The Past and Present of Corporate Social Responsibility
In the late 19th century, enterprises began to grow in China. At that time, in the West, an economic landscape dominated by large corporations began to take shape. On the one hand, these enterprises rapidly expanded to such size and influence that they were able to contend with the “minimal state” as a player in the social sector. Through means of exploitation and monopolization, they began to exert a negative influence on society. On the other hand, as corporate ownership and management rights diverged, captalists relinquished control of day-to-day operations to managers motivated by short-term performance who likely overlooked the long-term sustainability and profitability of the enterprise.
Meanwhile, driven by vested interest groups with specific social ideals, philanthropy began to establish a social presence outside the spheres of the government and corporation – perhaps taking on the role the two failed to fulfill – with a focus on identifying and solving social problems. Aristocrats aside, most of these vested interest groups consisted of emerging entrepreneurs.
The development of “Corporate Social Responsibility”
From the labor and human rights issues of the early 20th century, to the later environmental and consumer rights movements, and finally to the green production and sustainability revolution, every century-old “great” corporation has witnessed its share of challenges and opportunities. Restaurant chains like McDonald’s have faced appeals to take accountability for many public health crises, including heart diseases, potentially caused by their fatty foods; clothing brands like Nike and Levi-Strauss have been caught in sweatshop scandals; large-scale retailers such as Walmart have faced criticism for the poor treatment of their employees; Starbucks, a keen promoter of coffee and community culture, received heavy criticism for its exploitation of coffee farmers; energy companies, with ExxonMobil at the forefront, have likewise become the target of criticism by environmental groups. The successes of these corporations came with profound impacts on society, impacts that garnered more attention, and in turn created demands for corporations that went above and beyond generating profit. Their failure to meet these expectations brought about pressure from consumers, the media, social organizations, legislative bodies, and even government. This not only pressed corporations to reshape their public image, but also started various sectors of society thinking about the kinds of social responsibility that corporations should shoulder.
Discussions surrounding corporate social responsibility have always been at the peripherals of academia, whose core is made up of debate about free markets and government regulations, scholars researching this field tend to get caught up in the relationship between corporate social responsibility and business performance. However, the above corporations have survived these crises, and many of them have now become forerunners in areas such as consumer rights, workplace conditions, labor treatment, and supply chain and environmental protection, or simply forced specific industries and enterprises to face these issues throughout their operation. Corporate social responsibility has more or less become an external force in the West, making it almost impossible for companies to seek profit as their sole purpose.
The influence of public incidents lead to the establishment of industry codes of conduct, determination of national and local legislation, as well as international practices. These range from the successive introduction of related legislature in various countries throughout the 20th century, to the implementation of various international documents such as the Universal Declaration of Human Rights, the ILO Conventions, the United Nations Guidelines for Consumer Protection, the Rio Declaration on Environment and Development, and the Millennium Development Goals. This influence is also seen in the establishment of Social Accountability International (SAI) in the late 20th century and the setting of international standards in specific areas of labor and the environment by the International Organization for Standardization (ISO), as well as the appearance in the early 21st century of a more comprehensive framework for corporate social responsibility. ((This includes the United Nations Global Compact, guidelines published by the Global Reporting Initiative (GRI) and the ISO26000 guidelines released by ISO.))
1978, China enters the inaugural year of “Reform and Opening Up”
The policy of “Internal Reform and External Opening Up” attempted to establish a markedly “Chinese-style” market economy. At the beginning of the reform era, the Pearl River Delta became the vanguard force of China’s economic development. It was during this era that the greatest entrepreneurs of contemporary China began their primitive accumulation of capital. Meanwhile, foreign capital from Hong Kong, Macau, Taiwan and the West came in by way of growing labor-intensive industries, making China into yet another “world factory”. China was just beginning a transition from planned to market economy, encouraging private accumulations of capital, attracting foreign capital inflows, and embarking on the quest for a “Chinese-style” market economy.
Mirroring the flow of capital was a flow of labor. Towards the end of the 20th century, a “Migrant Workers Boom” swept across urban and rural China largely contributing to the appearance of many “Chinese-style” social phenomena that are still visible today. However, the ZhiLi Toy Factory blaze in the Pearl River Delta’s Shenzhen Special Economic Zone put a damper on the growing excitement. The Shenzhen Kui Yong Zhi Li (葵涌致丽) Craft Products Factory, a Hong Kong enterprise subsidiary, mainly produced OEM ((OEM stands for Original Equipment Manufacturer and describes how one company’s product is used as a component or re-sold by another company.)) toys for foreign brands. Built in 1989, the factory was host to the blaze that occurred on November 19th 1993, killing 87 out of the 400 working staff and shocking the nation. The central government deployed an investigation team while Shenzhen authorities set up an incident task force, and this fire directly hastened the passing of post-1949 China’s first Labor Law in 1994.
The Law on the Protection of Consumer Rights and Interests, which came out a year before the Labor Law, also had an inside story. Aside from the lack of legal protection on product quality, the public faced major conflict between understanding and asserting their legal rights and their lack of historical backing as consumers. Twenty years earlier, when supermarkets were still a novelty, at almost every supermarket entrance hung a sign that read “we reserve the right to search customers’ bags”. On December 23rd, 1991, two sisters shopping at the Beijing International Trade Building’s Welcome Supermarket were body-searched without reason. They tried to sue the supermarket for infringement of rights, but had no case.
In 1971, a few years prior to the reform era, the PRC recovered its seat in the United Nations. The following year, China participated in the Stockholm Conference on the Human Environment, indicating the start of its “Environmental Diplomacy”. Subsequently, in the 80s and 90s, environmentalism gained traction in China. However, the consequences of environmental pollution are often apparent only with the passage of time, and the tragedies of child lead poisoning and cancer villages were not enough to drive the message home. That is until the 2005 Songhua River pollution incident sparked nation-wide awareness about environmental protection. On November 13th, a Jilin Petrochemical Company benzene plant exploded, depositing about 100 tons of benzene substances (benzene, nitrobenzene, etc.) into the Songhua River, causing serious pollution to the river and affecting the lives of millions of people living along it. The head of the National Environmental Protection Agency resigned, and the incident became a historical endorsement for the environmentally friendly society proposed in the government’s eleventh Five-Year Plan. When Xiamen city secured an investment of 10.8 billion yuan for a paraxylene chemical project (commonly known as a PX project) in 2006, all sectors of society boycotted the project, signaling an important turning point in the large-scale participation of the Chinese public in environmental protection.
Through incidents like these, the contradictions brought about by social development gradually became obvious, and behind them, the companies’ blind pursuit of financial gain.
Companies soon discovered a way to compensate for the negative externalities that came with business operation through a different approach. In 1989, “Project Hope” was launched across the country and gained much traction. The big-eyed girl in the “I want to go to school” picture became the image of public welfare for a long time afterwards, and under this image sprung up many “Hope Primary Schools” built with donations from corporations. The 2008 and 2010 earthquakes in Wenchuan and Yushu gave opportunities for Chinese corporations to invest in the public interest sector and find a “reason for living”, and to build on subsequent brand desirability gained from doing so. In recent years, the establishment of private foundations by enterprises in response to State promotion of public welfare became a trend within the public sphere. All these demands, colliding in every corner of Chinese society, await further response.
Top-down forced birth of the “Chinese characteristics”
When appeals are still largely based on incidents themselves and are unable to incite thinking about the social role of enterprises behind them, and where there is a lack of systematic exploration of what social responsibilities corporations have and how they should carry them out, China’s social development seems to have found ready-made solutions in its western counterparts.
In 2006, the State Grid Corporation of China (国家电网公司SGCC) issued its first report on corporate social responsibility. In the same year, the Shenzhen Stock Exchange issued the “CSR Guidelines for Listed Companies” to encourage listed companies to use this as a basis to publish their own CSR reports. From then, amidst rounds of report releases, the introduction of guidelines by the Stock Exchange, the State-owned Assets Supervision and Administration Commission (SASAC) and other government-backed organizations, as well as CSR appraisal events organized by commercial media, the topic of CSR in China began to flourish. In 2006, 32 CSR Reports were published. The published report count of 600 in 2009 made it a watershed year for CSR reporting. 2010 saw a steady increase in the number of reports published. In 2012, there were already more than 1,300 CSR reports released. However, how many companies have truly reflected on the impacts of their business on society? Suddenly and without much thought, the notion of “corporate social responsibility” began to change China from the top down.
This development path revealed at least two problems:
Firstly, the development of CSR in the West took nearly half a century. Various types of enterprises have experienced first-hand the crises and opportunities that came from demands by consumers, social groups, the government, and were eventually reflected in markets and operation. It was only when a certain level of corporate maturity was reached that the issue was presented in the form of conventions, reports and publishing guidelines. In China, consumer rights awareness, labor rights, universal human rights and environmental issues have only just begun to form in society. However, with this as a foundation, the newly formed notion of corporate social responsibility is already entering a pre-mature stage of reporting and publishing. This leads to the second and more fundamental problem. Market and social reforms are only just beginning, and “corporate social responsibility” has already entered the system of discourse of Chinese enterprises by way of indoctrination, leaving behind a serious disconnect with the public’s awareness about the issue. How is corporate social responsibility to be understood under these circumstances?
When we talk about CSR in China, what are we talking about?
The internationally accepted frameworks and guidelines – GRI Guidelines and ISO 26000 Guidelines – were all geared towards pushing all types of organizations, not just enterprises, to constantly develop global sustainability through social responsibility. The UN Global Compact was also drawn up for member countries to work together to achieve the broader UN Millennium Development Goals. However in China, the framework and guidelines seem more geared towards promoting “corporate social responsibility with Chinese characteristics”. Nevermind what that would even entail, this methodology and long and short term goal differences have already placed such an approach in a lower position.
Of course, the achievement of goals needs to be supported by actual content. Looking at current systematic international CSR guidelines, labor, consumer rights, human rights, environment, anti-corruption and fair competition are often unavoidable issues requiring disclosure. Sweatshops and the labor movement directly raised awareness about human rights and labor issues, and negative impacts of products and services on society promoted a greater emphasis on the protection of consumer rights. Companies should now be responsible for the impact that their production, marketing, and logistics have on the supply chain and the environment, and stipulations imposed on large corporations’ growing influence have become the foundation for fair competition. Looking back on the growth of CSR in the west, everything was the result of societal pressures and market forces, and were by no means the result of administrative pressure or academic research.
Can we not connect the dots for each of these social issues in China’s rapidly growing economy? And yet, the top-down induced CSR with Chinese characteristics attempts to avoid the core of the problem.
The problem of labor shortage began in many places in 2003, and continues to grow today. Labor problems arising after long holidays may have caused problems for production enterprises, but is this not a logical choice made by the majority of workers when their rights are not guaranteed? Or are we to say that the responsibilities the employer-employee relationship entail extend only to administrative staff, and excludes the production line workers who face real challenges to survival? Frequent accidents, overtime work, delays in salary and overtime pay, and other instances of violations of fundamental labor rights still exist. The core contents of labor issues, including freedom of association, the right to collective bargaining, the elimination of all forms of forced labor and the elimination of discrimination in employment, have no channels for discussion, and do not bring up the public’s sympathy until overwhelmed workers commit suicide. For the majority of Chinese corporations, avoiding the important issues by just carrying out trainings and capacity building activities makes up the main responsibility of enterprises towards workers. If there is no foundation for change, how can it occur?
In recent years, food safety issues have become a source of constant worry for the Chinese people, resulting in an almost complete loss of faith in the industry. Food quality and consumers’ right to knowledge and safety were originally at the foundations of CSR work, but are considered “impossible to guarantee” in today’s food industry. With the constant “innovation” of poisonous food such as Sudan-dyed duck eggs, melamine milk powder, gutter oil, dyed bread, and food containing plasticizing agents, consumers have no time to think about issues like fair trade and equity, and companies are even less likely to fulfill their responsibility to direct the market’s and consumer’s behavior. At this time, when Mengniu and Maotai ((Mengniu and Maotai are a milk company and an alcohol company respectively that have both been involved in food quality scandals.)) speak of “social responsibility”, what are they talking about?
From the Zijin Mining copper acid leakage accident in 2010, to the Penglai oilfield oil spill in Bolai, the Harbin Pharmaceutical Factory’s “pollution-gate”, and Apple’s Chinese outsourcing factories polluting the environment in 2011, and then again to Guangxi Longjiang River’s cadmium pollution incident, adding frequent lead poisoning incidents over the years, the serious negative externalities created by business operations and the disastrous consequences caused by corporate greed have become increasingly apparent in the field of corporate environmental responsibility. While Chinese companies are still entangled in the issue of how to treat waste water, air, and solid waste, corporate environmental responsibility in the West has already extended to a systematic tracking of carbon and water footprints, biodiversity conservation, and even the protection of experimental animals. The latter two issues, when juxtaposed with the nationwide controversy of live extraction of bile from bears in China, form a deeply ironic contrast.
More responsibility with Chinese characteristics
One cannot help but ask once more what exactly is so special about “CSR with Chinese characteristics”?
Could it be that “Chinese characteristics” are to use non-applicability as an excuse for non-disclosure on issues like human rights, labor, monopoly and corruption? Is it merely a public relations strategy of passive rhetoric in response to crises, or a public-image project by companies without thorough understanding of deeper implications? Or does it truly stem from inherent demands of the company’s own long-term development and society’s sustainable development? If the latter, then at the current stage, CSR under the backdrop of the market economy with Chinese characteristics should carry deeper connotations than the West’s. At the very least, the economic responsibility borne by enterprises within the Chinese market system should be more significant and more complex.
In the mid-1990s, state-owned enterprises (SOEs) faced bleak conditions, with two thirds operating at a loss. However in 1997, with SOEs breaking even, the system began to fuel the growth of a number of industry and local monopolies instead. Although the number of SOEs declines each year, the political and resource advantages, privileges and power enjoyed by the remaining SOEs continue to expand. Under the countless policies which, in reality, advance the nation but impede the people, private, small- and medium-scale enterprises face enormous pressure within an ever more precarious survival space. Many SOEs concentrated at the upper levels of the industry chain make use of administrative monopoly pricing that tends to be high to shift the tax burden onto private companies further down the chain and ultimately to consumers. Typical examples are PetroChina and Sinopec who, under the advantage granted them by crude oil import restrictions, allow end consumers foot the bill for high production costs. And when SOEs that enjoy financial advantages flock to the real estate industry, the same result is not hard to imagine.
In the presence of SOEs, the severe corruption issues that follow the premise of anti-monopoly and regulatory efforts should be an inescapable social responsibility and important issue for CSR with Chinese characteristics. The reality, however, runs completely counter to this expectation.
At the same time, fair operations and fair market competition should also include respect for intellectual property rights. One of the tremendous risks of an economy that relies on its demographic dividend and low-cost labor-intensive industries to generate growth is loss of enterprises’ innovative capacity. When enterprises with low innovative capacity ignore intellectual property protection and attempt to profit by emulating or downright copying, those with innovative capacity are adversely affected in what becomes a vicious cycle. Most corporate patent infringement disputes exist between Chinese and foreign companies. While Chinese corporations were befuddled by the “Section 337” investigations in the United States and their implications on trade friction and technical barriers, did they give thought to their latecomer status and responsibility to maintain fair competition and protect innovation? In the online era, with the widespread and dynamic instances of intellectual property right violations, search engines, video sites and many big domestic internet companies’ treatment of intellectual property has entered a grey area.
When Chinese companies see “charity” as an important component of CSR and a means to offset negative impact, but overlook the essential ability of public service to solve or alleviate social problems, they suffer the same malady as those who selectively fulfill their responsibility by invoking “CSR with Chinese characteristics” and those who avoid responsibility that is not in line with “Chinese conditions”. When reports on CSR with “Chinese characteristics” become propaganda instead of self-reflection and channels for disclosure, they erode the public’s faith in both these reports and the companies themselves.
At the end of the day, what is the social responsibility of Chinese corporations? Is it based on the corporate ecosystem in a broad sense, to approach social problems responsibly and be committed to solving them? Or is it a mirage-like vision around the question of what is “social responsibility”? If this is really different from the Western definition of social responsibility, then does the difference stem from interpretations of “corporation”, “society”, or “responsibility”? At a time such as this, shouldn’t the demands of Chinese society on corporations and their “responsibility”, and likewise the responsibility of Chinese corporations towards society, be more and not less?