In the past, corporate social responsibility (CSR) was something only Western companies were concerned about. That is no longer the case. CSR in China, for one, has made great strides over the past20 years making a big impact not only on future Chinese businesses, but also the country’s economic development. Marc Parich, senior associate director at the Beijing office of APCO, a government relations consultancy, notes: “While wary of CSR in the past, the Chinese government has in recent years promoted the practice as a means to fill developmental gaps and meet social objectives.”
CSR – according to the International Organization for Standardization, which establishes and certifies management and organization standards worldwide– is about what an organization does “to take responsibility for the impact of its activities on society and the environment, where these actions are consistent with the interests of society and sustainable development, are based on ethical behavior, are in compliance with applicable law and intergovernmental instruments, and are integrated into the ongoing activities of the organization.” In other words, the key for companies that want toper form CSR well is to do so with all stakeholders in mind, including individuals or groups affected by the company’s goods or services. Stakeholders can include consumers, government authorities, media, local communities, non-governmental organizations, competitors and/or suppliers.
To many private, for-profit organizations, CSR often puts them in a dilemma. If they are to be functioning economic entities, is it in their – and their stakeholders’ – interest to allocate the company's limited resources to further social objectives? One way companies have been addressing that tension is to ensure harmony between the two by melding their CSR practices with corporate strategies.
Chinese CSR is no exception. It works within these and various other parameters just as other CSR practitioners around the world do. But it does have important differences. Before 1980, the danwei, or work unit, was the social hub of urban socialist China. As the sole provider of social welfare, health care and education, the danwei provided a range of services, from job placements and housing to childcare and education. But when China’s economic reform gained momentum, the danwei disappeared.
That’s why the recent wave of CSR in China strikes many observers as an important revival of corporate promotion of social objectives. The way Nora Gao, senior manager of Social Venture Group, a China-based CSR consultancy, sees it, CSR in China isn't new for most organizations, but rather it's a formal return to the social objectives they once pursued.
Today’s current form of CSR was introduced to China by Western multinational corporations (MNCs) during the 1990s. According to Gao, the catalyst was MNCs’ efforts to mollify Western consumers who were concerned about labor conditions in their foreign operations, including those in China. To address those concerns, early CSR activities in China were focused on monitoring and enhancing labor standards. It then spilled over to MNCs’ suppliers and then was adopted by local companies exporting to Western markets. Now, according to Leo Jia, a founding partner of CSR & Company, another China-based consultancy, “CSR activities...now envisage the advancement of a variety of specific social objectives, such as education, health care or environmental protection.”
But there’s a big gap between vision and action. APCO’s Parich explains that – because initial CSR adoption in China was due, in part, to consumer protests over labor exploitation – the earliest and most basic practitioners felt it was simply a way to receive a “license to operate” in the country – in other words, it was a box-ticking exercise aimed at satisfying local legal and regulatory requirements. “To a large extent, the promotion of CSR in China [has been] about ensuring compliance to basic standards and regulations,” he says.
The way Ren Zhiqiang, chairman of Huayuan Group, a real estate company in Beijing, described it to journalists recently was that CSR means operating “in accordance to law and in accordance to fairness– assuring workers’ [well-being], while maintaining day-to-day operations within the law.” Today, companies in China at the most rudimentary level “observe the law and generally have optimal conditions of operation.” Further along the CSR spectrum, however, companies are typically more proactive about interacting with local communities and dedicating corporate resources to the betterment of society.
Government support has been critical in increasing awareness of CSR among local companies. New regulations include an amended company law that requires companies to adhere to social and business ethics as well as fulfill social responsibilities. CSR’s scope is now clearly extending beyond labor issues to a broader range of activities.
Same but Different
CSR in China has two unusual features. First, it came to the country from abroad; it was not a response to local consumer demands. In fact, because consumers in China are generally unaware of CSR, they rarely have attained status as an important stakeholder affecting business practices. In contrast, the government is a major CSR stakeholder in China in two respects – it monitors business practices and sets standards for companies operating in the country, and it is involved in companies, as a shareholder, a customer or an operator of government-backed non-governmental organizations, or NGOs.)
The other notable feature of CSR in China is that it is relatively undeveloped. According to the Asian Philanthropy Forum, CSR in China tends to mostly involve short-term actions in the form of philanthropy, whereas CSR in the West has moved beyond this and is being integrated into a company’s long-term strategic planning.
The 2008 earthquake in Sichuan province is often cited as a turning point for CSR in China, as it generated an enormous outpouring of volunteerism and an unprecedented number of donations: A casein point: The high-tech multinational Cisco Systems pledged $45 million over three years to support rebuilding projects in Sichuan. However, according to China-based CSR consultants, the generous response to earthquake relief efforts might be a rare charity event having more to do with nationalism and less with a long-term commitment to CSR.
It is still rare to find companies that fully integrate CSR initiatives in every part of their organisations. A recent study by SynTao, another Chinese CSR consulting company, concludes that local companies are generally not aware of the value of CSR reporting and performance monitoring. The study found that only 121 Chinese companies published sustainability reports between January and November 2008. (As of October 2009, the Shanghai Stock Exchange alone has more than 800 companies listed on it.)What’s more, some companies publishing CSR reports only offer the public abridged versions or grant only government authorities and supervisory organizations access to them.
Of Tractors and Technology
According to the study, companies in China decide to issue a CSR report for two main reasons: to enhance their corporate image as part of an increasing awareness and dedication of CSR among senior management, and to satisfy government requirements. For the most part, according to a consultant specializing in government relations in China, MNCs in particular view CSR as part of their “government relations package.”
That's the case with Cisco’s CSR initiatives in China. Cisco is among China's CSR pioneers that offer important lessons to other companies in terms of the different approaches they can take when launching and managing programs. Having established operations in China in 1994, the Silicon Valley-based manufacturer of Internet networking equipment has designed CSR activities there to deepen its ties with the local government and develop closer relationships with existing clients, including large Chinese multinationals.
Employing more than 3,000 people in 12 offices and an R&D center, Cisco China has a dedicated CSR department with full-time employees, which reports directly to corporate affairs in Cisco’s U.S. headquarters. Although the parent company sets the global CSR strategy and allocates budgets, Cisco China’s CSR department is responsible for implementing national activities within those parameters. To get country initiatives in motion, the Chinese CSR department devises its own action plan and is not limited by directives from headquarters.
Another CSR pioneer in China is Caterpillar, a large manufacturer of earth-moving and construction equipment as well as diesel and natural-gas engines and turbines. In 1996, the Peoria, Illinois-based company established Caterpillar (China) Investment Co. Ltd. in Beijing. Today, it has 18facilities and offices in China, employing over 5,000 people in more than 60 business units. Caterpillar’s program is handled by a local corporate affairs department, which helps with the approval and funding of local business units' CSR activities. The corporate affairs team works closely with the Caterpillar Foundation, an independent charity founded in 1952 with a worldwide presence, to determine which CSR initiatives to fund. In addition to relying on the foundation for financial support, Caterpillar China recently began allocating a portion of its budget to support local initiatives.
Both companies, as many others do, align their CSR initiatives with Chinese government programs. For instance, Caterpillar’s current initiatives focus on education, health care and environmental protection. The company has based its initiatives in communities where it has factories, contributing to local human capital development, with the added benefits that the program can be a good way to source its future engineers. Cisco, for its part, focuses on improving the livelihoods of its employees. Its initiatives include career advisory services, diversity initiatives and support for NGOs that employees are involved in. Outside the company, Cisco focuses on developing education and health care.
But as companies like Cisco and Caterpillar know, an array of factors can stand in the way of more proactive CSR activities in China today, including:
Lack of Government Initiatives: A World Bank report titled, “Public Sector Roles in Strengthening Corporate Social Responsibility: A Baseline Study,” identifies the government as a main enabler of CSR in developing countries through legislation that stimulates the evolution of civil society. But regulatory restrictions often do exactly the opposite.
In particular, the lack of a regulatory framework limits the development of private NGOs. These are important players in CSR, as they provide program implementation advice to companies, most of which don't have sufficient intellectual or financial resources to plan and run social initiatives in-house. NGOs have expertise, human capital and local knowledge, all of which are crucial for successful CSR initiatives. Both Cisco and Caterpillar partner with local organizations such as these, despite the high level of expertise of their own CSR personnel.
When asked to identify factors that limit the development of CSR in China, Gao of Social Venture Group, cites the underdeveloped nature of NGOs in China. Most companies partner with GONGOs (government-operated non-governmental organizations) because they have state approval to work with disadvantaged communities and are allowed to issue charitable receipts to Chinese donors. However, some common complaints about GONGOs involve their financial opacity and inefficiency. Grassroots NGOs, which form the largest group of NGOs in China, are seldom targeted for corporate partnerships because they often lack the legal status to issue receipts. The Chinese government is said to be reluctant to advance nonprofit development, especially in relation to sensitive social issues.
Lack of Expertise: The under-development of NGOs has not only hindered the evolution of corporate CSR initiatives, but also limited the development of a strong local CSR workforce. There is a lack of professional expertise in both companies and nonprofits. The result: CSR activities are not as effective and efficient as they could be. That explains why many companies integrate CSR with other departments so that CSR planning and implementation are frequently undertaken by the same staff who are responsible for government or public relations.
Furthermore, independent CSR monitoring and benchmarking do not exist in China. Although some companies have internal metrics to measure CSR effectiveness, there is no uniform benchmark within the community, except at the pure donation level. As SynTao’s study highlights, disclosure of CSR is patchy at best, making it difficult for external stakeholders to stay abreast of the latest developments. The absence of external scrutiny of a company’s CSR strategy and implementation leaves one less incentive for companies to raise the bar.
Lack of Consumer Awareness: Leo Zhang, senior research analyst at Social Venture Group, confirms that CSR awareness among consumers is generally low. “Because CSR in China did not evolve as a response to local consumer demands, there is little pressure from the market to implement CSR,” he says. What's more, because market competition in China is still based mainly on price, companies face immense cost-saving pressures, making it easy for some of them to justify their “license to operate” status.
Experts say few, if any, local consumers pay attention to a company’s CSR program. Cisco, in fact, acknowledges that its CSR activities are not aimed specifically at raising awareness about particular issues among consumers. But experts say that even if CSR may not be in response to demand from the market at the moment, ongoing initiatives will, no doubt, help cultivate greater awareness of CSR externally in the long term.
All Together Now
Given the top-down trend in China’s CSR, the government, its organizations, and private local and foreign companies can all encourage its growth. The most pressing areas for allowing companies to engage in more proactive CSR activities in China include:
Regulatory and Operational Environment: The government is integral to building a regulatory and operational environment that is conducive to CSR. In particular, it can offer tax incentives. That is already been happening to some extent. In 2007, a new law for corporate income tax was introduced to raise the permissible level of tax-deductible donations from 3% to 12% of annual profits. Huang Haoming, director of the China Association for NGO Cooperation, says the initiative should spur companies to increase their financial assistance to NGOs in China.
In addition, the government can also encourage information sharing among stakeholders to help CSR activities develop efficiently. Currently, limited CSR information is available for stakeholders, especially the general public. However, the situation is changing rapidly. One reason why, according to Mihela Hladin, founder of Greenovate, a consultancy specializing in CSR development in China, is that local media coverage of CSR has increased dramatically. While this is a step toward greater public awareness, the government can accelerate the process by mandating the publication of CSR-related information in a central repository, such as in annual reports. This will ensure that relevant information is accessible for all stakeholders, which will, in turn, improve the quality of the disclosures.
Various regulators have already taken a step in that direction. For example, in 2008 the Shanghai and Shenzhen stock exchanges have thrown their weight behind the movement by publishing papers about why CSR in general is important for listed companies. As a result, the number of companies releasing CSR reports shot up to 121 reports in the first 11 months of 2008 versus 77 the entire previous year.
Expertise Development: A recurring theme in CSR development in China is its undeveloped talent pool. But Chinese companies now know that CSR is at the forefront of the government’s agenda. The government has begun promoting CSR as a social objective in China, helped by its recent mandate that state-owned enterprises set up independent CSR departments. This could help attract more people to the field.
Public Awareness: Enlightening the general public and employees is also necessary to develop CSR. For example, in 2009, Shanghai’s municipal government sponsored a social venture competition, in part to raise awareness of CSR-related issues. The general public should also be reminded that they, in addition to the government and investors, represent an important group of stakeholders.
Collaborating with mass media is an effective way to raise public awareness. At Cisco, its CSR initiatives have been attracting positive media coverage, which sends a strong message to potential new clients and contributes to a vibrant, socially aware work ethic in the company. As a result, the socially minded younger generation of jobseekers who share Cisco’s ethos to – in the words of its corporate motto –“change the way the world works, lives, plays and learns,” will consider the company a good employer to work for.
Chinese CSR is unlikely to replicate its Western counterpart soon, but evolve with its own special characteristics. In a developing economy such as China, CSR has the potential to aid much-needed social progress for a large and important part of the population. The challenge is to foster CSR so that it is not only efficient and effective, but also can generate a virtuous circle of benefits to business and Chinese society.
Jia of CSR & Company says, “Active engagement in CSR activities presents a mutually beneficial opportunity for private corporations on the one hand and society as a whole on the other.” The reality for companies in China today is that they are operating in a rapidly changing society with an increasing awareness of CSR and should assume an active role in promoting CSR. First and foremost, companies can stimulate the implementation of macro measures. In terms of promoting awareness, companies can publish CSR annual reports and improve CSR metrics.
Foreign and Chinese companies can strengthen the expertise in the field by recruiting and developing professional CSR staff. By acknowledging that finding specialized professionals to integrate CSR into an organization's business strategy is a major challenge, companies can create dedicated CSR posts and provide these employees with formal training. Companies can also enhance the autonomy and capability of their CSR departments, enabling intra-company specialization with regard to CSR. In addition, they can encourage the growth of a socially-conscious public by providing incentives to their employees to participate in CSR activities, being creative in communicating these activities to customers, improving how they engage the media and developing products that feature their contributions to society.