Multinationals in China are beginning to appreciate that social responsibility means more than just writing the occasional cheque to a good cause, argues Nick Young.
Corporate social responsibility is a term that means different things to different companies. For some, it seems to imply little more than a variant on public relations – a matter of making a few charitable donations, ideally to causes that have some affirmative connection with the company’s activities. For others, it also means investment in human resource development and health and safety, and due diligence in environment and social impact assessments. The most missionary see it as implying a fundamental re-think of business practice, entailing a ‘triple bottom line’: a duty not just to turn a profit for shareholders, but to do so in ways that add to environmental and social capital.
In the post-Cold War age, many on both the right and the left have been re-thinking the respective roles of government, business and a more nebulous thing called ‘civil society.’ It is in this context that different visions of corporate social responsibility are articulated.
Meanwhile, as share ownership has spread in Western countries, demand has grown for ‘ethical investment’ opportunities, especially among church and pension fund investors. Their concerns are spurred by energetic pressure groups ready to attack major corporations on human rights and environmental issues. Increasingly, it would seem, Western consumers want to have their cake without in the process destroying the environment, or exploiting poorer people. This adds up to significant demand for new ways of doing business.
Yet among Western companies doing business in China, the narrow conception of social responsibility is much the most common, according to Jeanne-Marie Gescher, whose Beijing based consulting firm Claydon Gescher Associates derives some 40 per cent of its income from advising clients on corporate social responsibility strategies. She points out that in most companies these issues are dealt with by public affairs or government relations departments.
"This is fatal," Gescher says. "What do they think about? Spinning a good story. What really counts is the business development department. They know exactly what resources they’ve got – and the best resources for corporate social responsibility are their own skills. We think transfers should be transfers of skills, not writing cheques.”
Major corporate donations
But plenty of cheques are written, mainly to a small number of large, non-profit organisations established by the Chinese government over the last decade. The Communist Youth League’s Project Hope, which was set up in 1989 to subsidise education for children from poor families, raised over US$200m during the 1990s, including more than US$2m each from Coca-Cola and Motorola, and smaller sums from numerous other corporations.
The China Charities Federation, established in 1994, raised US$60m in its first five years for disaster relief and social welfare projects, of which some US$3m came from HSBC and US$1m from Exxon. Other major players with substantial corporate backing are the China Children and Teenager’s Fund, the Disabled Person’s Federation (which recently received US$13m from Hong Kong tycoon, Li Ka-shing) and the Poverty Alleviation Foundation.
The fund-raising success of these quasigovernmental organisations has whetted government interest in creating a broader and somewhat more independent non-profit sector. The regulatory environment remains highly restrictive, but more grass-roots charitable organisations, initiated by private citizens, are beginning to emerge, and some are already receiving corporate support.
Some foreign corporations also support work in China implemented by international non-government organisations (NGOs). For example, BP, Phillips Petroleum and, until recently, Enron, have all supported environmental education projects run by international groups. Shell also supports environ- mental education activities by the Chinese NGO, Friends of Nature.
Although no reliable survey has been conducted, it is very likely that international corporate donations amount to more than the US$35m or so grant aid delivered to China each year through the UN Development Programme and Unicef. (Unicef itself raises significant sums from corporations working in China, and has recently experimented with direct mail fundraising in east coast cities.)
More targeted contributions
Such substantial resources deserve to be spent wisely, and there have been some recent moves to make corporate giving more strategic and carefully targeted. Earlier this year, the American Chamber of Commerce in China established a ‘corporate citizenship’ committee that will survey members’ donations and then develop relevant information resources. Visible Hand, a non-profit group founded in the Middle East in the late 1990s ‘to provide corporate social investment solutions’ to corporations, is in the process of establishing a China programme that will offer match-making services between international corporations and local charities.
Private communications and consulting companies, such as APCO and environmental specialists ERM and Sinosphere, are also offering services in this area and encouraging clients to take a deeper look at corporate social responsibility issues. "For many clients," says Kelly Lau of APCO, "corporate social responsibility starts as an environmental health and safety or public affairs issue, but this can develop to become integrated into their business objectives."
Last summer, APCO organised a one-day symposium on the topic for 50 corporate representatives in Beijing. In the autumn Sinosphere organised an ‘NGO fair’ with funding from the US Embassy, to bring corporations together with Chinese environmental groups; and the Economist Conferences held a similar two-day conference in Beijing.
Some of the most difficult issues are faced by companies that source manufactured products in China through supply chains that may involve numerous sub-contractors. Pressure groups such as Sweatshop Watch in the US and the Clean Clothes Campaign in Europe have been most vocal about working conditions in the toy, garment, footwear and electrical goods industries, where branding and reputation are often crucial to a company’s success. Over the last decade the Western media has been increasingly willing to run sweatshop exposï¿½s.
In response to this, company codes of conduct have proliferated, along with codes drawn up by industry associations and business groups and codes designed collaboratively by companies, NGOs and, in some cases, union representatives. Perhaps best known of the latter kind is the Social Accountability 8000 standard, which conforms broadly to International Labour Organisations’ principles. This standard has certified 30 workplaces in China and last year held an ‘implementation conference’ in Shenzhen, with more than 200 participants including buyers, local manufacturers, and union and NGO representatives.
There are several difficulties with such codes. First, the more credible usually involve a commitment to freedom of association and free collective bargaining. This is impossible to uphold in China, where the state All China Federation of Trade Unions (ACTFU) has a monopoly on worker representation but has in the past largely confined itself to organising social events for workers and assisting individuals with personal problems. Outside the state sector, moreover, union membership is very low – according to a 1998 ACFTU study, only 4 per cent of private companies in China had branches. This may now change, following recent revisions to the trade union law, and there are forces within ACFTU that would like to see it assume a more assertive role. But in the short term the government
is unlikely to tolerate genuinely independent union activity.
Monitoring the supply chain
Monitoring and verification of the implementation of codes of conduct is another notorious problem. Even if local suppliers agree to sign up, and even if the primary production site appears to meet some of the agreed standards, part of the work may be outsourced to other factories or even home workers. It requires a great deal of determination on the part of a buyer, or a social audit company, to track the whole supply chain.
Many would-be model codes recommend participation of local unions and NGOs in the monitoring process. Again, this is problematic in China. Quite apart from its lack of independence, ACFTU has no real experience in this field and there are extremely few, if any, credible NGOs with appropriate capacity.
Nevertheless, foreign companies argue that the codes of conduct do at least have some positive impact on health and safety issues, and some have gone to considerable lengths to put effective monitoring systems in place. The French retailer Carrefour is working with the Paris-based International Federation for Human Rights (IFDH) on a verification procedure that will in theory allow IFDH, if it is dissatisfied with internal monitoring reports, to carry out spot checks on Chinese supplier factories. The British apparel group Pentland has conducted trainings in worker interview techniques in order to build local monitoring capacity, and has commissioned a survey of conditions in factory dormitories.
Nike, the giant sportswear company, has been exploring other ways to demonstrate corporate citizenship. It is a major partner in the Global Alliance for Workers and Communities, which is planning a reproductive health programme for women workers in Chinese factories that produce its sneakers. The company is also funding a community development programme to be carried out by the World Vision International China Programme, based in Hong Kong. Nike’s critics in the West are not impressed, arguing that this venture into community development is merely an attempt to shift the spotlight from the shop floor.
A different set of issues confronts companies trying to establish markets in China for their goods or services. Positive brand association is aided by high-profile charitable donations, and education is the favourite charitable cause of Chinese people, who have a strong sense of equality of initial opportunity. This explains the steady flow of corporate funds to Project Hope and, now that tuition fees have been introduced into higher education, university scholarship schemes. IBM has donated tens of millions of dollars worth of equipment to universities and the Ministry of Education, and it supports 500 university scholarships. Nokia has chosen a more novel form of support for higher education, through a students’ training programme that establishes campus ‘creative thinking corners’ to promote the originality and intellectual independence that is so often lacking in Chinese teaching.
Some companies have integrated charitable donations with staff volunteer programmes. A notable example is HSBC. In addition to substantial support for the China Charities Federation and many additional donations for disaster relief, education and environmental causes, the bank releases staff from its 10 mainland branches to volunteer in retirement homes where it has paid for fulltime care assistants to receive professional training. GE also promotes volunteerism through an in-house community service organisation, the Beijing chapter of which has 175 members who develop their own voluntary and charitable fundraising activities. These programmes go some way beyond tax-deductible donations towards developing a company-wide ‘social responsibility’ ethos.
The nature of a company’s business can make it easier, and indeed necessary, to embrace such an ethos. This is true of Denmark’s Novozymes, formerly part of Novo Nordisk, which manufactures bio-engineered enzymes for industrial purposes, for example for use in detergents, enhancing their effectiveness at lower temperatures and thus bringing environmental benefits. It has a production plant in Tianjin, and is a joint venture partner in another plant in Suzhou. Continued from page 21 For its part Novo Nordisk, which produces pharmaceutical products, is also active in the China market, where it sells insulin for the treatment of diabetes. Lifestyle changes in China are expected to result in a trebling of the incidence of diabetes over the coming years, and the company is considering establishing a local production facility. It has supported a range of diabetic education activities, including training of doctors and nurses, working with diabetic mutual support groups, and sending out mobile units to measure people’s blood sugar levels in city parks.
The group’s charter includes an explicit commitment to conduct its business in a socially and environmentally responsible way. According to its China representative, Peter Feldinger, this reflects "a firm belief that this is sound business. We cannot exist if we are not responsible to the outside world."
Given public environmental concerns about the ethics and safety of bio-engineering, this claim is very likely true. It is no longer enough for companies simply to claim to be putting science at the service of humanity and the environment; this needs to be backed up with mechanisms of transparency and social accountability. But if that can be achieved and if public trust can be won, the prospects for a group like Novo Nordisk are indeed good.
An instructive comparison can be made with the agri-chemical, seed and bio-engineering conglomerate Monsanto, a prime target of environmental and anti-GMO activists. Monsanto’s legal bills alone must be spiralling as it faces, for example, court action by Canadian organic farmers who claim that the company’s genetically engineered rapeseed has contaminated their crops. The company also has a PR skirmish developing in China, where it was the subject of a front-page article in Southern Daily, protesting its application to patent the genes of a wild soya bean found on the outskirts of Shanghai.
Oil companies have long been the target of anti-corporate campaigns. This, combined with the huge and long-term nature of their overseas investments, gives them ample reason to look seriously at the long-term impacts and sustainability of their operations. It is therefore not surprising that some oil companies have been investing significant resources in re-modelling themselves as exemplars of social and environmental responsibility.
In China, BP is due to start building a US$2.7bn petrochemical plant near Shangfuture hai in April. Shell has signed an agreement on a similar plant in Daya Bay, Guangdong province. It has also spent several years negotiating participation in a huge project to extract natural gas from Xinjiang and pipe it across country to Shanghai, installing distribution infrastructure in main cities along the way. The pipeline project is politically sensitive, because of the possible implications for impoverished ethnic minority communities upstream.
The oil companies are inclined to justify their involvement in such ventures not only on environmental grounds – natural gas will have a key part in any sustainable energy strategy for China – but also in terms of the higher environmental and social standards they would set. China has sufficient resources to embark on these projects on its own. Foreign investment, however, would almost certainly also mean better technology, better planning, more rigorous social and environmental impact assessments and more investment in affected communities (Shell has already been looking for potential NGO partners in community development projects along the pipeline route). Foreign partners might also be able to leverage more equitable distribution of the final revenues than Chinese entities, left
to their own devices, would deliver.
Beyond any specific project, the big multinationals may also have an important impact on the governance of Chinese partner companies. Sinopec, China National Petroleum Corporation and its subsidiary PetroChina are emerging multinationals. They are likely in future to be significant exploiters of Russian oil and gas reserves. Partnerships with foreign companies that believe it is possible to be both profitable and socially responsible may play an important role in shaping the Shangfuture behaviour of these emerging giants. Encouragement for this view is provided by the fact that Sinopec and CNPC are, along with BP, Shell and some other Chinese corporations such as white goods manufacturer, Haier, are in the process of establishing a China chapter of the World Business Council for Sustainable Development.
Almost every foreign-invested company in China could make the same argument. Just as advanced technologies are needed to transform China’s dirty smokestack industrial base, so too Western management approaches are necessary to infuse transparency, accountability and a serious regard for legality, environmental health and safety and human resource development into Chinese corporate culture. The most sanguine foreign investors might spin a ‘fourth bottom line’ out of this: that their engagement with China is in itself tending towards the greater good, by building a responsible and rule-bound business environment.
The public listing of companies, and accountability of directors to shareholders rather than political masters, is itself viewed by some as a positive advance towards greater social responsibility on the part of the Chinese corporate sector. But the complexities of the issues involved and the relative rawness of Chinese business practice should not be understated.
To a large extent, after all, the whole point of economic reform has been to release Chinese entrepreneurial talent and to free enterprises from work-unit social welfare burdens, allowing them instead to address the simple business of making a profit. The township and village enterprise sector has done so with gusto, but also with minimal concern for ‘social responsibility’.
True, the government is beginning to look at a regulatory framework for this sector. But the route from laissez faire to corporate citizenship is not obviously short or quick. Hong Kong and Taiwanese investors in China, with plenty of exposure to Western business practice, are widely recognised to be among the most environmentally and socially ruthless.
Nick Young is the founding editor of the quarterly title China Development Brief (www.chinadevelopmentbrief.org), which reports on international aid to China with a particular focus on the work of international and Chinese NGOs. Last summer, the publication produced a special report, 250 Chinese NGOs: Civil Society in the Making, including detailed profiles and contact information for the organisations included.