Topic: Corporate Social Responsibility Movement in China: What can foreign corporations’ corporate social responsibility programs in China do to universal values?
By
Maria Lam
INTRODUCTION
The ideal of the modern Corporate Social Responsibility (CSR) movement is to promote a decent, peaceful and justified world through corporations’ corporate social responsibility programs. Two basic ethical principles of (CSR) are charity and stewardship (van Tulder & van der Zwart, 2008:139). The two principles are to protect the interest of the less privileged people and to consider the interests of people affected by the business. These less privileged people are not only in less developed countries, but also in industrialized countries. CSR is expected to go beyond the legal requirements and the interest of shareholders (McWilliams & Siegel, 2001) and to fulfill their social, ethical, discretionary responsibilities when corporations are creating wealth (Carroll, 1979). “The modern CSR movement has, however, been given extra momentum by more fundamental and wide-ranging concerns about the international economic system, how it is run and the role of corporation within it” (Zerk, 2006:18). The modern CSR movement has shifted toward ‘people centered concerns’ and the struggle between people and corporations (Zerk, 2006:23).
Corporate Social Responsibility (CSR) movement in China was initiated by the Chinese government as an effort toward a “harmonious” society. During September of 2008, the Ministry of Commerce issued a draft document titled “Guidelines on Corporate Social Responsibility Compliance for Foreign Invested Enterprises” and is still waiting for the comments from various foreign corporations. The Guidelines show that the government expectations for foreign MNEs in China. “The Guidelines suggest that China intend to take a global lead in making CSR strategies a prerequisite for companies doing business within its borders. Moreover, the Guidelines have a decidedly Sino-centric focus, focusing on issues in China today and CSR programs with “Chinese characteristics” (Pearson, 2009). In November, 2008, the Shanghai government upgraded the CSR guideline as the first local CSR standard in China (Zhu, 2009). It means that the Chinese government expect foreign MNEs to adopt comprehensive CSR programs and foster a “harmonious society.” For example, in the Guidelines of Intellectual Property Protection (3.1.3.3)—“Consider the social needs that promote long-term development and public demands while making IPR licensing or technology transfer, without compromising the full protection of intellectual property.” This means that foreign MNEs must reprioritize their values and not overprotect their intellectual property at the expense of social development. How may the Guidelines influence foreign MNEs and the universal values stated in their CSR reports?
Many foreign MNEs gain their political legitimacy and reduce their political risks by fulfilling minimum international requirements (Murdoch & Gould, 2004). Several studies show that many leading MNEs tend to practice less corporate social responsible actions in developing countries, including China, even though they are legally mandated by their global supply chain partners (Abdul-Gafaru, 2006; Philipp, 2006; Rondineli, 2006). Many foreign MNEs tend to increase their emphasis on the developed countries’ CSR principles and to decrease their emphasis on the Chinese CSR principles when they are faced with more pressure from their consumers and investors in developed countries (Schepers, 2006). Some foreign MNEs appear to pay only lip service to environmental and labor welfare within their CSR programs and do not appear to be committed to monitoring the behavior of their suppliers in China. The tensions between the companies’ social compliance auditing programs and their buying behavior in China can create false reports (Harney, 2008:205). Some companies set up a few “five star” factories to impress auditors while many products are being produced in extremely poor environments. Many CSR programs and international codes are criticized as being marketing devices to mask the problem of environmental degradation and social justice in China (Sum & Ngai, 2005; Yu, 2006). Under what conditions will foreign MNEs be motivated to reconcile the conflict between the norms of their home country and the local norms in China in their CSR programs in China? Is it possible for foreign MNEs to adopt universal values while fulfilling the CSR guidelines with Chinese characteristics? Will the need for being competitive in the international market be at the expense of the “stewardship” and “charity” ethical principles in the modern CSR movement in China?
This paper builds upon the author’s previous studies with Chinese expatriates concerning the business negotiations between and within the United States and China (Lam, 2000; 2003; 2004; 2005) as well as previous studies about the transfer of CSR from foreign MNEs to Chinese subsidiaries (Lam, 2007; 2008; 2009). It is based on an extensive literature review, three years’ field work in Chinaand U.S., and personal reflections. The author interviewed twenty-five Chinese executives who represent sixteen foreign MNEs as well as five Japanese expatriates about their experience of transferring CSR programs to their Chinese subsidiaries. The findings was validated by interviewing several executives in U.S. and Japan, and reviewing their corporate social responsibility reports.
The author talked with more than one hundred Chinese executives and graduate students about their expectations for foreign multinational enterprises in various cities in China including Chongqing, Dalian, Qingtao, Zhejiang, Nanjing, Shanghai, Beijing and Hong Kong. These graduate students were all supported by the government. Some had compiled corporate social responsibility reports for enterprises, and they generally did not trust the written documents issued by the government and the corporations. They also expected the government to exercise more power over corporations to protect the interest of the Chinese people. Many sought the national competitiveness rather than universal values in the development programs. These Chinese executives and graduate students’ expectations upon foreign MNEs represented the normative beliefs about CSR adopted by foreign MNEs.
This paper is about the perceptions of the Chinese executives about their foreign MNEs’ CSR programs in China. It is concerned with the development of universal values in the CSR programs of foreign MNEs operating in China. The recommended CSR programs may reconcile the conflicts between the headquarters and the Chinese subsidiaries. They may also can fulfill the Guidelines given by the Chinese government and comply with the international standards given by international institutions and industry standards. The challenge for CSR managers in the headquarters or in China is to “interactively link home and host countries’ norms and values through various interactions with home and host stakeholders (van Tulder & van der Zwart, 2008:270). The paper is in two sections. The first section describes the challenges of managing CSR in China. The second section explores the conditions for the development of universal values in the CSR programs of foreign MNEs in China.
CHALLENGES OF MANAGING CSR IN CHINA
The researcher found that these sixteen foreign MNEs fulfilled the minimum requirements of corporate social responsible behavior standard (ie., no harm to their stakeholders) and had very good reputations in the industry. These sixteen foreign MNEs met the criteria for practicing global business citizenship, based on an analysis of their codes of conduct and CSR programs listed on company web sites (Logsdon and Wood, 2005). They clearly specified universal values, an implementation process for CSR conduct, and an obligation to provide accurate information to stakeholders. They had developed governance structures to comply with international standards set by the United Nations Global Compact, socially responsible funds, global reporting initiatives, and the Dow Jones Sustainability Index. In these companies’ CSR report, they indicate their desire to maintain sustainable relationships with a broad range of stakeholders through strategic alliances and to use these relationships to enhance their corporate image and increase their competitiveness. Their headquarters’ CSR reports represent the modern view of CSR—Quazi and O’Brien (2000:36) defined modern view of CSR as “a business maintains its relationship with the broader matrix of society where there are net benefits flowing from socially responsible action in the long run, as well as in the short term.”
The CSR practices claimed in their corporate social responsibility reports were always not integrated with their Chinese subsidiaries’ organizational structure and system. Several interviewees agreed that their subsidiaries were still searching for corporate social responsibility strategies in China even though their headquarters were committed to enhance the corporate social responsibility department in China. Many CSR offices were growing and expanding.
Sixteen out of twenty five interviewees perceived that the goal of their subsidiary is making profits and not solving social problems. They accepted the fact that foreign firms were in China to obtain cheap labor and to gain access to local markets. The subsidiary’s responsibility were to make profits and to pay taxes. They expected the government, not foreign companies, to solve social problems. These interviewees saw social responsibility programs as adding to the operational cost of their enterprises and thereby reducing profit. They represented the classical view of CSR as described by Quazi and O’Brien (2000), according to which “there is no provision to look beyond a narrow view of profit maximization as it is seen to generate a net cost to the company without any real benefit flowing from an activity” (Quazi and O’Brien 2000:36). They were willing to seek short-term economic growth at the expense of environmental protection or labor rights. Their views of CSR differed from the modern view of CSR listed in their headquarters’ reports (see table 1). Their views were as follows:
“American companies come to China for cheap labor” (interviewee #1)
“Only the government can solve social problems” (interviewee #5)
“Foreign companies have to make profit, and it is their responsibility to pay taxes. The Chinese cannot rely on foreign companies to provide social welfare.” (interviewee #7)
“CSR is an international norm, a symbol of spiritual civilization. The Chinese government supports this. But there is no penalty if the company fails to practice CSR. It is better for the company to reduce operating cost than to practice CSR.” (interviewee #9)
“CSR should be the responsibility of top management. Big companies reduce their profit when they do CSR programs.” (interviewee #10)
Some interviewees, who were more engaged in promoting CSR to community, perceived that it was possible for big companies to maximize profit while meeting some social demands. These interviewees were responsible for educating the public and the suppliers about environmental protection, and developing relationships with various stakeholders such as customers, government, and non-government organizations. Some embraced CSR programs more when they were responsible for marketing the programs to internal and external stakeholders. Several interviewees confessed that they changed from an apathic attitude to a positive attitude toward CSR programs when they were transferred from the other department areas to the present CSR divisions. They also stated that their CSR programs need to be more long-term oriented. However, no interviewee expressed the conflicts between the norms of CSR practices in China and the universal values stated in the CSR programs listed on company web pages even though they expressed their frustration of carrying out headquarters’ environmental and ethical programs in China. Two interviewees even asked the researcher to reflect their frustrations to their headquarters. They requested more training from their headquarters as they had more connections with other corporate social responsibility officers in the world. They had to rely on their social networks outside their corporations to know how to be good CSR managers in China. Their insights and wisdom in running the CSR programs in China were often neglected in CSR seminars held in China as those organizers preferred to invite higher-ranking staff to increase the visibility of the seminar.
Interviewees tended to view CSR as charity, legal compliance, internal employee conduct, technical and operational efficiency of environmental activities, and public relationships (see table 2). Internal employee conduct means to adhere to sound financial accounting principles, not to misuse funds designated for business purposes, and not to accept certain gifts or pay bribes. CSR programs were easily treated as political means for improving relationships with the local government. The executives who were responsible for the CSR programs were eager to get recognition from the Chinese government when they implemented some CSR programs. These were supported by the comments of the following interviewees:
“Enterprise must govern itself well when it emphasizes CSR. Do CSR and need government’s recognition. Social problems should be solved by the government and NGOs” (interviewee #11)
“CSR is advocated when the company has great investment in China. CSR is the work of big company, not medium sized company. It is important to be legal compliance.” (interviewee #12)
“The governance manager is required in China as many people do not follow laws. Governance managerial post does not exist in other developed countries. Her main job is to follow internal operating procedures.” (interviewee #13)
“CSR programs are not respected in the mind of the public. They are evasive and used for image building. Staff has not much training in the CSR. Many CSR activities are opportunistic. Foreign companies consult each other about the right CSR approaches in China.” (interviewee #20)
“CSR is to support the Ministry of Education.” (interviewee #22)
“CSR is charity.” (interviewee #24)
All of the interviewees described the high stress level associated with working in an MNE, since they must follow many organizational procedures while dealing with the changing Chinese environment. They indicated that they were operating in a complex macro-economic, political-legal, and cultural environment that was much different from that of their headquarters. No one could tell his/her company’s CSR strategy. One executive who was in charge of CSR programs confessed that his company still searched for the CSR strategy even though his company has published many CSR reports and got several CSR awards in China. A few executives who were responsible for the CSR programs in China expected the headquarters to invest more financial and human resources in the CSR programs in China and to develop some long-term CSR programs for the community. Those who were not directly responsible for CSR attributed the difficulties of implementing CSR in China to their busy work schedule and specific Chinese business culture—pervasive corruption and lavish amounts of money spent on banquets in order to make sales. A few executives showed the researcher the allocation of CSR resources in China were significantly less than those in their headquarters. Their perceived difficulties of implementing CSR in China are listed in the Table 3.
In summary, the key challenge of managing CSR in China is the lack of integration of CSR programs in China in the management area. Many middle management are pressed to achieve economic goals at the expense of social and environmental goals. Those who are directly responsible for the CSR programs in China are busy with reporting their companies’ CSR activities and promoting their ideas to their internal and external stakeholders. Interviewees who are responsible for CSR activities hope to get more support from their internal colleagues and their companies but many colleagues do not regard the CSR department as an important department. Many unique experiences of the executives in the CSR programs are not respected by internal colleagues, headquarters and even themselves. Many managers primarily focus on responsible actions within the Chinese subsidiaries and focus on reporting their CSR practices according to their countries’ expectation. The basic assumption is that doing business in China is a very risky venture and that learning in the CSR programs in China is not beneficial to their headquarters. Many foreign MNEs tend to use their CSR programs in China to develop good relationships with the Chinese government when the Chinese government is their important stakeholder. There is still a long way to go for their Chinese subsidiaries to initiate broad relationship management and to transfer their experience back to other subsidiaries and their headquarters.
Table 1: Attitude toward Corporate Social Responsibility
IntervieweeID / Company ID / Headquarter’s Attitude Reflected from Global business citizenship / Chinese Subsidiary’s Attitude / Interviewee’s Attitude toward Corporate Social Responsibility
#1 / #A / Modern / Classical / “American companies come to China for cheap labor. He works hard for survival and learns to adapt much changes in the market.”(#1)
#2 / #A / Modern / Classical / “Company centralizes resources and adopts top down approach for cost efficiency. High turnover of top management.” (#2)
#3 / #A / Modern / Classical / “Economic performance, good compensation can deter greediness and motivates hard work.”(#3)
#4 / #B / Modern / Classical / “Fail 10% of staff, moral is indeed not important in final decision.”(#4)
#5 / #C / Modern / Classical / “Chinese operation is to assemble, not to manufacture a car. Only govt. can solve social problems. Chinese workers and supplier are in the stage of farming, not industrial stage. There are no sense of safety or environmental concerns among Chinese suppliers.”(#5)
#6 / #D / Modern / Philanthropic / “We are the leader in CSR. We push the boundary in CSR. We provide environmental protection and reduce poverty.” (#6)
#7 / #E / Modern / Classical / “Foreign companies have to make profit and paying tax is their responsibility. We cannot rely on foreign companies to provide social welfare. We must go through material wealth before spiritual wealth. Foreign companies learn bad practices from local companies” (#7)
#8 / #F / Classical / Classical / Fulfill sales quota (#8)
#9 / #G / Modern / Classical / “Corporate Social responsibility is an international norm, a good symbol of spiritual civilization. Chinese govt. support this. There is no enforcement if company does not practice it…better to reduce operating cost.”
#10 / # H / Modern / Classical / “Corporate social responsibility should be the responsibility of top management. Big companies reduce their profit by doing corporate social responsible programs. It is more human to be responsible as these companies are part of the community and are required to give back. Small companies do not have enough resources. Corporate social responsible program can increase the reputation of companies and customers’ trust. It is good for managers!”
#11 / # I / Modern / Classical / Enterprise must govern itself well.
#12 / #J / Modern / Classical / CSR is advocated when there are great investment in China.
Charity work is initiated by the leaders and senior manager in China. Legal compliance. CSR is the work of big company, not medium size company. The development of capacity of subsidiary to be more responsive to local needs depending on the initiatives of senior leaders.
#13 / #J / Modern / Classical / Does not consider her job as CSR job. The governance manager is required in China as many people do not follow the laws. Governance manager post does not exist in other developed countries. Follow internal operating procedures. She does not perceive her work is part of CSR. She does not need additional training.
#14 / # I / Modern / Classical / Web training about legal compliance and environmental conscious. Don’t like the Japanese management system. The Japanese company maximizes the profit.
#15 / #K / Modern / Classical / Publish many research papers from the staff of Chinese executives. Personal development. Personal review and development goals—not related to CSR.
#16 / #L / Modern / Socio-economic / Educate the public and suppliers about Eco-idea. Carry out internal environmental policies and nurture some local NGOs to be potential partners.
#17 / #L / Modern / Classical / Implement the Japanese corporation’s environmental policy and publicize its activities
#18 / #M / Modern / Philanthropic / Supervise environmental management section, together with other sectors related to CSR –improve govt. relations, pro-active,
#19 / #M / Modern / Philanthropic / The staff in charge of CSR needs more hand on experience.
#20 / #N / Modern / Socio-economic / CSR programs are not respected in the mind of the public. Evasive, image building. Staff has no much enough training. Many CSR activities are opportunistic. Foreign companies consult each other about the approaches in China.
#21 / #O / Modern / Philanthropic / Must relate to corporate values, business and strategy.
#22 / #O / Modern / Socio-economic / Support Ministry of education, higher education institutions, education
#23 / #O / Modern / Socioeconomic / Best practices at different parts of the world are quite similar.
#24 / #P / Modern / Classical / CSR is charity, support Chinese students to be enrolled in the university, to relieve from the storm tragedy,
#25 / #Q / Modern / Socioeconomic / Good labor good business
Table 2: Opinions of Corporate Social Responsibility