Concept of corporate social responsibility evolving further

Updated: 2013-01-24 07:11

(HK Edition)

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Concept of corporate social responsibility evolving further

Business ethics is a big topic these days. Since the start of the millennium, there have been many corporate events that have led people to rethink about what business should be. The collapse of Enron is a good example. The leading energy corporation was involved in accounting frauds and scandals leaving investors with losses of millions of dollars.

The US subprime crisis is another major market event that made people question the financial institutions' roles. The deep-rooted problem is the lack of ethics. Business corporations only target profits and the drive for more profit can be at the expense of ethical behavior.

In the olden days, the quest for profit was perceived as the only legitimate role of corporations. In economics, one school of thought stresses that the only ethical behavior of corporations is to earn more profit. The rationale is that when corporations have profit, they will pay more taxes. The government will then have more resources to redistribute social welfare with the tax money. In other words, the more tax corporations pay, the better the society will be because government will take up a better social welfare role. According to this school of thought, a single individual can have social responsibility, but not a corporation.

Nevertheless, this school of thought is now subject to a lot of debate. Nowadays people are not content with the profit motive alone. People have many views about what corporations should be. A leading view is to that corporations should perform more duties and responsibilities in society. This trend can be due to the evolution of business ethics in the commercial sector. However, a greater force is from the regulators and investors.

To regulators, the supremacy of profit motive has led to many crisis and law suits. The public is asking for tighter regulation and greater punishment for misbehavior. This in turn will make regulators dish out more rules and regulations less favorable to corporations, a trend which corporations understand. Before this happens, corporations are beginning to "voluntary" behave to win some public support. In other words, social pressure plays a role in changing corporations' behavior.

Another force is from investors who these days do not just focus on returns on their investment, but they also want their money to be invested in corporations that are socially responsible. Many investment funds have conditional mandates restricting investments in certain industries considered as unethical. Again, this is a market force that makes corporations realize the importance of corporate social responsibility.

In Hong Kong, many listed corporations have started to report their corporate social responsibilities in annual reports. This trend is still at an early stage, but the idea is to have corporations to be alert to other stakeholders and how they are doing in society. Nevertheless, the current situation is far from perfect and very often corporations just treat corporate social responsibility as a kind of formality. Hence, some corporations tend to offer concrete data in reporting on voluntary work provided by employees and donations given to charities. From a management point of view, reporting objective figures can help to increase the corporations' image and make people think they are socially responsible. However, the down side is that the reporting is somehow superficial, reflecting management's perception that this issue is a formality.

The current way of objective reporting of corporate social responsibility activities is not good enough. A more advanced concept is to get stakeholders' involvement and make them feel that the corporations are ethical and socially responsible. Corporations need to realize that such behaviour is not only about reporting figures, but also to mould perception of various stakeholders. To achieve this, corporations need to engage various stakeholders. Definitively the role of corporate communications will become much more important in coming years.

The author is dean, School of Business, Hang Seng Management College. The views expressed here are entirely his own.

(HK Edition 01/24/2013 page2)