Thought Leadership articles

Sustainability is often seen as the domain of large corporates but SMEs have the collective potential to be more powerful players. Sheila Killian explains why Social and environmental sustainability is often seen as more relevant to big multinational companies (MNCs) than to SMEs, small-to medium enterprises employing no more than 250 people. MNCs are more likely to have a sustainability strategy, and resources for its implementation, monitoring, reporting and communication.  They are more likely to report externally, integrating their reporting across sustainability and financial activities, and to be scored by ESG rating agencies.  This does not mean that MNCs carry all the responsibility or should reap all the benefits, however.  SMEs are enormously impactful in aggregate and have a huge amount to gain by getting involved. So, why and how should they engage? The potential impact of SMEs on sustainability SMEs have a massive collective impact. In Ireland, they account for seven jobs in 10. While large companies are commonly exporters, SMEs tend to serve their local region.  In terms of where people live, work, shop and spend their leisure time, smaller enterprises dominate. This amplifies both their responsibility, and the opportunities open to them. Because SMEs are embedded in their communities, they often make a huge contribution socially without realising it. This may lie less in strategy than in values.  David O’Mahony of O’Mahony’s Booksellers Ltd, a long-established independent bookshop in the south-west, sums up the position: “It’s only when you really think about it and put all the things together that you realise that there’s a lot more going on … [in corporate responsibility and sustainability] … than we would have probably realised ourselves.”  O’Mahony’s enjoys high social capital locally, gained through understated good work for the community and environment, derived from values and a sense of neighbourliness rather than from formal reporting.  Why SMEs do not report Despite this implicit moral accountability, many SME owners do not think about reporting externally on their sustainability. This is often because they don’t see the value to be gained. Compared with MNCs, there is much less separation between ownership and management/control in SMEs.  Therefore, the need for both internal and external reporting is reduced because the main shareholders are already intimate with what is going on in the business, and employees are closer to the leadership.  Unless the business is considering raising external finance, there is little need to consider how potential investors might perceive it, and if there is a perception that customers are not interested in sustainability activities, these will not be reported.  It seems to come naturally to SMEs to be community-oriented, however, often because they are family-owned, and such behaviour reflects the origins and values of the family.  Such firms tend not to have formal, written codes of conduct, but instead propagate the personal values of their owners, who do not consider that a separate, published set of values and reporting on their social and environmental activities is necessary for business. Why SMEs should report One reason for SMEs to begin some form of sustainability reporting is so that they can compete with MNCs locally to attract and retain talented employees.  The labour market is tight, remote working has shifted the power balance, and younger generations are more focused on sustainability.  Increasingly, SMEs are framing their sustainability credentials more clearly, and connecting them with their employer brand so that they can attract the talent they need.  There is also a consumer angle. The challenge posed by behemoth online retailers to small, local bricks-and-mortar businesses is now well-rehearsed.  A small, independent business, like a bookshop, needs to clarify and articulate its values and personal touch as a competitive advantage.  This ‘personality’ needs to be communicated externally if it is to reach the right customers effectively. Sustainability reporting can convey a sense of what the company is all about, its values and purpose – its ‘soul’. A third reason, particularly applicable to SMEs operating in the business-to-business sphere, is that reporting on strong sustainability metrics confers an advantage in entering the supply chains of larger firms.  If, for instance, an MNC is moving towards zero-carbon, it is likely to require smaller companies in its supply chain to be also on that journey.  A fourth reason to report is the internal value to be gained from paying attention to sustainability. Measuring, reporting and constructing a narrative around social and environmental values will improve the culture of the business, and pave the way to greater innovation.  Hotel Doolin in County Clare is an example of a small business that tells its sustainability story effectively. It has shortened its supply chain by buying local produce.  The hotel harvests rainwater, it has eliminated single-use plastics, and uses environmentally low-impact energy and heating. It became Ireland’s first carbon-neutral hotel in 2019, under the Green Hospitality Programme, ahead of many larger competitors.  The business also promotes social sustainability, employing refugees, supporting local community groups and actively seeks to be a good employer. This has enhanced its reputation not only locally but nationwide.  Partnering with not-for-profits Smaller companies that are ambitious in terms of sustainability targets will inevitably want to achieve things that are beyond their capacity.  If, for example, a business decides to work on the water quality in the area in which it operates, it may lack in-house expertise, jeopardising its credibility with the local community. One solution may be a partnership with a not-for-profit organisation (NFP). NFPs often have the expertise to tackle social and environmental issues but lack the resources, whereas companies may have resources (money) but lack the knowledge. A partnership can achieve sustainability goals if the match is right.  The NFP needs to be operating in the area in which the company wants to make progress, and the company needs to align with the NFP’s approach to society and the environment.  Mutual respect and consultation are key. At worst, a partnership can be seen as a ‘fig leaf’ for the SME and can undermine the legitimacy of the NFP. At best, it can be truly impactful for all involved. SMEs’ supply chain responsibilities  MNCs are famously held responsible for the working conditions in which their goods are produced by companies in their supply chains. Scandals, including the sweatshop labour exposed in the 1990s to the Rana Plaza garment factory collapse in Bangladesh in 2013, have forced companies such as Nike, Gap and Nestlé to change their practices.  Bad practices persist today, however, even where goods are produced close to home. In 2020, for example, it was revealed that online vendor BooHoo was selling clothes made in extremely poor working conditions in Leicester in the UK.  For a small, independent retailer, this means that, unless it takes steps to assure itself of the origin of the goods it sells, the risk remains that all or some element/s of those goods may have been produced in sweatshop conditions.  Smaller firms may lack resources to monitor conditions in their suppliers’ factories. Nor are they likely to have the requisite buying power to impose a code of conduct on their suppliers. So, what can they do about the conditions under which the goods they sell are produced? The International Labour Organization has clarified that a firm has responsibility as far up the supply chain as it has ‘reasonable influence’.  Large firms can leverage direct buying power to positively impact supplier. Starbucks works with its coffee producers to bring them up to higher social and environmental sustainability standards, for example.  A small trader is, however, limited to choosing suppliers wisely, and using their influence when feasible, perhaps working with other firms in the sector. The key differences between the supply chain responsibility of MNCs and SMEs, then, relate to power and influence. This principle also applies to other areas of sustainability. More power means more responsibility and the potential to make a positive impact.  SMEs need to address all the key issues of fair pricing, employee welfare, human rights and environmental impact within their own operations and – as far as possible – outside of them, bearing in mind their levels of resources and power.  The key questions here are: “Are we doing all we reasonably can to achieve sustainable practice?” and “Are we seeking to improve?”  Sometimes, acting in concert with other SMEs, can achieve more. The outcome may not be perfection, but honest efforts in the right direction will carry collective weight.  Sustainability and the SME advantage While corporate sustainability is often seen as the domain of MNCs, SMEs – because of their numbers and connection with, and impact on, society – are potentially more important players.  Many SMEs do not report their sustainability policies for several reasons, including informality, time and resource pressures, unfamiliarity with reporting standards and frameworks, or because a strong internal locus of value and ethical behaviour is already vested in their owners and leaders.  However, SMEs generally have high levels of engagement with their local communities and implement sustainability on an intuitive basis, drawing on leaders’ personal values. Reporting these efforts can bring significant advantages externally and internally.  Despite a lack of resources relative to larger companies, the key to building sustainable value for SMEs lies in making the best choices that are within their power at a given time. Sheila Killian is Associate Professor at Kemmy Business School, University of Limerick, and author of Doing Good Business: How to Build Sustainable Value

Clever branding can mean the difference between success and failure for small businesses competing in a crowded market, writes Gerard Tannam Branding is a tool available to every business. Every type of business can compete for their best customers with a strong brand that influences choice.  Because a smaller business can play to the singular strengths of its brand relationships with customers to distinguish it from others, it can level the playing field with its own competitive advantage. A strong brand is good for business. It provides an advantage over competitors by distinguishing a business from them in a way that matters to customers and influences their choices.  Despite its importance, however, this simple business tool, which is available to every business, is often misunderstood, underestimated, and underused, particularly by smaller companies. ‘Brand’ can be defined in many ways: as a mark of origin or quality, as image or reputation, as a proposition or promise, and even as a badge of community or a shared belief system.   None of these definitions is entirely satisfactory, however. While each definition says something true about what a brand is or can be, none captures the part a brand plays in choice. A definition of brand As well as being a tool that businesses use to influence choice, brand is also the tool that customers use to make their choices and reassure themselves that they are correct.  When customers are spoilt for choice or do not have the time or inclination to analyse every buying decision, they often rely on brand to help them choose. And so, the brand tool is used in two different though complementary ways:  a business uses brand to help it become the natural choice of its customers;  its customers use brand to help them make the right choice of product or service.  A brand is a tool that influences choice by reflecting the relationship between buyer and seller and the value they exchange. Marks of quality or identity, such as names, symbols or logos, are means of representing the brand relationship and its value, rather than being the brand. Wedding rings, for example, symbolise a relationship (marriage) between two people – they are not the relationship itself.  The brand bridge To understand brand and how it works, consider the relationship between buyer and seller as a ‘bridge’. Just as a bridge is designed to enable people to cross over safely, quickly, and easily from one side to the other, a brand bridge enables people to exchange value safely, quickly, and easily. The two-way traffic on the bridge of give-and-take between buyer and seller suggests a partnership of equals, both of whom want something the other has and must agree on the value to be exchanged through the transaction. Brand bridges are more handshake than arm wrestle, a basis for good and sustainable business. A definition of branding Defining brand as a tool for business leads to a definition of ‘branding’ as the influencing of choice by building a relationship between buyer and seller based on the value they exchange. A brand relationship establishes a connection between a business and its customers around the value each understands the other is offering.  Branding involves putting the brand relationship to work to build and maintain the commercial relationship with existing customers and turn potential buyers into new customers. Why branding matters to small businesses Success in business comes down to an ability to influence choice. A superior product or service only takes a business so far.  Many hardworking businesses have brought an exceptional offering to market and failed. To be successful, a business must influence enough of the right kind of customer to choose what it brings to market. Brand relationship plays a critical role in the choices customers make. Even in a busy marketplace, where customers are spoilt for choice, a strongly branded business can lead its market and command a premium for its product or service.  Every business has a brand, strong or weak. The brand’s strength or weakness results from actions taken by the business in building the relationship with its customers.  A strong brand is especially important for small businesses, which are unlikely to have the spending power or marketing resources available to larger competitors.  The smaller business can play to the strengths of its brand relationship with its customers to distinguish it from other businesses in the marketplace, and so level the playing field.  Five steps to defining a brand 1. Define the value to be exchanged The value to be realised through the brand relationship is not set by one side or the other but must be agreed. For any relationship to work both parties must continue to see and realise its value.  However, while the brand relationship is defined by the value sought by the buyer and offered by the seller, this must at least match the seller’s asking price for the exchange to work.  The asking price, which the business requires for the exchange to be profitable, is a useful starting point for defining value.  This is typically based on the costs of the resources the business must invest in the relationship, plus its margin or premium.  Then the business considers how the customer is likely to rate the benefits on offer, if this accumulated value matches or tops the asking price, and whether they are likely to  pay it.  2. Identify and target the ‘best customer’ For the brand relationship to work, it is vital that the business carefully chooses the type of customer with whom it and its value proposition are best matched.  When business development lacks focus, a business will attract a wide variety of prospective customers, some well matched with it, but many not.  A business that deals with too broad a mix of customers will struggle to profitably realise the value in many of its individual transactions.  A well-matched or ‘best customer’, on the other hand, will add predictable and significant value to the exchange and deliver the premium that the business needs. Your best customer:  needs what you have to offer, considers it essential;  wants what you are offering, finds it highly desirable; values what you offer, prioritises it above all others; engages fully with all of the elements of your offering, not just its purchase; can pay for it (an ability not confined to affordability). 3. Identify and fix the customer’s ‘key problem’ People buy from other people to fix what they experience as a problem and to enjoy the benefits that result. Potential customers are more likely to be ‘best customers’ when they consider that the product or service offered by a business fixes their key problem. There are two aspects or sides to a customers’ key problems: the practical and the social.  The practical is what the product or service does and the direct, functional benefits it provides, while the social is how the customer relates to others and the world through their choice of that product or service and can be understood in terms of how it makes them feel.   For example, someone is thirsty and buys bottled water. Any bottled water will do. Another customer is thirsty but is concerned that many bottled water products use irreplaceable natural resources.  They choose a brand of water that is carbon-neutral with recycled packaging. The business with the sustainable brand has found its best customer; the customer has used brand value to meet all their needs and fix their problem. 4. Identify and fix both aspects of the key problem More customers are choosing products and services that fix the practical and social aspects of their problems, so it is important that a business identifies both aspects and determines the role that it will play in fixing them. This role must go deeper than the complementary role of seller to the customer’s buyer, and deeper too than the functional role played by the business in fixing the practical problem. When the product or service offered by a business is largely the same as that offered by its competitors, it is the role that the business plays in resolving the social aspect of its customer’s key problem that adds real value, and greater profitability, to the transaction. For example, a business owner seeks an accountant to prepare monthly accounts to support their management of the business. Any suitably qualified accountant can answer this practical aspect of the business owner’s problem.  However, the owner struggles to make sense of how accounts relate to their business and can feel overwhelmed and helpless.  They will choose an accountant that fixes this personal (social) part of the problem, guiding and advising the owner to help them to understand the numbers and the performance of their business. 5. Provide information required for the buying decision When customers are considering which product or service to choose, they will search for some or all of 10 types of information about how a business solves their key problem: Attraction – ‘What is it about this offer that appeals to me?’ Engagement – ‘What tells me that it is right for me?’ Demonstration – ‘How does this offer work?’ Sample – ‘How can I try it for myself?’ Testimonial – ‘Who else has benefitted from this offer?’ Proposition – ‘How do I take up this offer?’ Delivery – ‘How is this offer provided to me?’ Support – ‘How will you help me make the most of it?’ Recovery – ‘What will you do to help me if something goes wrong?’ Feedback – ‘How will I let you know what I think of your offer?’ Final word When the success of a business depends on the effectiveness of its brand in influencing choice, building brand relationships should not be left to chance.  Branding is a tool available to every business. Every type of business can compete for their best customers with a strong brand that influences choice.  Because a smaller business can play to the singular strengths of its brand relationships with customers to distinguish it from others, it can level the playing field with its own competitive advantage.   Gerard Tannam is founder of Islandbridge, a brand planning and strategic development company

A mainstay of Ireland’s financial services landscape for over 60 years, our credit unions are entering an exciting phase with recent developments presenting new opportunities to adapt and change Credit unions are an important part of the financial services landscape. With offices a common feature of cities, towns and villages throughout Ireland, they play a key role in the day-to-day finances of many Irish people and communities. There are more than 3.6 million credit union members on the island of Ireland.  A history of credit unions Credit unions were first established in Ireland in the late 1950s and quickly became a repository for savings and a source of loans for many people. The total value of loans extended by credit unions in the Republic of Ireland is currently around €5 billion, with total savings coming to about €16 billion.  Average sector total reserves, as a percentage of total assets, is approximately 16 percent, which serves to underpin the confidence of their members, particularly in times of uncertainty and disruptive change. These institutions are not-for-profit financial co-operatives. They are owned and controlled by their members and therefore have a different business model to retail banks. Each credit union is independent, with its own board of directors, charged with overall responsibility for running the credit union.  Because they are part of the financial services sector, credit unions are governed by legislation in Ireland, principally the Credit Union Act 1997, as amended, and regulated by the Central Bank.  Significant amendments to the 1997 Act were introduced by the Credit Union and Co-operation with Overseas Regulators Act 2012, and this is the legislative regime under which credit unions currently operate. The credit union sector has been relatively stable in terms of any legislative or government policy changes. However, two recent developments, the Credit Union (Amendment) Bill 2022 and the Retail Banking Review (November 2022), present new opportunities for credit unions to adapt and change their business models and enhance their product and service offerings to members. The Credit Union (Amendment) Bill 2022 The first major legislative change for credit unions since the 2012 Act, the Credit Union (Amendment) Bill 2022 (the Bill) was published on 30 November 2022 following over two years of stakeholder engagement, with over 100 proposals considered. Highly technical and not an easy read, the Bill is currently before the Dáil, where proposals for amendments will be considered.  There is no fixed timeline for enactment and, post-enactment, commencement of sections may occur in phases, with the Central Bank of Ireland having to amend regulations to accommodate the new provisions.  The main provisions of the Bill involve: the establishment of ‘corporate credit unions’; amending the requirements and qualifications for membership of credit unions; altering the scope of permitted investments by credit unions; changes to the governance of credit unions; maximum interest rates on loans by credit unions; provision of services by credit unions to members of other credit unions; and participation by credit unions in loans to members of other credit unions. Collaboration between credit unions The introduction of ‘corporate credit unions’ should support greater collaboration between credit unions, facilitating a pooling of resources and greater access to funding.  A new form of regulated entity, their membership would be restricted to other credit unions, with lending allowed only to those members. Further collaboration is envisaged with a provision in the Bill allowing all credit unions to refer members to other credit unions to avail of a service that the original credit union does not provide.  While such referral is not mandatory, it is a new option for making additional services available to members—for example, a current account facility where the original credit union may be reluctant to provide this service to all members based on cost or other reasons.  Another provision enabling collaboration allows a credit union to participate in a loan to a member of another credit union. This will facilitate risk sharing associated with the loan and will make it easier for an individual credit union to offer larger loans to its members.  Regarding lending to businesses, and other organisations or associations, there is a further key provision in the Bill for “bodies” (incorporated or unincorporated) to be allowed join a credit union with the same rights and obligations as a “natural person” (member).  This is, however, subject to conditions that a majority of the members of the body would be eligible to join the credit union and the body meets the common bond requirement. Ultimately, this will make it easier for credit unions to lend to such bodies and is principally focused on SMEs. While none of these changes are mandatory, they do provide new options and opportunities for credit unions. Governance changes Regarding changes in governance, two provisions stand out: the option to appoint the manager (chief executive officer) of the credit union to the board; and  reduction of the minimum number of board meetings per year to six, down from the current 10.   The extent to which these changes will be adopted remains to be seen, as many credit union boards may be content with the existing practice.   Where a credit union decides to include its manager as a board member, the Bill proposes that this will be done by their direct appointment to the board and not by election at a general meeting of members.  The term can be for any length but cannot extend beyond the individual’s term as manager.  One restriction on the manager as a board member is that they cannot sit on the nomination committee of the credit union, the membership of which is restricted to board members who have been co-opted or elected at general meetings.  Similarly, regarding the frequency of board meetings, the board may be reluctant to change the current practice of having at least one meeting per month, concluding that it cannot adequately carry out its responsibilities with only six board meetings.  Because of the voluntary ethos of credit unions, the historically close involvement of board members with the credit union, and the relatively onerous responsibilities of boards, it may take some time before six board meetings is considered the norm. Other governance changes proposed by the 2022 Bill include reducing the number of board oversight committee meetings, removing the requirement for the board oversight committee to sign the audited annual accounts, and extending from annually to every three years the review of specific policies by the board. The Credit Union (Amendment) Bill 2022 includes substantive policy change in the areas of collaboration, members’ services, and governance. It seeks to give more power to credit unions to determine strategy and, when enacted, will require consequential changes to Central Bank regulations.  To fully exploit the options and opportunities enabled by its provisions will require significant work by the sector. The Retail Banking Review 2022 In November 2022, following its approval by Government, Minister for Finance, Paschal Donohoe, and Minister of State for Financial Services, Credit Unions and Insurance, Sean Fleming, published the report of the Retail Banking Review (the Review).  Driven by the departure of two major banks, Ulster Bank and KBC, this is a broad-ranging review of the retail banking sector in Ireland, including the credit union sector.  In relation to credit unions, the Review states: “Credit unions have a strong and trusted brand, they are present in communities throughout the country, and have been developing their product offering. The credit unions are already a significant player in consumer credit, and they are making inroads in the current account, mortgages and SME segments of the market. These developments, coupled with their collectively strong levels of capital and deposit bases, leads the Review Team to believe that credit unions could play a greater role in the provision of retail banking products and services in the coming years.” Referencing the Credit Union (Amendment) Bill 2022, the Review recommends that the credit union sector develop a strategic plan to deliver business model changes that would enable it to sustainably provide a universal product offering to all credit union members. Provided directly or on a referral basis, this would continue to be community-based. The Review suggests that such a strategic plan should show how credit unions can: viably scale their business model in key product areas such as mortgages and SME lending; invest in expertise, systems, controls, and processes to deliver standard products and services across all credit unions, while managing any risks arising and continuing to protect members’ savings; provide the option of in-branch services for members of all credit unions. Both the Bill and the Review point to new opportunities for credit unions and demonstrate confidence in their future as part of the Irish financial services sector. For these opportunities to be successfully managed, however, credit unions must continue to maintain high levels of governance so that legislators, the Central Bank, their members, and the wider community can have confidence in the sector.  Credit unions have done much for many people in Ireland for more than 60 years. These developments in legislation and government policy point to their continued and increasing relevance in the years ahead. Gene Boyd, FCA, is a risk management consultant and author of The Governance of Credit Unions in Ireland