Global Financial Woes May Impact Corporate Social Responsibility In China

October 15, 2008 | Print | Email Email | Comments | Category: Viewpoints

By Editors
As goes the global economic downturn, so goes funding for corporate expenditures deemed non-essential, such as some corporate social responsibility programs. Many are put on hold until an institution regains financial footing, and in China, CSR program managers are worried about losing traction for their initiatives in China.

In discussions over the last two weeks with executives responsible for their CSR programs in China, each of the more than a dozen managers voiced apprehension that they would see a decline in their budgets for next year and that less emphases would be placed on some of the "froth" (as one manager explained how some people in her company view some of their charitable giving initiatives) of these programs.

There has always been tension in the boardrooms of Western companies over the need to drive profits versus getting involved in activities that don't have immediate bottom line results. But in China, the drive for a "Harmonious Society" has strengthened the link between profits and societal good; a multinational company's environmental impact, manufacturing processes and human resource practices are all subject to scrutiny by media and consumers.

Last year, Western media lambasted Mattel for its toxic made-in-China toys. Though the company did not directly produce the goods, because of insufficient corporate oversight of second-tier suppliers, there were financial losses. Mattel's third quarter 2007 results missed Wall Street estimates because the toy recall cost the company USD40 million and disrupted its supply chain. More importantly, lots of little girls and boys had their dolls and action figurines stripped from their arms. The recent Sichuan earthquake provided an opportunity for companies to help Chinese society and focus business talents on donating to the relief effort, but even altruistic image-pumping donations don't always prove sufficient. Companies like Wanke, Coca-Cola, Nokia, and Motorola were ridiculed in China as "iron roosters" for not doing enough.

It naturally behooves Western companies to proactively maintain watch over supply chains and production facilities. After being pilloried in Western media for child labor practices, Nike now keeps a close eye over its entire supply chain evidenced by transparent records on its website and is seen as a prime example of good corporate citizenship.

Other companies have still not learned from the supply chain mistakes of firms like Nike and Mattel. In the last two years, Starbucks has recalled mugs made in China, Gilchrist & Soames recalled Chinese-made toothpaste, and an American industry group urged the U.S. government to recall Chinese-made automobile tires. It's important to note that these are not always "Chinese problems", but rather a combination of poor oversight and greed by the multinational companies and how they deal with Chinese suppliers. We know that some companies turn a willing blind eye to their manufacturers' machinations in China. Perhaps these episodes could have been avoided had the companies placed more emphases on communicating their core corporate values to their suppliers and then monitoring the OEMs' activities. But placing emphases in these areas necessitates both a commitment in time and money — with the equity markets devastated in recent weeks, it may be premature to expect huge additional resources placed on the shoulders of the great CSR managers working in China.

Over recent days we have communicated with corporate social responsibility managers working in multinational companies in China. While it's important to always remember that CSR is defined by different companies in a myriad of ways — some focus on human resources, others focus on corporate governance, and yet others focus on supply chain integration — the managers are all focused on putting their respective companies' best feet forward. Managers who oversee supply chain and manufacturing initiatives seem the least concerned with the economic downturn. Sure, they may see cuts in production, but they do not worry that their companies will cut corners to create a cheap product. On the other end, companies who define CSR in terms we think of more as "green washing" and concentrate more on public relations initiatives do have concerns that they will see funds dry up for their frothy programs.

But what about domestic Chinese companies? Throughout the Middle Kingdom, companies like China P&T Appliances, Lenovo, Greenland, Zhejiang Electric Power Corporation, Datang, and China Southern Airlines have all released sustainability and CSR reports in the past year. With the backing of provincial and national government agencies, and guidance from organs like the State-owned Assets Supervision and Administration Commission of the State Council, companies are now officially encouraged to issue reports that post CSR activities and plans for future initiatives. Chinese companies exporting products overseas want to prove sound manufacturing processes to foreign consumers. Firms like Beijing Huabei Optical Instrument Company and COSCO are signing onto the United Nations Global Compact to broadcast their alignment to core CSR issues and to commit to a uniform code of behavior. The ten principles of the Global Compact focus on how companies approach human rights, labor issues, the environment and anti-corruption. Specifically, they call for the abolition of child labor, a greater awareness of environmental responsibility, and support for the protection of human rights. Chinese companies will continue to seize on to CSR programs, and they will continue to drive adoption of CSR practices through this probable downturn.

Specifically, now that the West has seen some of its companies die because of this financial mess, Chinese companies will find a fantastic buying opportunity among the corporate graveyards in Europe and North America. For these Chinese companies, CSR provides a clear strategy to integrate manufacturing, safety, public relations, and distribution into one clear mission statement that will resonate with Western consumers and media. Chinese companies have not cultivated a great image in recent months, but this buying frenzy offers Chinese companies the chance of a lifetime to showcase their commitments to harmonious labor issues and healthy manufacturing. The next decade will surely see the ascendancy of many more global Chinese firms.

In November 2003, when first started providing CSR-related services in China, most executives at Fortune 500 companies in China had never heard of CSR. One assistant general manager of a hotel in Beijing even mocked the concept and said that while he would always preach good ethical behavior to his staff, he wouldn't mind if his salespeople used dubious means to gain new contracts — as long as he couldn't be connected to the deal. But CSR is now an important component of building a harmonious business in China — where there was a handful of CSR conferences each year in 2003, now we count at least one CSR-related event happening somewhere in China each week; Chinese business schools at CEIBS and Peking University have added ethics and CSR to their curricula; we now weekly distribute our Chinese electronic CSR magazine to over 21,000 top executives in China, up from only 1,300 in December 2003; and some companies, like KPMG and Bayer, have added CSR departments to their China operations.

With the rest of the world now playing with toys made in China, consuming medicine manufactured in China, drinking coffee from mugs crafted in China, and listening to music on MP3 players sourced in China, all eyes are on companies in the Middle Kingdom. Responsible businesses are the ones who will succeed. But responsibility takes money, which is in short supply now. Setting priorities is a manager's job, and we hope that corporate social responsibility continues to remain a top priority for all businesses in China.

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2 Responses to “Global Financial Woes May Impact Corporate Social Responsibility In China”

  1. By sloaneOctober 25th, 2008 at 10:36 am

    It may be great for China to support CSR, but it's important to keep a cost/benefit analysis in mind.

    Dr. Tantillo ('the marketing doctor') just did a post on his blog about how we're likely to see a decline in CSR as businesses are having to trim the fat–He argues that where CSR is not a 'core brand feature,' it is a drag on the company: "In other words, if your brand is CSR, then by all means build your marketing around that; but never impose CSR on a brand and forget your brand’s core business (i.e., why customers and cash actually come in the door). That’s a fatal mistake."

    Full post

  2. By DarrenOctober 26th, 2009 at 9:06 am

    A good service I want to see is a list of the MBA programmes in Chinese universities and the ability of those programmes to provide a consistently high level of CSR programs. For example shall I attend a school at Peking University, CEIBS, Fudan, or some other school? What about one of the USA schools in China? If you provide a list of these types of things, I can help edit it because I too am looking for this data!

    Thanks as always for your great service :)

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