The Growth and Future Development of CSR in China: Bringing Workers into Play

Across the globe, Corporate and Social Responsibility (CSR) is booming. Business schools offer CSR classes, conferences abound, and companies pay increasing attention to their CSR departments. The European Parliament passed a resolution affirming the importance of CSR, and business leaders increasingly understand that corporations are not just responsible to shareholders, but rather, to society as a whole.^[1] But what is CSR? Why do companies choose to get involved? How does CSR work? And how is CSR taking form in China?

Competing Definitions of CSR

CSR, in its broadest sense, means “doing good things” and having a positive impact. However, there is no agreed definition of CSR,^[2] and this has complicated efforts to measure and assess its accomplishments and drawbacks. Nonetheless, at the most basic level, almost all definitions emphasize giving back to society, while more advanced definitions recognize the importance of understanding how one’s entire business operations affect society and the environment.^[3] This understanding of CSR encourages a framework that allows businesses to have the smallest degree of negative impact in their operations, and the largest degree of positive impact. 

Why do companies engage in CSR?

Companies get involved in CSR for different reasons. Some business leaders are simply altruistic people who want to do good things. They can often foster a positive corporate culture that naturally lends itself to involvement in CSR.^[4] But there are other more calculating, interests-based reasons. One rationale is that CSR activities are a way to defensively shield a company from PR disasters. In this sense, CSR is a form of "risk management,"^[5] and a way to gain the trust of consumers and a public suspicious of corporate motives.^[6]  People are more likely to invest in and buy from companies they trust,^[7] and there is evidence that engaging in CSR can help build a positive brand image in the mind of consumers. For corporations with well-known and trusted brand images, CSR can help affect the bottom line. Large companies that are already profitable are more likely to get involved in CSR than other less stable, or smaller-scale companies.^[8]  Finally, companies that take CSR seriously can often attract and retain better talent than companies that don't.^[9]

How does CSR work?

CSR can take many forms. Giving away money to charity or institutions, helping the less fortunate, conducting a “carbon footprint” analysis, and developing voluntary codes of ethics are some of the most common forms of CSR. For labour rights, voluntary codes of ethics are probably the most important aspect of CSR. Some company codes tend to reflect the International Labour Organization’s core labour standards- freedom of association, elimination of child labour and forced labour, and equality in the workplace- while other companies may make no mention or only passing mentions of these core standards.^[10]

To a large degree, these codes of conduct came about due to the problems inherent in globalization. As corporations increasingly operated globally in the 1980’s and 1990’s, critics and activists saw corporations and their suppliers destroying the environment and using sweatshop labour, among other undesirable practices.^[11]  Activists in the developed world found that using their own domestic laws to change these companies’ behavior wasn’t viable. Putting tariffs on developing countries because they allowed such practices was seen as unfair and unacceptable first world protectionism. Developing countries argued that they should be allowed to choose their own path to development while maintaining their regulatory sovereignty. Therefore, a new method of enforcement and a new way of thinking was needed. Progressive companies willing to adhere to higher standards, NGO’s naming and shaming of famous companies in the media, American and European governments under pressure from trade unions, all helped to create a situation in which voluntary codes of conduct could hopefully be enacted and enforced. ^[12] This new solution would not be ideal but it was the best “second best” scenario one could hope for in an era of massive globalization, deregulation, and governments that were unwilling or unable to enforce their own laws.

To this end, many companies have codes of conduct and CSR departments, while many multi-stakeholder initiatives (MSIs) strive to unify standards and enforce them through voluntary and third party audits. Some of the MSIs include: the Ethical Trading Initiative, the Fair Labor Association, Social Accountability International, the Fair Wear Foundation, and the Global Reporting Initiative. Besides these organizations, there are many other auditing agencies that audit factories and suppliers to determine whether or not conditions on the ground live up to the conditions outlined in the codes of conduct. Many supplier factories for multi-national corporations in China report being audited many times a month, often under different standards.

How is CSR taking shape in China?

In China, there seem to be two major trends in CSR. On the one hand, many factories, often suppliers from multinationals, get audited. In a sense, these supplier companies are passively reacting and complying (or not complying) with the various environmental and workplace standards that have been imported from abroad. On the other hand, some Chinese companies are actively promoting their own CSR activities. A few companies have joined the major MSI’s. Some have become involved in philanthropic activities, like giving computers to disadvantaged children in rural areas. The Chinese Federation for Corporate and Social Responsibility (CFCSR), established in 2006, is a group of companies that are engaged in CSR and hope to adapt it to Chinese conditions.

The Chinese government is also starting to take CSR seriously. The government has set up numerous initiatives to research and promote CSR, and has told managers of state-owned enterprises to "understand the importance of CSR" within the context of current Party ideology.^[13]  In addition, one of China's foremost think tanks - the Chinese Academy of Social Sciences (CASS) - has set up a CSR research center.^[14]  As with all global practices, these trends suggest that CSR will most likely eventually develop unique “Chinese characteristics”.

Measuring the Impact of CSR in China

The introduction and subsequent sinofication of CSR has raised awareness of pressing social issues in China, has improved environmental standards, and has helped cultivate a new awareness of philanthropy. Shanghai Volkswagen, for example, has provided a series of auto safety videos on its website, which will hopefully address the urgent need for better road safety awareness. A group of volunteers from the CFCSR served as teachers in the economically backward province of Guizhou. And the CFCSR also outlined a plan for providing micro-loans to those hit by the Sichuan earthquake. This spirit of pro-actively tackling some of the most important social and environmental issues in China combined with the new spirit of philanthropy is certainly a positive development.

However, although CSR activities can raise awareness of these social issues, voluntary codes of conduct have a very limited ability to address the major problems workers throughout China face - such as low wages, excessive overtime, and unsafe working conditions.

Voluntary codes don’t cut it because very few Chinese companies currently fit the CSR profile. As noted above, companies that see CSR as genuinely valuable to their bottom line tend to be large, financially stable, and sensitive to their brand image. Almost all of the anonymous army of Chinese supplier factories along the southeast coast don’t have a brand image to speak of, and most likely do not see themselves as financially stable. A well-known international brand, such as Coca-Cola or Nike, is an intangible, but extremely valuable asset for a corporation. Investing in CSR is a proven way for brands to maintain their prestige. But this self-interested investment rationale simply doesn’t exist for many no-name, small-scale Chinese suppliers.

CEOs of big multi-nationals were hesitant to spend money on CSR programs until they had data showing that the programs matched their strategic agenda, financially. Chinese owners of small and medium-sized factories would likely also want to see the financial payoff for engaging in CSR, especially in terms of adhering to labour codes that would raise their costs. Indeed, suppliers have complained that as the CSR codes have become stricter in recent years, their profit margins have decreased. Their main self-interested rationale for adhering to labour codes of conduct would be the hope of securing large, profitable, and hopefully long-term contracts from big multi-nationals. 

For multinational brands, the pressure to give factory workers better conditions comes from the fear of being the target of a media or NGO anti-sweatshop campaign. For suppliers, the pressure to give workers better conditions comes from the fear of losing contracts. Therefore, under the code of conduct structure, workers only get good conditions if the multinational companies are serious about the auditing process. This is problematic for two reasons. First, many multinationals aren’t serious about enforcing their labour codes, or at least they are not willing to pay for the extra costs. Second, workers in the developing world aren’t the main participants in their struggle for better working conditions, and in a sense, their struggle has been “outsourced” to people in the developed world. 

In an attempt to address these deficiencies, some CSR campaigns have attempted to bring workers more into play. In July 2008, leading international brands including Nike, Adidas, Speedo and Umbro joined forces with trade unions and NGOs to form a working group to explore how best to promote trade unions and collective bargaining as a means of improving wages and safeguarding workers’ rights. This initiative is very timely in China. The central government in Beijing understands that increasing wages through legally binding collective labour contracts is in the workers’ interests as well as in the interests of ensuring social stability. Moreover, the All China Federation of Trade Unions (ACFTU) acknowledges that collective bargaining is the international norm for achieving collective labour contracts, and has now successfully negotiated collective contracts in many Wal-Mart stores.

China Labour Bulletin believes the active participation of workers in the collective contracts process is the key, both to protecting the rights and interests of employees, and to improving relations and communication between labour and management. See CLB research report Breaking the Impasse: Promoting Worker Involvement in the Collective Bargaining and Contracts Process. With that in mind, we are encouraged by recent labour-oriented CSR initiatives and offer some suggestions to companies that will hopefully further improve the CSR process in the future:

• Ensure that all local laws are adhered to.
• Make sure that clearly written statements about respecting freedom of association, collective baraining, and other core labour principles are written into codes of conduct and are applicable to both the company and its suppliers. This should include a "Right to Organize Guarantee"^[15]
• Publicly issue statements of support for a regulatory environment that aims to protect workers. In the same vain, don’t lobby for weaker labour reforms, either individually or through chambers of commerce.
• Make the codes easily accessable on the company's website, in English and in local languages. Make sure that employees have easy access to the codes of conduct in their own language and that they are trained so that they know their rights under the codes and under the law.
• Provide workers a convienient and anonomous way to report infractions and abuses. Some companies have set up telephone hotlines, for example.
• Inspect prospective suppliers for labour conditions before placing an order. Once orders are placed with suppliers, make sure that the codes of conduct and ethics are upheld throughout the entire supply chain.
• Make sure all audits are unannounced and adhere to industry standards.
• Encourage greater transparency by listing the names of all suppliers on the company’s website.
• Cultivate long-term relationships with suppliers that genuinely strive to comply with the letter and the spirit of the codes of conduct and local labour laws.
• Support and co-operate with watchdog NGOs that monitor labour issues and highlight deficiencies in CSR practice, and who develop ways to let consumers know which companies have, or have not, adopted “best practice.”
• In the event of violations of codes of conduct do not "cut and run."

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4. "Assessing the Impact of Societal Issues: A McKinsey Global Survey" McKinsey Quarterly November 2007 [Back]
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6. Baksh-Mohammed, Sufyan, Choi, Min-Hwan, and Callison, Coy. "Cashing in Goodwill Capital in Times of Crisis: Does Public Awareness of Organizational Charitable Contributions Lead to Leniency When problems Arrive?" 10th International Research Conference on Public Relations. [Back]
   
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9. "A Stitch in Time", The Economist, January 17, 2008. [Back]
   
10. Burkett, Brian W et...al. "Voluntary Regulation of International Labour Standards: An Overview of the Corporate and Social Responsibility Phenomenon" FindLaw.com. [Back]
    
11. Bartley, Tim. "Institutional Emergence in an Era of Globalization: The Rise of Transnational Private Regulation of Labor and Environmental Conditions" AJS Volume 113 Number 2, September 2007. [Back]
12. Idid. [Back]
13. State-owned Assets Supervision and Administration Commission (SASAC), PR China "CSR Guidelines for State-Owned Enterprises (SOE)", January 4, 2008. Translated and available at SynTao. [Back]
14. "CASS Sets Up CSR Research Center", China CSR, July 7, 2008. [Back]
15. This "Right to Organize Guarantee" could take the form of Russell Athletic's model, given in the Play Fair 2008 report: "Clearing the Hurdles: Steps to Improving Wages and Working Conditions in the Global Sportswear Industry", p. 46 [Back]