Responsible returns

In a Beijing hutong not far from the Forbidden City, Nick Young has a small courtyard home converted into offices. It is from here that he produces one of the most comprehensive compendiums of the work done by NGOs, civil society and corporations towards China’s social development.

As editor of China Development Brief, Young constantly examines the interplay between China’s economic growth and its social development.

"I’m sort of skeptical about corporate social responsibility in very many ways," Young said.

"China is becoming divided between the first world and the third world. The development of the third world is going to be very problematic. Will it all collapse? Probably not. Will they get away with having an unequal society for the next 30 years? Probably yes."

Economic growth in China has not come without cost. The environment is degrading, the gap between rich and poor is growing and social unrest – there were 87,000 protests, riots and other "mass incidents" in 2005, up 6.6% on 2004, according to official sources – is on the rise.

"It is politically important that the government be seen as being caring and I think it is important that it be seen as lecturing others about being caring," Young said. "I think the most important role for the government is to say we care."

One way to do this is to push companies to play a larger role in the communities they operate in. At the very least, they can take better care of their employees by abiding by minimum wage rules as well as labor and safety standards. There are myriad other issues that go beyond the basic bottom line.

"No one in China wants to see this as a sweatshop economy," Young said.

Still, cheap labor has been the backbone of China’s economic miracle. In Guangdong province, average monthly salaries for migrant workers grew an average of US$8 in the 12 years before 2005. Three-quarters of the province’s 20 million-plus migrant workers now make about US$125 a month, according to the All China Federation of Trade Unions.

At the end of 2005, the central government said that 80% of private companies "frequently violated" workers’ rights.

Foreign figureheads

In foreign corporations – which often feature higher standards of employment or community involvement – Beijing has an ace. As well as pushing these overseas operators to play a role in curing social and environmental ills they’ve had a hand in creating and retain an interest in removing, the government can hold foreign firms up as an example or a scapegoat.

"The government [is putting] emphasis on better operations," said Felicia Pullam, associate director for corporate social responsibility in Asia at public relations consultant APCO. "For a long time foreign companies have been held to a higher standard."
Overseas multinationals are responding; corporate social responsibility (CSR) plans are now a necessary part of doing business in China.

There are also signs of similar movements from the biggest Chinese companies. Now operating in a global marketplace, they are driven by similar forces that push their Western counterparts into embracing CSR.

Public ethics have PR value – stakeholders and customers want to see well treated workers, a protected environment and contributions to local communities.

"There is a big push to understand what CSR means for Chinese companies," said Pullam. "Over the next year we are going to see a lot on this."

As a sign of what has already been achieved, Sinochem’s efforts on environmental protection have been acknowledged by the United Nations Development Program, while Baosteel has issued CSR reports for years.

Going full circle
It has been an interesting journey. Less than two decades ago, Baosteel and Sinochem were two of the many state-owned enterprises tasked with looking after the needs of the community. They funded local schools and hospitals, provided scholarships for the bright and sustenance for the old, as well as covering marriage subsidies, housing and even meals.

"Enterprises used to have very wide social responsibilities," said Ken Davies, senior economist at the Organization for Economic Co-operation and Development’s (OECD) investment division. "They had a very strong role in people’s lives outside of the workforce. You may get a paternalistic attitude."

That began to change after the opening up and, throughout the last 15 years or so, the push towards a bottom line at the expense of almost everything else gained momentum. Now authorities are back-pedaling somewhat, pushing a message that is a throwback to the old ways.

Beijing still wants companies to seek profits, but to do it in a way that also leads to the healthy development of society. For those enterprises with ambitions to place themselves and their brands on a pedestal with the best of the West, the motivation is there to offer CSR leadership.

China’s laws already provide a significant amount of impetus for this, but they do not offer a cut-and-dried solution. "The labor laws in China are quite strict but practically speaking not all companies can comply with these laws," said Guo Peiyuan, general manager of SynTao, one of the few Chinese consultancies fully committed to developing CSR in China.

In China, corporations still equate social responsibility with donating. Many successful businesspeople in China believe that large endowments are the thing to do, not only to give back but to mark their (and their company’s) success.

Although there is little data available, a list of China’s top 50 philanthropist companies puts their total donations at US$170 million in 2004. Of the 50, 24 were state-owned.

Responsible approach

CSR practitioners are pushing to change the attitude of philanthropy towards one of more responsible business. The current goal, he said, is to help Chinese companies understand that the issue is not one of choosing between corporate responsibility and profitability but rather to adopt an attitude of enlightened self-interest.

"It’s a really exciting time. It’s getting away from charity and philanthropy into a business model," said Bill Valentino, head of corporate communications at Bayer China, one of the first proponents of more corporate involvement in China.
"I strongly believe that companies can make money and contribute," Valentino said. "Who are the new power brokers? It is very clear that it is the private sector. They have inherited the social contract.
"The shift is a difficult one. The charity approach to social responsibility does little to further the government’s goal of a harmonious society. This would require a modicum of wealth redistribution."

For Shalini Mahtani, founder and CEO of Community Business, a Hong Kong-based organization that helps businesses develop CSR programs, the focus is on how you make your money rather than what you do with it.

Mahtani sees CSR as part of a package that should be tailored to satisfy customers, many of whom now demand higher standards. A large buyer of T-shirts, for example, may suddenly require its suppliers in China to increase wages to the minimum required by law or to provide better sleeping quarters for employees.

The problem is that customers – often large multinationals that outsource to China – may not be willing to foot the bill for workplace upgrades or pay more for the T-shirts. This leaves Chinese company managers wondering what the upside is of going beyond the law.

Some multinationals are finding that the right approach is a joint one. Footwear companies, in particular, have found that working with suppliers can help etablish better and longer lasting standards.

"There is a lot of engagement and collaboration," said William Anderson, head of social and environmental affairs for Asia Pacific at Adidas.

The footwear and apparel manufacturer picks only suppliers that can meet its own standards of corporate responsibility and then works with them to make improvements. A process by which buyers simply require suppliers to implement standards and then carry out inspections once a year doesn’t work, said Anderson.

"CSR, in order for it to be successful, cannot be just a social practice. There has to be some linkage to business."

In China, that is still the missing link. Company owners or managers don’t see the upside of investing in something without an obvious return.

"When people talk about CSR training, they talk about how to comply," said Liu Chenyan, a project manager with training provider CSR Asia, which is working with factory managers in Shenzhen to implement socially responsible employment practices.

"At first [they were] not very receptive because if you want to implement CSR you need to invest," Liu said. "A lot of factory people say: ‘Why do I have to do pay more? Why do I have to invest?’"
In the year ahead, the government may push more companies to implement more and better programs regardless of managers’ beliefs. With state welfare projects coming in at a hefty price, forcing corporations to take on more of the social burden is a helpful alternative.

"They are not going to give up economic growth for this but they want both," Valentino said. "Human rights is basically the foundation for it all. The ‘harmonious society’ fits in very well."