CSR and Asia: Potential and Limits

CSRExcept for certain countries like Japan, South Korea and India, in the rest of Asia, the word ‘corporate social responsibility' (CSR) was just another fancy academic management term found in that occasional ‘feel good' newspaper article highlighting some acts of philanthropy by large, and usually Western, multinational companies (MNCs). Meanwhile, local businesses have focused on what they were traditionally supposed to do - make products and profits. Governments were happy as long as jobs were created and taxes paid. As for consumers? A beloved business is one that makes fantastic products at a great price tag - spare them the details of the process.

But if you've been paying attention to developments in the last couple of years, a shift in consciousness is definitely underway. Indonesia was so taken by the tenets of CSR that its government decided to enshrine it into law, a world's first. Meanwhile in Malaysia, mandatory CSR reporting in annual reports was introduced, CSR-related awards were dished out and a CSR index for ranking listed companies is in the works.

And let's not forget China, where rapid economic growth marred by catastrophic environmental destruction has triggered mounting pressure from government and civil groups toward businesses to clean up their act. Better corporate responsibility is being called for as part of the government's vision of becoming a democratic, just and sustainably-developed nation under its "Harmonious Society" policy. Awareness is bubbling high among its citizenry. A 15-country survey conducted by Tandberg last year found that 67% of Chinese consumers prefer to purchase from companies with good environmental credentials, compared to only 42% of American consumers.

Will a booming CSR culture eventually pave the way for the growth of greener businesses in Asia? Before we go into that, let's first go through some background on CSR, corporations and the need for CSR.

What is CSR?

According to the World Business Council for Sustainable Development (WBCSD):

"Corporate social responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large."

This is just one of the many definitions of CSR, and many academics have expanded the discourse with their own definitions, linking it with concepts like corporate citizenship, responsible business, etc. Some have proposed shortening CSR into just ‘Corporate Responsibility' to better reflect the broad scope of its principles, while some have argued that it's unnecessary. Anyhow, over here I'll stick to CSR.

In general, CSR's main idea is that corporations ought to go beyond what is legally required of them to act responsibly in consideration of the interests and welfare of the society and environment it operates in. The philosophy of CSR is deemed to support principles of sustainable development (SD), with the three main pillars of SD - economic, social and environmental - being translated into the ‘triple bottom line' approach of considering ‘People, Planet and Profits'.

What is a corporation?

Dollar signFiguratively speaking, a corporation is a ‘legal person' (it exists because the law allows its existence) and thus possesses traits, personality, rights and capability to act just like a real person, such as buying, selling and owning things, suing and being sued ... you get the idea. It can't vote, but in certain countries like America, it is allowed to lobby to exercise political rights.

But physically speaking, a corporation is basically a group of individuals who are organized in a way to be economically productive. Of course not everyone in this group is of equal status; the most powerful are the stockholders, who technically have the employees (CEO and puny executives alike) at their behest. Stockholders usually, especially in the case of large listed companies, relegate their supervisory role and powers to a smaller bunch of people who form the Board of Directors. In other words, stockholders are the true bosses of a corporation, and high-level management personnel such as the CEO are appointed as their agents to manage the corporation towards the goal of making profits.

The concept of ‘limited liability' is crucial in understanding the nature of a corporation. This means that the owners or stockholders of the company cannot be held financially responsible for any obligations beyond what has been invested and owned under the name of the company.

Say, a corporation has been found guilty of and is fined heftily for polluting a river. If the fine is too high and exceeds the value of assets owned by the company, the company can just declare bankruptcy and go bust. Even though the CEO and stockholders are the ones who made the decisions that led to the pollution, and have earned billions in salary throughout the company's history, their personal wealth is ‘shielded' from being used to pay for clean-up costs and compensate victims, as long as they have transferred those billions from the ‘business being' to themselves, the real human beings.

This sounds absurd, but had been justified on the grounds that entrepreneurs need this privilege in order to encourage risk-taking behavior for the greater good of society. Unfortunately, on the flip side, this also weakens the efficacy of enforcing upon corporations, who are artificial persons, the ethical standards and responsibilities normally expected from a real person. Many entrepreneurs have skillfully exploited this dual-personality loophole for their own selfish good.

Note that while the main attention has always been on corporations, which are the most sophisticated and complex of business entities, CSR can also be applied to smaller-scale businesses such as your neighborhood mom and pop store. But CSR issues have mainly been centered on large corporations because their misconduct has a larger impact.

Why NOT CSR?

Any discussion of CSR would be inadequate without considering the views of Nobel laureate economist Milton Friedman, probably one of the fiercest critics of CSR.

Way back in 1970, in his widely-quoted article, "The Social Responsibility of Business is to Increase its Profits", Friedman explains that imposing social and environmental responsibility on corporations is problematic, because it is akin to having business management extracting a tax on its stockholders (since the money that was not spent on CSR measures would have gone to the shareholders as taxable income), and using that taxed amount to address social concerns, without being answerable to the demands of an electorate.

This is, in effect, enabling businesses to assume the role of an elected government to spend public money according to what is considered by businesses to be ‘socially desirable'. Friedman thinks that this mixing up of business and governmental roles is not only principally flawed, but will lead to negative consequences.

Furthermore, Milton points out that even if businesses pursue acts of social responsibility, there is no good reason to perceive that they are genuinely behaving ethically or altruistically, since such displays of corporate niceties and goodwill would yield many economic benefits to them in the long run, through having supportive and loyal consumers, as well as attracting more talents to work for them.

Why CSR?

Corporate PhilantrhopyThere are two typical lines of argument. The first one goes that companies need to practice CSR because it is the ‘right' or moral thing to do, and profit-making should not be the raison d'etre for businesses. This is like telling a person to behave properly just for the sake of it, and not because he or she expects some form of payback in return.

On the other hand, the second line of argument accepts that businesses should indeed be driven by profits alone, and CSR, while requiring little sacrifices in the short run, is actually in line with its ultimate goal because it helps them to be more profitable in the long run. This view is more rooted in reality, and seems to work, too, especially when tied-in with branding strategy.

While empirical data for a direct link between CSR performance and a firm's profitability has so far been inconclusive, recent surveys do reveal consumers' growing partiality towards responsible businesses. For example, the PRWeek/Barkely Cause Survey 2007 found that 72% of respondents had bought a particular brand because it supported a cause they believed in, up from 64% in 2006. On the marketers' side, more than half reported that ‘cause branding' programmes have led to perceptible benefits in terms of positive media exposure and improved staff morale and retention rates, factors which indirectly contribute toward a company's financial performance.  Denim seller, Lee, which has been raising funds for the cause of breast cancer through its annual ‘Lee National Denim Day', reported increased sales during the campaign period each year.

Meanwhile, new methods of measuring the intangible benefits of socially-responsible business behaviour, such as the approach pioneered by HIP Investor, are likely to support conscientious decision-making by consumers who are into ‘socially responsible investing' (SRIs).

CSR in Asia

In general, most are happy to support CSR at face value simply because it sounds reasonable and progressive. Of course business should be made more responsible - with great power comes great responsibility, right? But what is often overlooked is that in the greater scheme of things, governments are actually supposed to ensure ethical or moral behavior through laws and regulations. Coming back to the spread of CSR in Asia, one striking feature is that the trend in CSR implementation has tended towards a government-led ‘top down' model, rather than the voluntary model in Western nations. If viewed critically, there is a concern over whether CSR poses an unhealthy distraction for governments to slack at designing stricter regulations and to enforce them well. After all, CSR is not the only instrument to compel good corporate behavior. In fact, some people have argued that paying lip service to CSR values is a way for businesses to escape regulation.

Secondly, it is predictable that superficial expressions of CSR would lead to ‘greenwashing', which already is happening in the West. In Asia, where CSR responsibilities have typically been delegated to in the organizational structure - the corporate communications, media relations, public relations or even the marketing department - is a telling sign that CSR is still largely perceived as an image beautification or sales-enhancing exercise among Asian companies. The emphasis is more on ‘being seen to be responsible', than to be really responsible.

For example, in Malaysia, the observed knee-jerk reaction by companies adopting CSR would be to spend a fortune hiring PR consultants to concoct and orchestrate flashy campaigns and design beautiful glossy brochures in the hopes of winning over gullible consumers. This is usually accompanied by either making donations to certain social or environmental causes, or getting involved as sponsors in strategic partnerships with NGOs, who are usually struggling financially to survive. The types of projects are usually carefully selected to fit with their marketing or branding strategies. For example, soft drink or fast food companies would target young children and teenagers, while oil and chemical companies would more often than not end up with their hands in tree-planting and conservation projects. In project events, company representatives would indulge in various forms of self-promotion - dishing out free sample products, making sure to dress participants in tacky company t-shirts plastered with highly-visible logos for photo ops, and squabbling with their partners over petty issues such as the size and placement of logos as well as the phrasing of statements in media materials.

When such opportunistic thinking is the norm, mandating CSR activities only leads to a depressing boom in the PR and print industry, and a whole lot of unnecessarily felled trees (to produce the mountains of snazzy CSR reports). It is not surprising that many environmentalists and social activists tend to be very disenchanted by the hypocritical side of CSR. Of course, in a perfect world with perfect government, perfect markets and perfect consumers, Friedman's logic of ‘leaving businesses to do what they do best' would prevail.  Alas, this is no perfect world, so CSR is not entirely a lost cause in every sense.

Let's face it: businesses are very prone to muddying up CSR with green-washing, but can they really be blamed? After all, they are first and foremost set up with the legal responsibility to make profits for their owners. Joel Bakan, author of ‘The Corporation,' isblunt yet pragmatic when he says that ‘CSR is ... illegal - at least when it is genuine.' As more firms grapple with CSR, more misses than hits should be expected, partly due to businesses' institutionalized profit motive, and partly due to their ignorance of what CSR truly entails.

While NGOs and governments should acknowledge the limits of CSR, they must also realize that businesses sold on the idea of CSR are, in fact, willing to spend large sums of money, supposedly for a better society and environment. But how wisely that money will be ultimately spent, depends on how ready and able are governments and NGOs in educating and engaging with businesses on their own terms. Businesses should not be left alone to define CSR, while others should re-assess their perception of business funds as ‘tainted money'. For CSR to truly live up to its potential in Asia, there needs to be a whole new level of intellectual transactions and compromise between business, NGOs and governments to move CSR beyond its current practice of outward-oriented, self-reported corporate philanthropy.

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babar (anonymous)

i feel very nice to read the artile but i missed one important thing thta there is nothing with comapnys point of view why they pay less regard to issue of csr and there is no critical evaluation of issue as well

Written in November 2008

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