Insights

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

(This article by Mary E. Collins is based on Chapter 1 of her book Recruiting Talented People, which is available to buy from our online store.) The fundamentals of recruiting have changed in recent years, and a new set of principles have evolved: Understand the balance of power Respond quickly ‘Graze’ for talent Embrace technology and innovation Network effectively Understand candidates’ expectations Embrace diverse skillsets 1. Understand the balance of power The candidate and hiring manager have always been central to the talent-acquisition process; however, as hiring has grown in importance as a key strategic imperative for organisations, and as the number of people actively looking for new roles has reduced, the balance of power has shifted away from the hiring manager and towards the candidate. Top talent now has numerous opportunities in the current market and employers need to attract desirable candidates with a compelling employer value proposition (EVP). This shift in the power dynamic requires organisations to: clearly identify what skills they need now and in the future; identify who has those skills and how to attract them; define their ‘employer brand’; innovate new ways to attract these candidates, embracing technology and new communication channels; treat candidates well – candidates now expect a ‘white glove’ level of service. Recruiters have had to change the way they perceive talent itself. As a senior Irish recruiter has shared: “Gone are the days when employers posted a role vacancy online to a job board, and a lengthy recruitment process ensued. There is a big difference between receiving CVs and finding talent.” 2. Respond quickly The shift in the balance of power in favour of candidates has resulted in organisations needing to move quickly to secure skilled employees. Candidates surveyed have identified response time to applicants awaiting a hiring decision as most in need of improvement. The days of multiple interviews and stages to a recruitment process are coming to an end. Top talent will not wait around! Hiring processes, therefore, need to be concise and focused. This ‘speed of play’ extends to how candidates will want to interact with you, rather than waiting for you to interact with them. Top talent, particularly among Millennials or Gen Zs, want to be ‘discovered’. Often referred to as ‘Generation Now’, they demand more speed from the recruitment tools used. As digital natives, they expect that technology will be embraced and used effectively in the hiring process. (Employers, of course, face a challenge in meeting this expectation as they have to balance it with the need to select the right candidate.) 3. ‘Graze’ for talent While traditional talent recruitment methods such as graduate hiring, use of agencies and job advertising are still important, new approaches are to be embraced in a market of undersupply of key talent. Smart organisations continually ‘graze for talent’. They are always looking to meet and maintain contact with potential employees as they are being educated, and later, throughout their careers, through networking events, alumni groups, conferences, online forums, and so on. Early contact: ‘co-ops’ and internships Rather than waiting for the annual ‘talent war’ of graduate recruitment, a significant number of employers are identifying talent earlier in the education cycle, e.g. inviting first-year students to experience ‘a day in the life’. Many universities offer work placements in the third year of degree studies. Building these connections early on with potential employees creates a talent pipeline and avoids an over-reliance on the ‘graduate milk round’. Keeping in touch It is important to keep in touch with talented professionals at all stages of their careers. And career stages have expanded and sub-categories within, and in addition to, the pre-existing stages have now emerged: ‘Encore careers’: Older workers reinventing themselves and retraining/studying in new fields. ‘Returnships’: People returning to work following a career break (this can include women who exited the workforce earlier due to family commitments but who are now keen to return). Returnships – similar to internships – are for a defined period, usually six to 11 months with no obligations on either party to continue the contract. ‘Boomerang employees’: People who leave an organisation for a few years to travel, work abroad or in a different industry, but maintain a connection with the organisation and later return, bringing back greater levels of skills and experience. Talent communities Integral to ‘grazing for talent’ is building strong talent communities through which both alumni and potential employees can stay connected to the organisation. Leveraging a network of alumni also requires ‘exiting’ talent in a more positive way. If an employee’s experience with the company is good at all stages of their employment cycle, this will increase the likelihood of their becoming a ‘boomerang employee’. Talent communities are also a source of referrals, in that previous employees can refer candidates from their own networks. As roles become more technical and specialised, having existing or former employees refer candidates from their own networks is gaining in importance. 4. Embrace technology and innovation Recruitment practices have changed rapidly with technology and social media. Organisations competing for talent embrace these innovations and maximise their recruitment potential. Jobs boards Online ‘job boards’ have developed exponentially to become services like ‘Indeed’, a jobs aggregator offering a service comparable to a ‘dating agency for recruitment’, providing jobseekers with access to millions of jobs from thousands of company websites. Professional networking platforms LinkedIn continues to be a major disruptor in the recruitment sector. Its CEO, Jeff Weiner, has announced a goal of “powering half of all hiring decisions” by 2024. LinkedIn’s success has been in breaking the traditional links between employers, recruitment agencies and employees. Previously, agencies had an ‘information hegemony’ over employers, due to their proprietary databases of candidates. Now anyone can search for potential candidates, whether they had applied for a job or not, allowing hiring companies access to the ‘passive talent’ who were not actively searching for a role. LinkedIn’s success is in how it caters for every stage of the recruitment cycle, including employer brand awareness, posting jobs, searching for candidates, making contact with and vetting candidates. Recruitment marketing and solutions services There is a growing number of innovative technology-driven recruitment companies offering to look after organisations’ entire talent-acquisition processes (e.g. Clinch, www.clinchtalent.com). These service providers offer online recruitment software, marketing and CRM to enable hiring organisations to revolutionise how they identify, attract, hire and nurture talent. Disruptive technologies and talent acquisition The effective use of new technologies not only adds to a compelling candidate experience, reflecting positively on the employer brand, but will help to access alternative talent sources. Some of the more disruptive uses of technology in talent acquisition will break down barriers around traditional interview formats, e.g. video conferencing allows hiring managers to conduct interviews with potential candidates who are geographically remote, and with robotic process automation and psychometric testing candidates can be identified who may excel in the role but do not ‘interview well’. 5. Network effectively In my experience, around 80% of all positions in Ireland are filled via word-of-mouth and relationship-based contacts among different personal and professional networks in different sectors. Developing and maintaining a strong network for both employees and hiring managers is therefore more important than ever in an economy experiencing a talent shortage. Of particular importance in networking are employee referrals, where current employees act as ambassadors for the organisation and are incentivised for recommending it to their friends and contacts. Employee referrals are a cheaper, faster and generally more successful way to hire. A good in-house referral programme empowers all employees to help with the hiring challenge. Many firms offer generous incentives to encourage employees to do just that, thereby making considerable savings on expenses that would otherwise be incurred during the recruitment and selection process. 6. Understand candidates’ expectations The younger generations in the workforce (Millennials/Gen Y, born 1980–1998, Centennials/Gen Z, born 1999+) hold the balance of power in recruitment, so employers must be aware of their expectations as candidates. A new approach is required to attract, engage and retain these generations, including providing: good work–life balance; work arrangements with flexible locations and hours; clear personal development routes; clear promotion opportunities; meaning and purpose in work (making a meaningful contribution to society); opportunity for travel; support around personal wellbeing; employability (working with the organisation will make the candidate more employable for future roles). A feature of these groups is a preference for collaboration and a propensity to be heavily influenced by each other, which extends to making similar career choices. This can be particularly evident in large professional service firms where groups of graduates from the same degree programmes all join the same firm, creating ‘a continuation of college life’. Similarly, job seekers from this cohort place huge trust in peer reviews, often basing decisions about where to apply on reviews of companies on websites like Glassdoor (www.glassdoor.com), one of several platforms on which people can anonymously share their experiences of ‘what it’s really like to work here’. Smart recruiting organisations will keep a close eye on activity on these platforms, which continue to grow in popularity. Job seekers from Gen Y and Gen Z say that they trust information on vacant positions in organisations in the order set out in Figure 1: Figure 1 7. Embrace diverse skillsets Employers are looking in new places for more diverse skillsets, away from the traditional sources of talent. Students from diverse disciplines such as data analytics, the sciences and engineering are being actively targeted by professional services firms for a range of roles typically filled by business graduates in the past. This shift is also reflective of the changing skillsets required by firms for their emerging service offerings, cybersecurity being an example of a high growth area. Employers should consider whether their degree-entry requirements for roles and opportunities are valid. There is a growing number of apprenticeships in Ireland. Traditionally, apprenticeships were in craft areas, but the apprenticeship opportunities are growing in professional sectors, with school-leavers entering, for example accountancy, auctioneering and insurance, and working through flexible training programmes. Dr Mary E. Collins Chartered Psychologist, Senior Executive Development Specialist at RCSI Institute of Leadership, and author of Recruiting Talented People (Chartered Accountants Ireland, 2021)

Social enterprises can empower ordinary people to bring positive change to their communities and society, but what are the options  and where do you start? Chris MM Gordon outlines what’s involved, and the invaluable support accountants can provide If the COVID-19 pandemic has taught us anything, it is the importance to society of the power and resilience of ordinary people and local organisations providing community services.  Some of our busiest times at the Irish Social Enterprise Network were in the opening stages of the crisis when it seemed that for every private profit-making business that shut its doors, a social enterprise was opening theirs.  Communities formed groups to raise money for meals on wheels or to manufacture personal protective equipment for front-line workers. All of this was organic and determined—and because ordinary people felt empowered to make a difference. Throughout that time, more people became interested in setting up social enterprises, to better manage volunteers or oversee any money that is being raised and spent.  There was an increased drive from communities to form social enterprises, make them sustainable and retain goodwill—and they turned to their professional advisors to help them set up these new entities.  What is a social enterprise? A social enterprise is the original ‘business for good’. Social enterprises sell products and/or services for a profit, which is reinvested for a social and/or environmental cause. The National Social Enterprise Policy for Ireland 2019–2022 provides a more detailed definition:  A Social Enterprise is an enterprise whose objective is to achieve a social, societal, or environmental impact, rather than maximising profit for its owners or shareholders.  It pursues its objectives by trading on an ongoing basis through the provision of goods and/or services, and by reinvesting surpluses into achieving social objectives.  It is governed in a fully accountable and transparent manner and is independent of the public sector. If dissolved, it should transfer its assets to another organisation with a similar mission.” Social enterprises differentiate themselves in several ways. I find it useful to think of a social enterprises in terms of its ownership, funding and social impact. Ownership: Social enterprises are generally held by, or in trust for, the people they aim to serve. Social enterprises might be democratically owned, as in a co-operative where one person has one vote. More commonly, they might be structured as a company limited by guarantee, the idea being that no-one can sell the organisation for their personal gain. (Social Enterprises in Ireland: Legal Structures Guide, published by the Thomson Reuters Foundation and Mason Hayes & Curran, discusses the legal structures available for social enterprises in Ireland.) Funding: While social enterprises must generate income by selling products and/or services, it is common for them to receive grants or other public or philanthropic funding to supplement their income and allow them to function fully. Funding can come in many forms, but some funding streams are available to social enterprises only if they are set up as a specific type of company.  Social impact: There must be some measured social (and/or environmental) impact – for example, reducing homelessness – and the money raised or spent by the social enterprise needs to positively affect that impact.  ‘Work integration social enterprises’ are organisations that employ those that are furthest from the labour market. These could be people with physical disabilities or mild, moderate, or severe learning difficulties. Such social enterprises are providing employment and opportunities that may not otherwise be available. Setting up a social enterprise The best approach to setting up a social enterprise will depend on the context and a variety of other factors, including the nature of the problem the community or individual is trying to solve. For the professional advisor, the first step is to understand this, ask the right questions, and to listen. Community or individual?  Is the social enterprise being set up for and by a community or an individual? While it often takes a single individual to get things started, having the support and buy-in of a wider group of people shows there is a real need for the enterprise. It also increases the diversity of opinion and expertise needed to make a social enterprise successful. An issue seeking an enterprise? Someone wanting to set up a social enterprise may want to solve a specific problem that is close to them. They may have a sibling with a learning difficulty for whom they want to create a full-time job, for example. Their sibling loves making coffee, so they set up a café. This is an issue (finding employment for those distant from the labour market) that is looking for a business model to make it sustainable (a café). An enterprise seeking an issue?   The same could be true for someone with specific skills, such as a business-minded barista, who would like to do more than simply sell coffee. They are also looking for a social purpose to invest in and decide to employ people that are distant from the labour market—in this case, people with learning difficulties. This is an enterprise (a café) seeking an issue (employment for those distant from the labour market). Legal structure There is no specific legal structure required for social enterprises in Ireland. However, in my experience, people setting up a social enterprise for the first time often think that it must be a charity, without being aware of what that entails.  Gaining and maintaining charitable status can be onerous for a start-up and may not be necessary, or even relevant, in all cases. Some sources of funding may require charitable status, however. Knowing the sources and requirements of initial funding is important for choosing the right company type for a social enterprise. It may be tempting to advise a client to set up a social enterprise as a private company limited by shares and to spend its profits on whatever social cause they choose. This company type does not suit all circumstances, however.  Social enterprises come in a variety of forms. The use of each type of legal structure should be suitable, considered on its merits and aligned with the aims of the enterprise.  Again, the source of the entity’s funding and related requirements often determine the choice of structure. Here is an outline of the types of company set-up available to social enterprises: Company Limited by Guarantee (CLG)   This company type is the one most often chosen for social enterprises and comes close to company types in countries that have specific legal structures for social enterprises. CLG with Charitable Status   While charitable status (by application to the Charities Regulator) can apply to several types of legal structure, it most commonly applies to CLGs, subject to certain changes made to the constitution of the company, such as directors not being paid. There are advantages and disadvantages to having charitable status. Caution should be exercised as to whether it is necessary. Co-operative   A co-operative is an enterprise that is owned and controlled by its members and operates for the benefit of its members. A minimum of seven members are required to register a co-operative. The law governing co-operatives is currently being reviewed and updated. It is hoped that more co-operatives will appear as their benefits become more apparent. Private Company Limited by Shares (LTD)   Although this is the most common company type in Ireland, social enterprises tend not to be structured as private companies limited by shares. Designated Activity Company (DAC)  While the designated activity company structure has been applied to some social enterprises, it is more generally associated with financial institutions. There are relatively few DACs in Ireland that are considered social enterprises. The role of the accountant Working with social enterprises as they succeed in making a difference is inspiring. Accountants are in a unique position to advise individuals and communities from start-up, setting them on a path for sustainable impact.  Accountants can help social enterprises choose the first door they walk through. Picking the right door is the challenge.  People setting up a social enterprise often focus on the type of company that is being formed. Having taken time to listen to the client and understand the problem they are aiming to solve, the accountant can ensure that all of the available options (and the pros and cons of each) have been considered, the finance requirements planned for and aligned, and ownership and governance issues anticipated before a legal structure is chosen. Chris MM Gordon is Chief Executive of The Irish Social Enterprise Network Useful resources The Social Enterprise Toolkit is a resource for communities and individuals setting up a social enterprise in Ireland. It is available to download for free at socialenterprisetoolkit.ie The Irish Social Enterprise Network is the national body for social enterprise in Ireland. It provides information on the sector and useful pointers for people setting up a social enterprise online at socent.ie Social Enterprises in Ireland: Legal Structures Guide (Thomson Reuters Foundation and Mason Hayes & Curran, November 2020) is available to download at trust.org BuySocial.ie is a growing online directory of social enterprises operating in Ireland: buysocial.ie. The Charities Regulator provides guides to setting up a company with charity status: charitiesregulator.ie The Irish Co-operative Organisation Society (ICOS) provides information on setting up as a co-operative: icos.ie/starting-a-co-op/intro.