A/HRC/35/32 11. A significant feature of small and medium-sized enterprises, arising principally from their smaller size, is what has been termed their “resource poverty”.12 That is, a poverty not only of financial resources but also in terms of areas such as knowledge, expertise and trained or qualified staff. Millions of such enterprises lack access to financial services; between 45 and 55 per cent of these that are formally registered do not have access to formal institutional loans or overdrafts, despite a need for such facilities and the fact that these enterprises provide 45 per cent of total employment in the developing world.13 This handicap has been compounded by the 2008 financial crisis and its aftermath. Such financial poverty means that many enterprises enter the market with only a single product and without the finance to diversify their offerings, even if this were considered to be strategically desirable.14 Furthermore, the salary of an owner-manager represents a much larger portion of revenue than in a larger company, meaning that there may be insufficient resources to pay for additional professional staff with a mandate to ensure compliance with the responsibility to respect human rights. 12. Given their lack of financial capital, small and medium-sized enterprises turn increasingly to human capital, which is a fundamental element to their success. However, despite this, these enterprises often experience poor staff planning, multifunctional management, high employee turnover, low productivity, difficulties in recruiting quality staff and an inability to adequately test and train employees in advance. In particular, bureaucracy and regulation remain a burden for them, in both developed and developing countries, while reducing costs and expenses is their top business ambition. Finally, they may not be able to afford to pay for the kind of professional services, including accounting and reporting, that new initiatives may require. 15 13. In November 2016, the International Organization of Employers and ILO produced a report on their joint survey of small and medium-sized enterprises and human rights. 16 According to their findings, the most cited challenge for these enterprises included a lack of resources (46 per cent of respondents), followed by uncertainty about responsibilities in the light of government duties (36 per cent), the poor enforcement of national law in practice (36 per cent), the difficulty of operating in situations where fundamental economic, ecological and social standards were not part of national law (31 per cent) and the difficulty of translating policy commitments into relevant operational procedures (29 per cent). 14. The limited resources of small and medium-sized enterprises and the difficulties they face regarding identification and their predominantly informal character have led some enterprise owners and academics to claim that regulations regarding corporate social responsibility — and by implication human rights — would be counterproductive, 17 in particular owing to the added bureaucracy that would divert resources from actually improving behaviour. 18 However, there is evidence to the contrary in the way such enterprises respond to regulatory standards, including those concerning environmental sustainability, anti-corruption, human trafficking and health and safety. The lessons of how small and medium-sized enterprises implement such compliance standards can be very useful for the implementation of the Guiding Principles. 12 13 14 15 16 17 18 J. Welsh and J. White, “A Small Business Is Not a Little Big Business”, Harvard Business Review, (July 1981). Available from https://hbr.org/1981/07/a-small-business-is-not-a-little-big-business. See Global Partnership for Financial Inclusion, “Report to the Leaders” (2011), p. 4. Available from www.oecd.org/g20/summits/cannes/Global%20Partnership%20for%20Financial%20Inclusion%20Re port%20to%20Leaders.pdf. D.J. Storey, Entrepreneurship and the New Firm (London, 1982). See “A Small Business Is Not a Little Big Business” (footnote 12 above). Available from www.ilo.org/wcmsp5/groups/public/---ed_emp/---emp_ent/--ifp_seed/documents/publication/wcms_535220.pdf. See Baden, Harwood and Woodward, “The effect of buyer pressure on suppliers in SMEs to demonstrate CSR practices: An added incentive or counterproductive?” European Management Journal, No. 27, p. 429; and Yves Fassin, “SMEs and the fallacy of formalizing CSR” Business Ethics: A European Review, Vol. 17, Iss. 4, p. 364. See European Commission, “Opportunity and Responsibility: How to help more small businesses to integrate social and environmental issues into what they do (2007), p. 4. Available from www.eenportugal.pt/info/RSO/Documents/Opportunity%20and%20Responsibility.pdf. 5