CHINA: Corporate Social Responsibility

What happens when businesses are driven not just by
maximizing profits for their shareholders, but also by benefiting the wider
community and environment in which they operate? Sparks fly. Amazing feats are
achieved in local communities, factories, businesses, and even nations.

The past quarter of a century has seen Western businesses investing heavily
in China, all striving to adapt their business models to this huge market, while
bringing capital, technology and management know-how to the country.

Today, China is probably more integrated into the international community
than at any point in its history, and the competitive economic landscape is
changing rapidly. For multinational companies that take social and environmental
responsibilities seriously, unprecedented opportunities abound for them to turn
the corporate social responsibility (CSR) fad into a real opportunity for social
change.

Trends and initiatives

Corporations wishing to sponsor community engagement projects will find no
shortage of suitable candidates. For instance, IBM has pumped tens of millions
of US dollars into learning centres at Chinese kindergartens, schools and
universities, supplemented by teacher and scholar training programs.

Ascott Group, an international firm that manages luxury-serviced
apartments, has opted to help pupils in Guangxi, in collaboration with World
Vision, by donating funds to provide immunizations and nutritional lunches for
more than 400 children. The company also contributed funding to renovate the
school kids' dormitories, which are drafty and often require students to share
bunks, sometimes with up to three students in each.

Some firms take a more hands-on approach to strengthening local charitable
initiatives. Take the UPS Global Volunteerism Week. It has become a company norm
to allow employees time off to undertake volunteer work in the community. During
the volunteering week employees go out of the office and donate their time to
help non-governmental organizations in their community activities such as
painting, helping the elderly, and organizing auctions or in-kind donations.

Life is uncomplicated for those who see corporate social responsibility as
a philanthropic pursuit. Yet an increasing number of business and civil leaders
tend to differentiate corporate citizenship from philanthropy. More attention
has been focused on integrating corporate social responsibility practices into
business objectives and, above all, redefining the role of a company in society
and its environment.

As a founding signatory to the Wolfsburg Principles on anti-money
laundering for international private banks, HSBC implements comprehensive
anti-money laundering standards across its entire business line. The firm uses
careful identification procedures for opening accounts, close monitoring of
transactions and a worldwide network of control officers for tracking and
reporting. In addition, the company conducts money laundering awareness programs
for every new member of staff and refresher training courses where relevant.

More than 1,020 Chinese teenagers would not have been able to make their
entrepreneurship dreams come true without Boeing China's support for the Junior
Achievement business plan programme. Mentored by volunteer consultants from the
business community, these young entrepreneurs developed their business ideas,
and organized and operated actual business ventures. They also had a chance to
participate in programs that cultivated leadership, team spirit and
interpersonal skills. "As a member of China's community, Boeing's support is a
gift to the children in China, because they carry forward the hope and future of
this great country," said Boeing China President David Wang.

Since 1999, Microsoft China has provided nearly 4.5 million yuan
(US$542,000) to support computer skills training projects for laid-off and
migrant workers in Liaoning, Sichuan, Guangdong and Shanghai.

"Microsoft is committed to addressing the digital divide issue," said David
Kay, deputy general manager of Microsoft China, "because we believe, as a
technology company, our combined resources - including products, technologies,
solutions and cash grants - can be most effectively utilized in tackling this
issue."

The company's recently launched Unlimited Potential grant programme is
intended to further transform community centres that currently provide only
basic access to technology into a technology-enabled centre for learning and
collaboration.

While things are relatively straightforward for multinational corporations
following a consistent code of conduct directed by the parent company, the
situation gets far more complex for those companies that outsource manufacturing
in China so as to cut costs. This is the area that has attracted the attention
of the media and civil society.

Ever since the Western public outcry in the 1990s about sweatshops in Asia
operated by big foreign firms, labour compliance has become a permanent reality
in corporate boardrooms. Stephen Frost, a research fellow at the Southeast Asia
Centre of the City University of Hong Kong and chief editor of CSR Asia
magazine, is a long-term observer of the changing environment.

He recalled that in the mid-1990s footwear manufacturers like Nike and
Reebok started to issue global codes of conduct to ensure their suppliers
complied with certain standards, such as not hiring children or recruiting
prison labour, no gender discrimination, no harassment of workers, and so forth.

"The whole idea was the brands asked the suppliers to comply, and they
checked by inspections," explained Frost. "But later on, when the audit-based
approach was found to be ineffective, the big firms turned to engage with the
factory management together to deal with the problems."

Adidas initiated occupational health safety training courses for its
workforce and Reebok created a female workers' welfare programme.

Nike and Target offered labour rights education programs to owners and
managers of hundreds of small Chinese enterprises.

In partnership with academic and non-governmental organizations, a
consortium of export-processing companies including Ford Motor, Gap, HP, Liz
Claiborne, Pfizer, MeadWestvaco, Motorola and Target recently launched a
standing programme in China called Global Supplier Institute. Following a
"beyond audit" strategy, the consortium will be offering training programs on
management, health and safety, and HIV/AIDS, amongst other compliance curricula.

Another leading United States retailer is taking these efforts a step
further. May Department Stores, which owns retailers such as Hecht's, Lord &
Taylor and Marshall Field's, has recently awarded 36 Chinese migrant women
workers scholarships for degree education. This innovative empowerment scheme
for female workers is believed to be the first of its kind in the country.

Critical success factors

For corporate social responsibility initiatives to be successful, a number
of factors must come together, including strong partnerships, communication,
core values and policy engagement.

Most business and civil leaders believe that the most important
contribution corporations can make to society is through the way they run their
own businesses.

"Co-operation is the basis of our CSR approach," said Mark Spears, Director
of International Labour Standards for the Walt Disney Company. "We work together
with a variety of stake-holders, including investors, other companies,
licencees, suppliers, academic, civil society members and government agencies,
as each of them contributes a vital perspective to the process."

Successful collaboration is expected to leverage resources, skills,
competencies, technology and networks, thereby maximizing social impact.

The Asia Foundation has been an active convener facilitating
multi-stake-holder dialogues and peer learning opportunities. In a forthcoming
workshop on labour law enforcement, the Foundation will bring together about 70
representatives of multinational corporations, Chinese officials, academics, and
non-governmental organization leaders.

"Since we had a successful inaugural workshop in 2003, there's been growing
interest for such a cross-sector forum where numerous initiatives get brokered
and announced," said Allen Choate, vice-president of The Asia Foundation. "It's
critical to have an ongoing vehicle for dialogues among CSR stake-holders."

Smart design and funding will not ensure a successful corporate social
responsibility project. It must be efficiently implemented and monitored.

"You need to make the whole process transparent," noted Horace Ling, chief
marketing manager of World Vision. "I can never emphasize enough on-going
communication."

It is risky to underestimate interest in pro-social schemes. When Ling
first issued a customized newsletter, he put about 100 names on the list, but
more than 500 people signed up. The newsletter circulation has now reached 2,500
every quarter.

Internal communications are just as important. "You do need to encourage
employees to actively participate in the socially responsible initiatives, as
nobody personifies your commitment to the local community better than them,"
said John Hong, senior corporate affairs manager of Microsoft China.

"Recognize their efforts, create conditions for their participation, and
make it part of your corporate culture."

Soccer in the Box, a community engagement project initiated by Bayer China,
is a vivid example of how a company carries its tradition and culture in
socially responsible campaigns. The company donates footballs and kits to
children in impoverished regions, helping them to organize teams.

Bayer AG was founded in a remote area of Germany in the 1860s, and in the
early days the company established sports clubs to help retain employees. Today,
there are 29 clubs for Bayer employees in Germany and some have become
professional clubs in the high-profile National League.

"So the soccer boxes help bring to the community our core culture,"
explained William Valentino, Bayer's corporate communications manager in Greater
China. "It also helps spread our values, which is all about fair competition,
teamwork, and education for social benefits."

To ensure corporate social responsibility programs address practical
problems that the government cares about and will endorse, there has to be an
alignment with government priorities.

The Global Business Coalition on HIV/AIDS has been a leader in just such a
successful alignment. With more than 180 leading international businesses, the
coalition's membership represents a workforce of nearly four million in 178
countries.

The coalition recently launched an unprecedented joint action plan with the
Chinese Ministry of Health to battle the HIV/AIDS pandemic.

"To prevent and control HIV/AIDS is not only the obligation of the Chinese
Government, but also the common responsibility of the entire society including
the business sector," Vice-Premier Wu Yi was quoted as saying by People's Daily,
at the joint summit. She promised the government will update laws and
regulations, increase financial input and ensure free treatment and care for HIV
patients.

Michael Furst, vice-chair of the American Chamber of Commerce in China, is
a proponent of the corporate sector's engagement in the policy dialogue. "The
businesses need to be aware of the policy implications of what they are doing.
Otherwise, CSR would likely remain a micro response to macro issues," he said.

Furst added that multinational corporations sometimes have different
political values than the local government where they operate, and thus
effective cross-cultural communication is needed.

That explains, in part, why local expertise is so vital in any policy
research or advocacy activities. The Asia Foundation, for instance, worked with
the Development Research Centre of the State Council in a research project on
foreign direct investment in China. The partnership helped yield some inspiring
fact-finding and policy recommendations for this heated subject.

Key considerations and caveats

Despite the positive scorecard on corporate social responsibility
activities and achievements worldwide, and business executives' passion for
social issues, the matter does not go without criticism.

Firstly, there is a debate about the voluntary nature of social
responsibility. The sceptical say corporate social responsibility is by default
not designed to replace regulations, but to complement them. Enforcement
difficulties may become an obstacle.

But the counter argument maintains corporate social responsibility is
important where regulations are not in place or insufficiently enforced. As
legal instruments evolve, there needs to be a better integration of voluntary
approaches and laws or government regulations.

Secondly, while nobody questions the likelihood of a company suffering in
the long run if it profits while inflicting harm on the community, the upside of
pro-social investment is hard to quantify.

Companies that do have such schemes in place have yet to find a good
measure of their return on investment.

Local firms, where multinationals source, are still expected to deliver
price-competitive manufacturing while at the same time sharing the costs of
pro-social measures. Operational cost increases become a target of complaint.

Nowadays suppliers have to meet very stringent standards in terms of
workplace conditions before they are able to bid for outsourced manufacturing.

Lastly come concerns about expanding and sustaining corporate social
responsibility programs. How should firms make sure schemes are not one-off
projects, and will be sustained after a company stops providing financial and
other support?

Part of the solution might be empowerment - understanding the needs of
local partners and beneficiaries, and focusing on building their capacity and
capability, rather than creating dependence.

While there is still a long way to go before all the innovative inroads
turn into sustainable development, trends in pro-social projects in China are
extremely positive.

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