Chris Marquis Conference on Civil Society and Nonprofits in China January 22, 2011 Corporate Social Responsibility in China Copyright © President & Fellows of Harvard College.

Topics 1. Why has CSR in China become increasingly important recently? 2. What are some recent examples of CSR in China? a) Corporate Philanthropy in Response to Wenchuan Earthquake b) Increasing Sustainability and Transparency of Chinese Companies 3. Future Questions

CSR as Recent Focus of Government 1. “Unlike in the US or Europe, in China, it is the government who currently sits at the top of the CSR pyramid” (ChinaCSR.com, 2009). 2. Historical Perspective: Prior to 1984, SOEs offered many social services traditionally provided by governments. In 1984, this changed when the Central government launched reforms that separated much social functions from business enterprises. 3. Increasing exposure to and importance of global norms 4. More recently: A number of policies to encourage CSR among large companies…

2006 as a Turning Point 1. Article 5 in the amended “PRC Company Law” required companies to “be committed to social responsibility” 2. Sixth Plenum of the 16 th CPC Central Committee stated that companies should “conduct extensive activities to build harmony, promote a harmonious situation for all, and focus on enhancing the social responsibility of citizens, enterprises and all kinds of organizations.” 3. Central Government released ”the Outline of the 11 th Five-Year Plan for National Economic and Social Development”, requesting an increase in energy efficiency and the enhancement of environmental protection. 4. On January 4, 2008, the State-owned Assets Supervision and Administration Commission of the State Council (SASAC) promulgated “Guidance for Large SOEs on their Social Responsibility Obligations” recommending the 128 large SOEs under its supervision proactively fulfill CSR requirements and set an example for others.

1. Investors: Stock exchanges Shenzhen Stock Exchange in 2006: “CSR Guide for Listed Companies” Shanghai Stock Exchange :“Notice for Listed Companies to Enhance CSR Work” (2006) and “Guide for Listed Companies to Release Environmental Information” (2008) Social Responsibility Index (SRI) from the Shanghai Stock Exchange on August 5, Multinational Customers: More recently, many export-oriented Chinese companies began to follow international CSR standards with a focus on labor compliance and environmental protection at the request of their multinational customers. 3. General Public: A series of public incidents attracted public attention to CSR issues 2008 Sichuan Wenchuan Earthquake and donations Melamine-tainted milk scandal Increasing Importance of Other Stakeholders

Topics 1. Why has CSR in China become increasingly important recently? 2. What are some recent examples of CSR in China? a) Corporate Philanthropy in Response to Wenchuan Earthquake b) Increasing Sustainability and Transparency of Chinese Companies 3. Future Questions

Wenchuan Earthquake Major earthquake (8.0) occurred in Sichuan province on May 12, 2008 – 69,227 people dead; 374,176 injured; 18,222 missing as of 07/21/2008 (Zhang et al., 2009) – About 4.8 million people homeless; economic loss over 20 billion U.S. dollars (AIR Worldwide Corporation)

Corporate Response to the Earthquake 1. Corporate Response to Wenchuan Earthquake: Firms contributed to a variety of non- governmental organizations involved in earthquake relief – Some firms were praised for their contributions (e.g. the beverage company Wanglaoji) – Some were criticized for not giving enough (e.g. the real estate company Vanke) 2. Example: Aluminum Corporation of China Limited (CHALCO) CEO on their response – “After the 5.12 earthquake, our company has played an active role among state-owned central enterprises, supporting the earthquake relief through various ways such as cash donation and in-kind donation, as well as sending in the medical teams with ambulance and large construction machines…total value 690million RMB”

1. Media coverage and public commentary suggested that this was truly a turning point for civil society support of CSR in China. Special topics on corporate donation were established on internet sites including Sina, Sohu, Netease, Yahoo-China, QQ, and Baidu. For instance, the Sina site covered donation information for more than 600 companies in a highly timely and complete fashion (Huang et al. 2008). Internet users publicized lists and rankings, including lists of “iron roosters” 2. Chinese scholars have noted the public attention to the issue of CSR: “against the backdrop of the market transition, whether firms, as the basic economic unit, should take social responsibilities, have gradually started to be noticed by the general public” (Wang 2006, p. 72). Wenchuan Earthquake and Developing Civil Society

What Factors Led Companies to be More Likely to Give? 1. We studied the donation behaviors of a sample of 613 large publicly listed Chinese firms following the earthquake 2. Internet activism by general public has a main effect on corporate actions (number of posts, listing of companies in “iron rooster” lists), and also accentuates firm vulnerability. 3. Firm vulnerability to image loss, which stems from a higher need for organizational legitimacy (private ownership), potential culpability (real estate industry), and higher social and political standing (political connections and reputation), leads decision-makers to respond to movement demands.

Topics 1. Why has CSR in China become increasingly important recently? 2. What are some recent examples of CSR in China? a) Corporate Philanthropy in Response to Wenchuan Earthquake b) Increasing Sustainability and Transparency of Chinese Companies 3. Future Questions

Growth in CSR Reporting of Chinese Firms

Why are Chinese Firms Issuing CSR Reports? marked a milestone in China’s CSR development as the Central government promoted CSR more actively. 2. The approximately 1500 listed companies in China became an important part of the movement towards sustainable business. When companies applied for listing on one of the exchanges, they had to obtain certificates from local government entities in charge of environment, taxation and labor to prove that they were responsible companies. 3. More global examples. MNCs increasingly are issuing China-specific CSR reports or translating their English CSR reports into Chinese to demonstrate their contribution to local markets and to get preferential treatment from the government.

Study of CSR Reporting of Chinese Firms 1. Research Questions  What leads Chinese public firms to be more likely to issue CSR reports?  Is CSR reporting in China mainly symbolic, or is it substantive? 2. Sample: Firms on the Shanghai or the Shenzhen Stock Exchanges during the period (N= 1553; data mostly from China Stock Market Financial Database (CSMAR)) 3. Two stage regression analyses  Predicting CSR Report Issuance (1/0; N= 5560 Firm-Years)  Predicting Quality of CSR Report (from RKS CSR Ratings; N= 791)

Model and Key Findings

Topics 1. Why has CSR in China become increasingly important recently? 2. What are some recent examples of CSR in China? a) Corporate Philanthropy in Response to Wenchuan Earthquake b) Increasing Sustainability and Transparency of Chinese Companies 3. Future Questions

Future Questions 1. Institutionalization of CSR in China: What are the key business and social benefits? 2. How will the development of civil society mechanisms influence future CSR? The internet and organizing capability Increasing accountability and transparency standards Developing NGO infrastructure 3. How to simultaneously balance attention to government? How does governmental pressure interact with civil society mechanisms?

Chris Marquis Thank you! Copyright © President & Fellows of Harvard College.

Key Findings 1. Our results point to a complex process whereby there are a number of political, organizational, and financial contingencies that affect CSR reporting. Main effect of private companies being more likely to issue reports was not supported at conventional levels of statistical significance, CEO membership in political councils (the NPC or CPPCC), political legacy and financial performance variables all affect the likelihood of firms issuing a CSR report. Further, we also found statistically significant interaction effects between privately controlled firms and their political legacy, measured by age and their financial position measured by slack resources. 2. We also examined the extent to which companies produced reports with greater substantive content, which we assess by a rating of the reports which includes measurement of issues such as comprehensiveness, and extent of detail and transparency.  Another type of governmental pressure, bureaucratic embeddedness, whether the CEO was a government official, was a highly significant predictor of substantive CSR reporting. We believe this is a result of such ties being much tighter than the symbolic political council memberships and so expose the corporation to greater monitoring. Further, location in areas with greater governmental development also led to an increase in substantive CSR reporting.