEs readiness to hire a professional CSR consultant / adviser provided a free service Would you like to hire a professional consultant / adviser to help your company on CSR, if the services were provided for free?

As one can see from the diagrams SMEs of trade sector, employing from 10 to 50 people with financial stability up to 3 years, located in the Western region are more committed to hire a consultant for free. 70

Only a small percentage of companies (21%) are willing to pay market price for the services of a professional consultant on CSR. Situation among SMEs of different economic sector, financial stability, size and geographical location is presented on fig.10.8. Fig. 10.8.Readiness of representatives of SMEs to pay market price for the services of a professional consultant / adviser to CSR Would you like to hire a professional consultant / adviser to help your company on CSR, if the services were provided at market price?

71

As one can see the highest readiness to invest in CSR is demonstrated by microenterprises in the industrial sector, with financially stable situation up to 3 years, located in Central and Northern regions. 72

The respondents explained their refusal to hire a professional CSR consultant with such reasons: high market value for the services of the professional CSR consultant; lack of funds due to the financial crisis; a need to save money; lack of financial resources; ability to make decisions on CSR by themselves; strict control of expenses during the crisis; it is unprofitable for the company.

Taking into account the mentioned reasons, it can be noted that refusal is based primarily on the lack of opportunity to appoint a professional consultant on CSR for a fee. Readiness to devote employees working hours to CSR activities. The success of corporate initiatives depends on employees support, and it can be proved by CSR implementation. Willingness of entrepreneurs to designate employees to develop CSR policies and create conditions for their participation in the implementation of CSR activities is very important in this context. Results show that only half of the representatives of the companies agreed to devote special working hours of employees to CSR implementation. Fig.10.9. SMEs responses to the question: Would you agree to devote pecial working hours for employees on CSR activities?

Situation among SMEs of different economic sector, financial stability, size and geographical location is presented on fig.10.10. Fig.10.10. The level of agreement / disagreement of SME representatives to devote specific working hours of employees to CSR activities

73

Generalized picture of the company, which expressed the greatest willingness to provide special working hours for employees in CSR activities can be represented by a SME of construction sector located in the Western region employing from 10 to 50 people, with financially stable position for three years. The refusal to devote the working hours of employees to CSR was explained by a small number of employees and the fact that during the working time employees should be engaged in direct work. SMEs interest in participating in the UNIDO enterprise counseling program. 74

According to survey results, 59% of respondents expressed their interest to participate in the UNIDO enterprise counseling program. Fig.10.11. SME responses to the question: "Are you interested in participating in the UNIDO enterprise counseling program?"

Situation among SMEs of different economic sector, financial stability, size and geographical location is presented on fig.10.12. Fig.10.12. The level of interest of SME representatives to participate in the UNIDO enterprise counseling program

75

The generalized company, whose representatives are most likely to participate in the UNIDO enterprise counseling program is now the industrial SME, employing from 10 to 50 people, financially stable for over 3 years, located in the Western region. Respondents who refused from participation in the program, explained this by the fact of the financial difficulties and irrationality of implementing CSR activities due to staff overloading. Survey revealed that the expected period of the UNIDO counseling program should be 9.6 weeks. Situation among SMEs of different economic sector, financial stability, size and geographical location is presented on fig.10.13. Fig. 10.13.Expected duration of the UNIDO counseling program

76

The longest term for UNIDO program is required by industrial SMEs (13.3 weeks) employing from 10 to 50 people (13.2 weeks), which are financially stable over 3 years (11.7 weeks) located in the East and South (10.8 weeks ).

77

However, representatives of the service-provided SMEs (5 weeks), employing over 50 people (7.9 weeks), with financial difficulties (6.1 weeks) located in the Central and Northern regions (7.1 weeks) would the faster in implementation of the Program. Conclusions. 1. SME experts demonstrated that the willingness to develop CSR among SMEs depends on the financial component. In particular, great prospects for the development of CSR in SMEs (75%) can be seen if CSR consultation services are provided for free. Such prospects significantly reduced to 21% (three times) if CSR consultation services should be paid. Among the companies willing to invest in CSR implementation are representatives of micro enterprises from Central and Northern regions of the industrial areas with the stable financial situation of 3 years. 2. SME experts from half of companies are willing to devote specific working hours of their employees to developing or participating in CSR practices. The largest among them are SMEs f financial stable (more than three years) business in the construction area located in the Western region with a number of employees from 10 to 50 people. 3. Great expectations in promoting CSR in SMEs, our respondents (59%) placed on the UNIDO counseling program. The Program supporters are financial stable (over 3 years) industrial SMEs in the Western Region with employees from 10 to 50.

78

Recommendations. Analyses of the SME expert survey on understanding of the term "corporate social responsibility (CSR) and implementing CSR in their activities, allow to make the following recommendations with the aim to create conditions for the establishment and development of CSR in the Ukrainian SMEs. 1. Considerable differences in views on CSR and business practices from experts in SMEs of different industries, size, financial stability and geographical location require development of CSR policy that could combine the common CSR principles and take into consideration the entire field structure of SMEs. 2. Dissemination of the principles and practices of CSR among SMEs should take into account sectoral, financial, regional characteristics in order to establish the corporate SME policy, adapted to the characteristics of these enterprises. Also, attention should be paid to CSR development in micro-enterprises and SMEs with financial difficulties. 3. Promotion of information on all subjects of CSR (CSR goals, objectives, principles, CSR standards, best CSR practices among SMEs) to SME representative should be a very important task. 4. It is necessary to strengthen informational, educational and advisory activities of all stakeholders to develop CSR values in the SME environment. Government, commercial and international organizations should be more involved in activities to promote CSR in SMEs. 5. The urgent solution should be developed to the problem of legislative incentives and for socially responsible business activities as a pre-condition to overcome the main obstacles for CSR implementation among SMEs. 6. The process of developing the trade union movement in the SME environment in Ukraine reflect the common global trend that shows the majority of SMEs and especially micro and small enterprises do not have trade unions, and the relations between entrepreneurs and employees is made mainly through direct personal agreements. Under these conditions the development of social dialogue at the national and regional levels to ensure adequate working conditions for SMEs in the country is required. 7. The promotion of CSR employment practices should be made with development of the guide for SMEs on improving working conditions, training employees, creating conditions for people 79

with disabilities, improving motivation structure, involving employees in decision-making process. 8. Special attention to promoting the CSR principles among SMEs should be paid to issues of anti-corruption procedures aimed at forming a transparent scheme for SMEs operating and eliminating corrupted business schemes. 9. Large national and international companies have huge potential for CSR development among SMEs which is not used to fully extent, so cooperation with such companies is important to encourage the CSR implementation among SMEs. 10. SME business associations should be involved in the CSR promotion among SMEs as a key actor. 11. It is important to inform consumers about the benefits of products from CSR companies in order to develop the responsible attitude to the manufacturer's products and services. 12. Development of state incentive mechanisms (legal, institutional, financial) to promote social activities in SMEs will assist the development of CSR in Ukraine.

80