Much of the discussion around corporate purpose assumes a separation of ownership and control, and a similar division between identity and purpose. This is unsurprising given the default focus on businesses as corporate bodies, designed around the shareholder model and underpinned by agency theory, with the Board of Directors, officers and others authorized to act as agents of the principals and owners of the firm. None of this is news of course, but the hegemony of understanding corporate purpose in terms of this kind of organisation is a skewed view of business life which obscures other perspectives on the purpose of the organisation. In practice, naturally, this characterisation is an oversimplification and scholarly research and business practice offer variations on the theme. In particular. research on owner-managed small and medium sized enterprises has suggested that purpose and identity of the firm can logically be one and the same.
By focusing on smaller firms and the way in which they navigate social responsibility, Mette Morsing and I were able to draw out the centrality of authenticity, values and identity for small and medium sized enterprises[i]. Essentially, to understand smaller firms, we should put to one side our views of a business as a conglomeration of systems, processes, capital assets and organisational structures in which the human element is interchangeable. Understandably, in large firms, purpose and identity need to be formulated articulated, communicated and even calculated into existence. In contrast, the members of the less-complex smaller firm can live their values through their practices, enacting their work authentically through the choices they are able to make, and embodying their identity in daily business life. Where the reputation and legacy of the business are so closely wrapped up with the identity of the owner-manager and his or her family, the business is personal, and the personal is business. While smaller firms with limited resources are unlikely to produce a glossy report which articulates their purpose, and arguably it would be a foolish waste of their limited resources so to do, that does not detract from their possibility of being committed, purpose driven firms.
While there are limitations to these claims, for example, where an owner-manager has an avowedly destructive social disposition, the purpose is unlikely to be socially positive. SMEs are of course also very vulnerable to economic, environmental and other shocks. While SMEs are distinguished by their heterogeneity, nuance and difference, an appreciation of purpose being embodied in the smaller firm has important cross-cutting implications.
In the research Mette Morsing and I did we focused on the implications for small firms when their large customers seek to push them in a certain, apparently ethically positive, direction by requiring corporate social responsibility reporting or refinement of their purpose and values to be in-keeping with their customer’s preferences. Such an approach assumes that the large firm customer is better equipped to understand their smaller suppliers than the organisations themselves. Given the importance of authenticity, values and identity for SMEs that we have outlined, this throws the SME into a dilemma in which they are driven to commercialize their authenticity, are subject to an external body controlling their values and most pertinently here, a potential disruption of their identity. This puts under the microscope the common approach of expecting large firms to influence their suppliers on positive social initiatives without reflection on whether they are (a) well equipped to do this, (b) at risk of furthering their own goals while undermining those of their suppliers and (c) ultimately creating an environment in which SME suppliers might find it easiest to creatively evade such programmes[ii]. Ultimately, assuming SMEs need help and correction in finding a positive social purpose may be a flawed starting point. They may not articulate, or indeed for their own intrinsic purposes need to articulate it in any formal way, given the imperative to focus on business operations and cash flow. Further research could usefully investigate more closely the nature of existing purpose and identity in SMEs, how these differ across sectors, geographical contexts, SME size and type, and what other kinds of organisations can learn from SMEs about how to operate purposefully in line with their identity. There is likewise a great deal to understand on these topics from social enterprises and hybrid firms.
For the avoidance of doubt of the importance of small and medium sized enterprises, they are the majority business form globally. According to the World Bank[iii], SMEs “represent about 90% of businesses and more than 50% of employment worldwide. Formal SMEs contribute up to 40% of national income (GDP) in emerging economies”. Economically and socially, not least in terms of job creation, these firms (differently defined but one straightforward approach is those with fewer than 250 employees), are critically important. In addition, it is noteworthy that most firms globally can be considered to be family firms. When informal SMEs are taken into account, their impact is magnified still further. Some of the arguments presented here are less relevant for larger medium sized firms, but they are relatively few in number compared to small and micro firms (with fewer than 50 and fewer than 10 employees respectively). In the UK in 2021, for instance, of 5.6million firms, 0.1% were large, 0.6% medium sized, 99.2% small or micro [iv].While SMEs are not usually individually influential in global terms in the way that a very large firm might be, that does not diminish their importance to those whose lives they touch, nor their collective impact in economic, environmental and socio-political terms. Indeed, without properly understanding the SME perspective, there is little hope of making systematic progress in supporting and evaluating social impact.
[i] Morsing, M. and Spence, L.J. (2019) ‘Corporate social responsibility (CSR) communication and small and medium sized enterprises: The governmentality dilemma of explicit and implicit CSR communication, Human Relations, 72(12), 1920-1947. https://doi.org/10.1177/0018726718804306
[ii] Soundararajan, V., Spence, L. J., & Rees, C. (2018). Small business and social irresponsibility in developing countries: Working conditions and “evasion” institutional work. Business & Society, 57(7), 1301-1336.