SMES’ reluctance to embrace corporate sustainability: The effect of stakeholder pressure on self-determination and the role of social proximity

Small and medium-sized enterprises (SMEs) are said to engage significantly less with corporate sustainability (CS) than their larger peers, because they are more reluctant to voluntarily engage in CS beyond regulatory thresholds. However, the mechanisms for changing the reluctance of SMEs with regard to CS are poorly understood. By drawing on self-determination and stakeholder theory from a social proximity perspective, this paper argues that stakeholders play a key role in influencing the controlled CS motivation of SMEs, and that SMEs will consider the claims of ‘proximate’ stakeholders as being more salient than ‘distant’ regulatory pressure, with the latter even potentially exercising a negative effect on SMEs' controlled CS motivation. The hypotheses are empirically tested using survey-based data from a sample of 344 privately-held SMEs operating in Germany and Austria. Results of the structural equation model confirm that ‘proximate’ employee and community pressure reduces controlled CS motivation and ultimately increases overall CS performance, whilst ‘distant’ regulatory pressure has precisely the opposite effect, ultimately reducing the CS performance of SMEs. These findings help to clarify that the close attachment of SMEs to their employees, and their deep embeddedness in the local community might be important catalysts with regard to CS improvements of SMEs, whilst regulatory pressure reduces their willingness to engage in CS, since this is often perceived as an unfair, demotivating, external imperative, which compromises their self-determination. Lastly, theoretical and managerial implications are provided.