China corporate governance report: CSR and law

Other guidelines, aimed at foreign enterprises active in China, reflect the trend. On January 12 this year, the China Banking Association (CBA) published its Guidelines on Corporate Social Responsibility for Banking Financial Institutions in China. These apply to all banking financial institutions with Chinese legal person status, which includes not only the domestic players but locally established foreign banks including HSBC, Standard Chartered, DBS, Deutsche and Mizuho, among others. Among other things, this guideline advises all banks to produce a CSR report for submission to the CBA by the end of June 2009, and annually thereafter. It includes guidelines on corporate governance (“build up a fair, safe and stable competitive banking industry”), employee rights (including equal pay for equal work), consumer rights, and social and environmental responsibilities.

Similarly, the Chinese Academy of International Trade & Economic Cooperation, a subsidiary of the Ministry of Commerce, issued guidelines in August 2008 on CSR for foreign invested enterprises. “These are not currently law but they are an indication that foreign companies who wish to align themselves with Chinese government priorities should implement comprehensive tax incentives for companies which engage in CSR,” says Pearson.

And there’s more to come. There is a National Human Rights Action Plan of China, which comes from the State Council, promising guarantees of economic, social and cultural rights; civil and political rights; the rights and interest of ethnic minorities, women, children, elderly people and the disabled; and international human rights duties. Many will be highly suspicious of this last plan in particular, with China still high on the list of countries considered human rights abusers by some groups in the west. But the very existence of these guidelines suggests great change underway.

If these come in then China’s standing on CSR in legal terms at least will be transformed. “In the UK it took two years to get two words into the Companies Act about CSR,” Pearson says. “In China you’re looking not at two words but potentially a raft of legislation.”

In her eyes this is not entirely surprising. “CSR is often claimed to be a concept that Europe originated, the US adapted and China later adopted,” she wrote recently. But the new guidelines “seem to be evidence that China is going to take the lead in making CSR strategies a prerequisite for successful companies in China.”

Indeed, many argue that the state-owned nature of the majority of Chinese listed corporations has meant that social responsibility has always, necessarily, been part of their remit. “Optimising profitability is no more important than corporate social responsibility,” says Fu Chengyu, chairman and CEO of CNOOC. “So, when we tell our employees to maximise returns to shareholders, it is based on social responsibility. Whatever we do, we will see whether or not we can meet the requirements from society, from the community, and from the customer.”

Others argue that Chinese society, only recently moving towards free market approaches, has always protected the employee in a way that is only now becoming enshrined in CSR in the west. “Historically, employees of state-owned enterprises have always been very well protected,” says Ji Zou, a corporate partner at Allen & Overy in Shanghai. “Also the new Labour Law, which became effective last year, raised the protection of the employee and made it more difficult to terminate. It also brought some statutory benefits. Legislation-wise, it’s pretty pro-employee: the issue is implementation.”

CSR from an environmental perspective is newer, and only now moving towards the top of central government agendas. But, as Zou’s colleague Jane Jiang at Allen & Overy in Beijing adds: “China hasn’t become a market economy until fairly recently, and before then, the driving force was actually society’s benefit: our leaders do believe that. The fact that the employee is well protected is mainly from a government social perspective – they want society to be stable.”

Those outside China are still to be convinced. “It’s an interesting set of contradictions,” says Marshall Meyer. “I believe the Chinese government is looking to the long run. But if you look at sustainability, you’ve got to be kidding. Short run growth seems to have subordinated every other objective.” On labour law, he says, “the new law would, if enforced, expand considerably the rights  of workers. But it’s not clear there’s going to be full enforcement, some businesses are pushing back and saying too onerous. Enforcement is problematic.”