| Interpreting CSR Policy for Large Chinese SOEs |
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| 2009-05-14 09:45 |
On 4th Jan. 2008, the State Council’s State-owned Assets Supervision and Administration Council (SASAC) issued a publication for state-owned enterprises (SOEs), ‘Guidance for Large SOEs on their Social Responsibility obligations’ whose purpose has been to raise awareness of Corporate Social Responsibility (CSR) in society.
Background
CSR has become an increasing concern over the last few years both internationally and within China. At the international level, the United Nations officially launched the "Global Compact" plan in 2000. In 2004, the International Standardization Organization launched its project ISO 26000: 400 experts from 120 countries and international organizations were involved in this project. As a result of these moves some multinational companies developed codes of conduct and began to publish CSR and sustainability reports. This in turn stimulated a new global frend in CSR development.
CSR has become a hot topic and a key issue in China too. Article 5 of Company Law specifically states that:"A company must comply with laws and administrative regulations, abide by social morals and business ethics, operate honestly and in a trustworthy manner, and accept supervision by the government and the public, to fulfill their social responsibilities."
CSR was also referred to at the Sixth Plenary Session of the 16th CPC Congress: "Extensively carrying out activities to create a harmonious situation in which everyone promotes harmony, and focusing on enhancing a sense of social responsibility amongst citizens, enterprises and all kinds of organizations."
In recent years, Communist Party of China (CPC)’s leaders have proposed strategic thinking around the scientific concept of development with the aim of building a socialist, harmonious society: "We must continue to improve the incentive mechanism for enterprises; we should also focus on strengthening external constraints, guiding enterprises to improve management and fulfill their social responsibility."
Some NPC deputies and CPC National Committee members have also proposed recommendations and proposals to further CSR. Actively fulfilling CSR has become a priority for the government and society, a requirement for large enterprises, and something to focus on when implementing the scientific concept of development and the construction of a harmonious society as China continues to reform and develop.
In recent years, a group of large SOEs including the State Grid Corporation, China Petroleum, China Mobile and the COSCO Group have led the way by publishing CSR reports, earning a positive response from society. But generally speaking, CSR policy needs to be further clarified, and approaches towards fulfilling CSR still need to be standardized. Starting in 2006, SASAC therefore began to research CSR and how large SOEs could fulfill their obligations. Through extensive consultation with enterprises and stakeholders, the Guidance document was developed.
Definition of CSR in the Guidance document
Definitions of CSR vary widely. The United Nations Global Compact demands that multinationals focus on human rights, labour standards, environmental protection and anti-corruption to overcome the negative impact of globalization. The EU defines CSR as "companies voluntarily integrating their social and environmental concerns into their operations and their interaction with stakeholders.” The World Bank states that CSR is a collection of the relations between business and key stakeholders, values and compliance. It involves respect for people, the policies and practices related to communities and environmental protection, all of which are commitments that contribute to sustainable development and improve the quality of life for stakeholders. The World Economic Forum believes that as a corporate citizen, CSR covers four aspects:
* Good corporate governance and ethical standards;
* Responsibility for people;
* Responsibility for the environment;
* Contributions to social development.
It can be seen that definitions of CSR amongst international organizations share some commonalities, but also have some differences.
In addressing their CSR policies large SOEs not only need to meet international standards, but also need to consider current economical and social conditions in China and the size and operations of their enterprises. Promoting CSR in large SOEs can be summed up in three points:
Full compliance with laws and regulations
All society should comply with laws and regulations concerning issues such as environmental protection, conserving resources, product safety and protecting the rights of workers and consumers. This is a basic necessity for the stable development of society. Conscientiously complying with laws and regulations goes without saying and is the first step for any large SOEs to fulfill their CSR obligations.
Clear expression of company values
Company values are embodied in many areas, ranging from returns to shareholders, providing quality products and services to consumers, creating better working, living and development conditions for employees, protecting the natural environment, to the creation of wealth, creation of job opportunities and even paying taxes. Fully reflecting company values and creating shared values that not only benefit the community but also the company is a basic social responsibility for large SOEs.
Morality and ethics
Adhering to ethics, focusing on moral character and maintaining the noble pursuit of ethics, is held to be a traditional virtue in China. On the basis of complying with laws and regulations and realising company values, enterprises need to participate in social welfare with kindness, good will, charity and enthusiasm.
CSR practice amongst large SOEs
In recent years, large SOEs, through strengthening management techniques and improving efficiency, have developed steadily, making significant improvements to economic efficiency and business operations and, through taxes, made a valuable contribution to the national economy. Large SOEs have also played a positive role in implementing national macro-control policies, ensuring market supply and implementing developmental strategies. For example in the Petroleum and petrochemical sector, good management ensured that oil prices in China remained stable even though they were rocketing elsewhere in the world. The Coal and Power sectors performed similarly well. Telecommunication enterprises actively promoted an "every village has access to" project, constantly improving service capacity. Military enterprises accelerated technological innovation and made important contributions to the modernisation of national defense systems. Large SOEs have also made significant contributions to a large number of major construction projects to improve the quality of life, such as the first manned space flight, Qinghai-Tibet Railway, the Three Gorges Project, West-East Gas Pipeline, West-East Power Transmission, South-to-North Water Diversion and various Olympic projects.
For a long time large SOEs have actively promoted democratic management, implemented staff capacity-building projects, implemented relevant policies and regulations, effectively safeguarding the legitimate rights and interests of workers and the stability and harmony of enterprises and society. Large SOEs have also fully implemented a product-safety system, improving product safety and strengthening production. Safety levels have improved significantly and production safety indicators in a number of key enterprises are fairly advanced. Many large SOEs have also established and improved emergency response mechanisms to help prevent major accidents and disasters, sometimes feeding through to improve safety and rescue availability to communities nearby.
Large SOEs have taken the lead in creating resource-saving and environmentally-friendly enterprises, increased investment in environmental protection and begun to phase out out-dated production processes. They have sought to reduce energy emissions and have taken the initiative to participate in public welfare. For example, their response to society affected by the freak winter conditions in South China this February and the Sichuan earthquake was exemplary. See chapter 5.5 for more on this.
Some large SOEs have begun to publish annual CSR reports. The first company to do so was the State Grid Corporation of China, whose 2006 report earned the recognition of Premier Wen Jiabao who commented: "This has been done well. Enterprises should be responsible to the society, and consciously accept supervision from society."
Leaders in CSR
Leaders in the field of CSR are determined by the dominant views of the general public and decided by the leading role of a state-owned economy. It is necessary for large enterprises to play a leading role in international economic and technological cooperation. The Party central committee, the State Council and society itself have high expectations of the CSR performance of large SOEs.
Firstly, SOEs provide the backbone of the economy. They are therefore required to play an exemplary role in fulfilling social responsibilities. The 17th National Congress of the Communist Party of China put forward new requirements to promote the goal of building a well-off society, forcing SOEs to change their developmental approach and make contributions to help achieve a well-off and harmonious society.
Secondly, most large SOEs operate in key sectors relating to national security and economic lifelines. So they need to be CSR leaders. With operations in important industries and fields such as oil and petrochemicals, telecommunication, electricity, mining and transport to name but a few, SOEs need to actively embrace resource-saving and environmentally-friendly approaches to running their operations. Their actions influence smaller enterprises and provide the driving force to spur on growth in this area.
Thirdly, large SOEs play a leading role in international economic exchanges and cooperation. They are required to play an exemplary role in fulfilling their social responsibilities. With globalization, ties to international companies strengthen and with those ties come obligations to ensure companies remain competitive. Thus, in order to compete with large international companies, large SOEs must fulfill their social responsibilities, cultivate a responsible image and become more competitive.
Therefore, the Guidance document requires that large SOEs become "exemplary role models and must comply with laws and administrative regulations, abide by social morals and business ethics, operate honestly and in a trustworthy manner, and accept supervision by the government and the public, to fulfill their social responsibilities."
Three principles in CSR for the large SOEs
The first principle that the Guidance document puts forward is insisting on integrating CSR policies into the reform and development of an enterprise. The corporate governance structure is the mechanism, and good economic performance is the material basis, through which an enterprise fulfills its social responsibility. Speeding up reform and development is a prerequisite for an enterprise to fulfill its social responsibilities and so CSR principles should be considered as an important means through which to enhance management levels and competitiveness.
The second principle is to adapt CSR to the actual situation of an enterprise. CSR policies should be in line with national economic and social development, integrated into national cultural traditions and coordinated with the development of the enterprise. Thus large SOEs must base their CSR policies on China's national conditions and their own actual situations.
The third principle is to integrate CSR into management, HR and operational processes. For example large SOEs need to ensure production safety as well as safeguarding the rights, interests and providing professional development opportunities to employees.
The basis of CSR for large SOEs
In creating and implementing CSR policies, large SOEs not only need to learn and borrow from international best practice, but also need to comply with the local requirements of building a socialist harmonious society. In such a way, a CSR definition with Chinese characteristics can be formed. Therefore, the Guidance document has neatly summed up the following eight areas for large SOEs to consider:
* operating in accordance with the law, honestly and in a trustworthy manner;
* continually working to promote sustainable profitability;
* effectively improving product quality and service standards;
* strengthening conservation of resources and environmental protection;
* promoting independent innovation and technological progress;
* ensuring safety during production;
* safeguarding the rights and interests of employees;
* engaging in public welfare.
We have already stressed the need to operate in accordance with the law, as a most basic social responsibility of large SOEs. Maintaining a strong performance and profitability is obviously the basis of an enterprise’s survival and development, and is also a fundamental responsibility within CSR. This requires strong management, investment in innovation and the maximizing of efficiency to ensure economic prosperity and quality of life. This feeds into the production process – improving product safety and service quality are vital to the success and thus profitability of a company.
Energy conservation and environmental concerns have risen up the agenda in China as demands on limited resources have increased. Promoting recycling, concern for the environment and developing a conservation-oriented approach has become an essential part of any large SOE CSR policy. Building an innovation-oriented country and improving the ability of independent innovation is also crucial to China's competitive advantage both now and in the future. Most large SOEs are vanguards in various sectors, and have important responsibilities to promote research and development, innovation and technological progress. Scientific and technological progress is also a motivating force for social development.
Guaranteeing the safety of workers during production is also an extremely important requirement of any company. Large SOEs need to ensure safe conditions for workers in dangerous jobs. Safeguarding employees’ rights and interests is also very important. Continuously improving employees’ working conditions and welfare, strengthening education and offering appropriate training for employees are not only key aspects of every large SOE’s CSR policy, but they also have the potential to contribute to achieving the overriding objective of creating a harmonious society.
In addition to the responsibilities listed above, large SOEs should also engage in public welfare, through social relief and charitable acts. In the event of major natural disasters and emergency circumstances, the large SOEs should also provide support and assistance, and some good examples of where this happened appear in Chapter 5.
CSR policy for the large SOEs
The Guiding document put forward five strategic measures for large SOEs to fulfill their social responsibility.
1. SOEs need to establish and raise CSR awareness, through incorporating a CSR policy for employees.
2. SOEs need to establish and improve the institutional mechanisms to improve CSR. Integrating CSR into corporate governance and corporate development strategies can provide a solid foundation and ensure the realization of CSR.
3. large SOEs need to establish CSR reporting systems for the benefit of stakeholders and society.
4. large SOEs need to strengthen international exchanges and cooperation to incorporate best practice into their own policies. This will enable them to benchmark their own CSR policies against enterprises with more advanced CSR systems, identify gaps and take action.
5. there is a need to strengthen the leadership of party organizations on CSR-related work. Party organization in enterprises is a major political advantage of the SOEs and encourages party leadership to play its core political role, whilst also supporting the trade unions, the Communist Youth League and women's organizations to play an active role in CSR-related work.
CSR needs the understanding and support of all stakeholders. We hope that we can actively communicate with all organizations in society, to encourage enterprises to fulfill their social responsibility, make greater contributions to China's comprehensive, harmonious and sustainable economic and social development. We also hope that society, particularly the media will pay attention to how CSR is implemented by large SOEs, and put forward opinions and suggestions. By doing so, the supervision on the CSR fulfillment of the large SOEs can be strengthened and the CSR level of the large SOEs can be enhanced.
About the Author:
Peng Huagang, Director of Research Office of the State-owned Assets Supervision and Administration Commission of the State Council.
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