Philosophy and Approachesto
Strengthen Corporate Social Responsibility in China
Liu Junhai
Contents
1. Introductory remarks
2. Case study on the performance of corporate social responsibility
2.1 Voluntary corporate social responsibility movements
2. 2 Increasing roles of government agencies and NGOs
2.3 The significance of global compact in Chinese business community
2.4 Royalstar Group and Harmonious Business - Pioneer of Fair competition
2.5 Beijing Sanlu Corporation: Home of disabled employees
2.6 Benxi Steel Corporation: Good example of collective bargaining
2.7 Sinopec Corp: successful HSE system
3.The justification for recognizing corporate social responsibility?
3.1 economic powers
3.2 Other hypothetical justifications
4. Analysis of some doubts about the implementation of corporate social responsibility
4.1 Crucial market competition?
4.2 Lack of ability and authority of the management?
4.3 Whether the traditional legal protection to the non-shareholders corporate constituencies is sufficient?
4.4 The investors will be discouraged from investing in corporations?
4.5 Confrontation with the government policies in favor of the investment?
5. Legal and policy suggestions for strengthening corporate social responsibility
1.Introductory remarks
Generally speaking, the notation of "corporate social responsibility" is a relatively new concept for the business and academic community in China. Before this author started to venture into this field in 1996, almost no serious and scientific work was published on this topic in China. However, some Chinese corporations have begun to claim they are socially responsible corporate citizens. Then, what is the meaning of " Corporate social responsibility ".
Corporate social responsibility does not simply and only mean traditional corporate altruism or corporate philanthropy. As a process concept, it demands the corporate decision-making processes to consider and reflect social interest and social rights. As a substantial concept, it demands the outcomes of the corporate decision-making to be reasonably accountable to social interest and social rights.
According to different points of view, corporate social responsibility can be classified as legally based social responsibility and morally based social responsibility, profit-sacrificing responsibility and profit-promoting responsibility, relational responsibility and social activism. Relational responsibility includes responsibility involving a shift from the goal of profit-maximizing and constraint-based responsibility. Unlike relational responsibility, social activism means that corporations take positive measures to address social problems existing independently of the way the corporations run their business, including charitable giving, political donations, involvement in the local community with education and arts sponsorship and support. Generally speaking, corporate social activism is characterized with an expected profit pay-off and a pure altruistic activism.
Corporate social responsibility is closely connected with the human rights. They have the common highest values to safeguard. Corporations should serve the construction of a moral and truly human world, and not a world of selfishness, evil, deviation, fraud, lies, violence and hate. Strengthening corporate social responsibility so as to promote the progress of social rights as human rights, will be a worldwide agenda among both human rights and business community in the 21st century. However, linking corporate social responsibility and social rights as human rights together means a real challenge for both human rights and business community.
China is experiencing economic boom, great corporate energy has been released. The emergence of private corporations, the corporatization of large and medium-sized state-owned enterprises, the increasing number of listed corporations in the Stock Exchanges, are undoubtedly favorable to promoting the growth of the productive forces in a socialist society, increasing the overall national strength and raising the people's living standards.
However, socially irresponsible corporate performances have produced some negative effects. Some corporations make profit at the expense of sacrificing morality and social justice. They pollute the environment. They produce and sell impure foods and other dangerous or defective products to consumers. The labor rights such as the right to health and safety are unable to be effectively guaranteed against plant explosion and industrial disasters issues. Ignorance of corporate social responsibility is also accountable for high incidence of corporate wrongdoing, increasing corporate crimes, redundancy, vicious closure of plant in a local community, etc. This kind of negative effects can be summarized as lack of sense of corporate responsibility.
The main philosophy for ignorance of corporate social responsibility can be summarized as the followings: profit-maximization is the supreme and only purpose of corporations; corporate profit expansion necessarily mean the growth of general social interest; corporate interest is equivalent to the shareholder's interest; and the market is competitive, perfect, therefore totally reliable. As far as the institutional arrangement is concerned, the conventional formula of profit maximization within law is generally the guiding star for traditional corporate law. Social expenditure not designed to benefit the business is either prohibited by the law or is open to challenge from the shareholders using the doctrine of ultra vires.[1] Beside corporate law, traditional private law and public law framework are primarily designed for individuals, at best, for the abstract personality without fully considering the substantial differences between corporations and human beings. Despite the efforts made by the legislature and the judiciary in recognizing and adopting corporate social responsibility, difficulties exist in this regard.
2. Case study on the performance of corporate social responsibility
2.1 Voluntary corporate social responsibility movements
In recent past years, more and more listed corporations have started declaring that they would take corporate social responsibility seriously, and will enhance the interests of the stakeholders. Some corporations amend their articles of incorporation to incorporate corporate social responsibility policy, some corporations disclose their actual performance of corporate social responsibility in their annual reports. [2] While the wording is different, the philosophy is roughly the same. For instance, Hengda Real Estate Co. declared under the headline of "stakeholders" in its report as the followings: "This corporation shall respect the legitimate interests and rights of banks and other creditors, employees, consumers, suppliers and local community. This corporation shall practice sustainable development strategy, take care of the issues of the community well-being, environmental protection and public interests."[3]
2. 2 Increasing roles of government agencies and NGOs
In Addition to voluntary acceptance of corporate social responsibility, the government is also very keen to promote the awareness of corporate social responsibility. In late 2002, Li Rongrong, the Director of the State Commission of Economy & Trade urged the listed corporations controlled by the State shareholder to give due regard to corporate social responsibility and protect the legitimate interests of the stakeholders. [4]
Some NGOs of listed corporations are motivated to encourage corporate social responsibility movement. For instance, the Association of Board Secretaries of Shan Dong Province pledge the listed corporations in ShandongProvince to build honesty image, and treat the non-shareholder constituencies equally. [5]In 2002, China Enterprise Associations drafted Code of Self-Regulation of Honest Business. Article 19 of Code of Self-Regulation of Honest Business says," The corporations shall undertake the corporate social responsibility, pay sufficient attention to the environment protection, and promote sustainable development. Measures shall be taken to prevent the pollution of the soil, the air and the social environment by polluted water, wasted airs, wasted fuels, noises and radioactive elements, so as to maximize the social benefits as a whole. It is forbidden to pursue the business interests at the expense of direct emission of pollution or sacrificing social environment".[6] The National Confederation of Industry and Commerce also encouraged private enterprises to take social responsibility.
2.3 The significance of global compact in Chinese business community
It is well known that Mr. Kofi Annan, United Nations Secretary-General, first proposed the Global Compact in an address to The World Economic Forum on 31 January 1999. One year later, the Global Compact's operational phase was launched at UN Headquarters in New York on 26 July 2000. The Secretary-General challenged business leaders to join the Global Compact, which would bring companies together with UN agencies, labor and civil society to support nine principles in the areas of human rights, labor and the environment. The Global Compact seeks to advance responsible corporate citizenship so that business can be part of the solution to the challenges of globalization. In this way, the private sector can help realize a more sustainable and inclusive global economy. The goals of the Global Compact are to make this Compact and its principles part of business strategy and operations, and to facilitate cooperation among key stakeholders and promoting partnerships in support of U.N. goals. [7]
The Global Compact's nine principles in the areas of human rights, labor and the environment are derived from the Universal Declaration of Human Rights, the International Labor Organization's Declaration on Fundamental Principles and Rights at Work and the Rio Declaration on Environment and Development. Among the nine principles, two principles are relevant to the human rights,[8] four principles are relevant to the labor standards,[9] and three principles are relevant to the environment.[10] Since the Global Compact is a voluntary, instead of mandatory, corporate citizenship initiative, the extent of the influence of the Compact depends on the willingness of the business community to endorse and implement the goals set by the Compact. As far as China is concerned, such an international innovative has received very quick and positive response from Chinese business community. In April 2002, Mr. Chen Jinhua, Chairman of China Enterprise Associations, urged all Chinese corporations to be engaged in the Global Compact for the purpose of meeting the challenge of globalization .[11] It is expected that more and more Chinese corporations will submit letters to the UN Secretary-General as a first step in a process of meeting the requirements of Responsible Corporate Citizenship.
Of course, many corporations are very committed to endorse the requirements of the Global Compact, yet have not submitted letters to the UN Secretary-General. To disseminate the experiences of implementing the Global Compact requirements, China Enterprise Association and UK Embassy in Beijing co-sponsored the Symposium on the CSR Cases in Beijing on December 6,2002.
2.4 Royalstar Group and Harmonious Business - Pioneer of Fair competition
Confucian believes that profit shall result from harmonious business. Hefei-based Royalstar Co., a listed corporation, has set up an example in this regard. Royalstar has introduced a brand new philosophy of Harmonious Business based on its operation and sales experiences for over ten years. The core concept of Harmonious Business is mutual respect, equality, mutual benefit, co-development, credibility, regularity, fairness and honesty. In 1997, Royalstar published the first business competition statement in China - Royalstar Self-discipline Statement for Competition, which has initiated the campaign to build a fair competition environment and urged enterprises to conduct self-discipline. The philosophy of Harmonious Business has guided the business operation activities and the employee behavior as well. It is well praised by the relevant government and won support among the whole society. The Statement has built up a model for the business to conduct fair competition. In 1998, Royalstar Group composed another discipline - Royalstar Ethic for Competition, which was based on the Royalstar Self-discipline Statement for Competition. Once again, it won support and praise from the public. Today, Royalstar continues to create new contributions to the society guided by the Harmonious Business philosophy. [12]
2.5 Beijing Sanlu Corporation: Home of disabled employees
Beijing Sanlu Corporation was established in 1958. The original purpose of this corporation is to offer employment opportunities to the disabled. Right now, this corporation has 1139 employees, among which there are 463 disabled employees. It means that 40.6% of the employees are disabled. Due to the hard work of the employees, the total turnover of this corporation is 0.75 billion Chinese Yuan, and the revenues paid to the government amounts to 0.32 billion Chinese Yuan. [13]
Theoretically speaking, Beijing Sanlu Corporation has no obligation to employ disabled people. Since 1994, this Corporation has continued to employ disabled people on a regular basis. This Corporation established an association of disabled employees, which serves as a bridge between the disabled employees and the management. The director of this association is appointed as the assistant to the CEO of this Corporation. 10 disabled employees take the positions of middle level executives, 104 disabled employees are appointed as the employee monitors and supervisors responsible for the product quality. Beijing Sanlu Corporation has distributed housing to 351 disabled employees. This corporation also set up a foundation, called "DA BAO" Scholarship, available to the children of the disabled employees in Beijing. Up to now, this corporation has distributed 3 million Chinese Yuan as the Scholarship. [14]
2.6 Benxi Steel Corporation: Good example of collective bargaining
Benxi Steel Corporation started collective bargaining and collective agreements in 1995. This corporation organizes collective negotiation with the employees annually, and execute collective agreement annually. The draft of the collective agreement is prepared by the trade union of this corporation. As the employees are encouraged to participate the drafting process, the terms of the draft of the collective agreement is able to deal with extensive issues relevant to the interest of the employees, such as medicare reforms, housing benefits, salaries and allowances, reduction of redundant employees, the quality and quantity of the labor protection productions. [15]
When the collective negotiation begins, each of the two parties have 10 representatives. In other words, the employees elect 10 representatives, headed by the chairman of the trade union. The collective negotiation is also observed by the mass media. After the collective agreement is executed, great efforts are made in implementing the agreements. First, the collective agreement is published in the corporation circulations, and therefore made available to the employees. In this way, the employees know exactly every article of the collective agreement , and is able to supervise the operation of the agreement in the practice. Second, the different departments of the management is responsible for endorsing the collective agreement. Third, employee representatives and professionals are organized to inspect and supervise the implementation of the collective agreement.
2.7 Sinopec Corp: successful HSE system
China Petroleum and Chemical Corporation (Sinopec Corp) is a publicly listed company with integrated upstream and downstream operations and a complete marketing network . The company was set up on February 28, 2000, pursuant to the Company Law of China and in line with the principle of "separation of core business from the ancillary, good assets from the bad, and enterprise functions from the social". Sinopec Corp. issued 16.78 billion H shares in Hong Kong, New York and London on Oct. 18th, 2000. The Company floated 2.8 billion A shares in Shanghai Stock Exchange on August 8th, 2001. The Company's exiting total number of shares is 86.702349 billion, of which 55.06% is held by the state through Sinopec Group, 22.36% by domestic banks and assets management companies (AMCs), 19.35% by foreign investors and 3.23% by investors at home.[16]
While trying to maximize its profits, Sinopec Corp. takes an integrated approach to health, safety and environment (HSE). On April 4th, 2001, the HSE system of Sinopec was officially announced to the public. Their HSE principle is "Safety first, precaution important, all-involvement, comprehensive improvement, better environment, health protection, scientific management and sustainable development". Their HSE objectives are "Minimizing major accidents, harm to health and deterioration of environment so as to give world-class HSE performance". Their HSE commitment is "Anywhere in the world, Sinopec follows the local laws and regulations, respects local customs and religions. They keep a constant attitude towards HSE in all their businesses. All levels of senior management of Sinopec are the first people to take the HSE responsibilities. Every employee is responsible for HSE. HSE performance is an important indicator for bonus, employment and contracting. Protect the ecological environment, achieve clean production in plants and realize sustainable development. Disclose their HSE performance to the public for comments and advise so as to improve the HSE management. Sinopec will invest necessary talents, materials and funds to realize these objectives". HSE management system is under implementation in various subsidiaries. Safety monitoring is enhanced and the operational conditions greatly improved. [17]
As environmental protection is concerned, the company has been increasing its investment in environmental protection while growing its business, continuously strengthening environment management and promoting clean production. Consequently, although production has been growing steadily, total contaminants emission has been decreasing. Thus, more cordial relations with the community, a better corporate image and reputation, and an improved external environment for the growth of the company has been secured. Environmental protection management is specialized and standardized. The responsibility of every plant manager on environmental protection is clearly defined. Rules and regulations are formed for project management and supervision of environmental protection. Special efforts are made to treat key sources of pollution and to effectively supervise and control emission. Sinopec pays great attention to pollution control and clean production. They have the plan and objectives for clean production in the 10th 5-year plan. Selected plants for clean production test starting from 2001 will be checked and accepted. Subsidiaries for clean production demonstration will be accepted by end 2002 and 2003.In 2001, the COD in discharged waste water decreased by 8% over 2000, and COD per RMB 10,000 of output value (1990 constant value) was lowered by 9.5%.[18]
Sinopec Corp. attaches great importance to safety. The company has a sound safety management system. Not only the corporate headquarter and each enterprise have a safety and environment department, but also major production plants are staffed with safety engineers, responsible for technical and management issues relating to safety. The company also has a "safety commitment system" and a safety responsibility system in place, the latter specifying the responsibilities for each position. The company has set up a complete set of safety regulations, by which each position has its rules to follow. For some important operation sites, for instance, fire-use operation, in-facility operation, working high above the ground, and equipment maintenance, a "work permit" and a confirmation are required. A safety inspection network covering E & P, refining and chemical, and marketing sectors has been set up. Every year, different levels of general and specific safety inspections are carried out. In 2001, they completed the safety pre-evaluation for 36 new or upgrading projects, including BYC ethylene cracker project. For new, revamping and expansion projects, the design, construction and operation of safety facilities, fire-fighting facilities and labor safety devices are done simultaneously with the project. The company pays special attention to hidden perils, and has a program to remove hidden safety perils from existing plants, facilities and utilities. In 2001, Sinopec completed 492 projects for hidden safety perils removal, which helped to guarantee the safe production of existing facilities. [19]