Solving the Chinese CSR Puzzle: How Chinese firms satisfy stakeholder pressure

Prof. Qinqin Zheng from the School of Management, Fudan University, and her fellow researchers Yadong Luo and Vladislav Maksimov from the University of Miami, share their research on a sample of Chinese firms to highlight the contexts in which firms deploy their CSR initiatives.

Stakeholders are at stake

Every month over the past year, Li Wei – to quote a popular male Chinese name – has worked hard, putting a little money aside for his family’s dream purchase: for Li Wei, his wife and two children are avid cinema fans. They plan to buy a beautiful home cinema. They have spotted two that meet their criteria. One is a little more expensive than the other though, on further investigation, Li Wei discovers that this model is made by a firm that donates a part of its profits to the community to provide education to local women in order to help them return to work after raising their family.

In the street opposite the Wei family lives Wang. Wang is twenty-four and she has just brilliantly finished a master’s degree at Fudan, one of China’s top schools. Now, after so long spent studying, she wants to work and has already received two offers: a highly paid post in a tractor manufacturers and a lesser paid job as a junior manager in a software company. Consulting both friends and the media, Wang learns that the tractor manufacturer has a bad reputation for dealing with its carbon footprint. On the other hand, she reads that the software company is very active in sensitizing its workforce on eco-gestures and pursues a policy of self-sufficiency in solar-generated electricity on its premises.

There is something in common between both Li Wei and his family and the young graduate Wang: they are all stakeholders. One is a customer, one is a rare resource: but they are both stakeholders, directly and indirectly, in the firms they wish to invest in and engage with. Faced with their respective choices, which of them would you recommend they choose?

CSR and corporate legitimacy

What the producer of the slightly more expensive home cinema and the software company have in common is that they have engaged in CSR – Corporate Social Responsibility – initiatives. Such initiatives can be internal to the firm – incorporating better environmental or safety standards for its employees – or external – for example, charitable contributions to local communities. But while much research has focused on firms’ organisational or performance-related motives for adopting CSR initiatives, Prof. Qinqin Zheng from the School of Management, Fudan University and her fellow researchers Yadong Luo and Vladislav Maksimov from the University of Miami, push the CSR debate further by focusing on a major motivation for firms to adopt CSR initiatives – legitimation. Why do firms need legitimacy? Very simply to achieve the approval of their stakeholders (customers, employees, communities, shareholders and the media to name but a few), to strengthen their durability, maintain employee satisfaction, lower risk and even ensure their business survival. And it is by studying legitimation that she and her colleagues have managed to identify which type of CSR initiative firms may make strategic use of to satisfy stakeholder pressure.

CSR in action

Despite an often-heard comment that CSR is simply a way to ‘green wash’ (indeed, there have been mediatized cases of CSR initiatives being used superficially to add shine to a company’s tarnished image), CSR does count, in a substantive way, for many. Examples include the textile manufacturer Coyuchi which not only uses natural dyes and organic textiles but pursues a zero waste water recycling initiative throughout the company as well as partnering with the ILO (International Labour Organisation) to ensure good working conditions for its own workers and an audit of those in place at its suppliers. Other, more familiar companies with recognized reputations in the field of CSR include Microsoft, BMW, Sony and Lego.

Generating much attention over the past few years, many studies have indeed centred on the strategic utility of CSR. However, they have tended to focus on explicitly expressed stakeholder pressures within specific domains, overlooking the angle of perceived importance and strategic use of different CSR initiatives to gain positive responses from different stakeholder groups. Consequently, the two strategies – compliance and strategic adaptation to CSR pressures – have been seen as alternative approaches. In research published in The Journal of World Business, Prof. Zheng et al conclude that both legitimation strategies can be used simultaneously and that two distinctly different CSR initiatives – philanthropy and sustainability – are used to satisfy specific types of stakeholder pressure.

Sustainability versus Philanthropy: or inside versus outside 

One, the other, or both? The answer to the question involves looking at several stakes at play for the firm. On the one hand, existing research has shown that stakeholders respond more positively to CSR initiatives implemented by firms when the firm has higher visibility – BMW or Microsoft, for example. A firm’s directors will therefore opt for an initiative that brings greater return on investment to this external aspect that both satisfies external stakeholders and brings improved visibility and image. It is here that philanthropy has the upper hand, being more instrumental in nature than sustainability and serving to prevent the particular sensitivity the public has of highlighting corporate irresponsibility. Philanthropy also wins through when firms find themselves in need of satisfying outside pressure to adopt CSR but do not have the means or time to implement initiatives that may call for a reorganisation of structure and resources within the firm. As such, philanthropy is a wholly external-oriented initiative that is relatively simple and rapid to implement.

On the other hand, management perceptions of CSR may be shaped by its concern to ensure smooth industrial relations, improve processes, gain in productivity and performance or even cost-save. In this context, firms are more likely to opt for a strategy of sustainability, in the wider sense meaning the implementation of initiatives such as adopting local supplier networks, environmentally sound business practices, offering adequate working conditions and fair wages or promoting the use of raw materials that do not signify costly recycling processes or eco-taxes. Such initiatives may well touch the concerns of employees and have a greater impact, at least initially, within the company rather than out.

Commitment is key

Prof. Qinqin Zheng’s research, carried out among 288 Chinese firms and using data and questionnaires with managers in charge of, or highly involved in, CSR activities, is also relevant given the context of the developing economic giant. Chinese society has become increasingly aware of the importance of CSR following a series of product safety and quality scandals. The tone from the top was given as long ago as 2008 when Premier Wen Jiabo appealed to Chinese entrepreneurs to demonstrate ‘moral blood’, and since then Chinese listed firms are encouraged to publish annual CSR reports, many of them displaying a voluntary wish to conduct CSR initiatives to win external credibility and internal legitimacy. Telling examples include Jiangsu Huangpu Recycling Resources CEO Chen Guangbiao, recognized for his high-profile approach to charities or, inversely, bowing to public pressure to increase its donation to earthquake victims, VanKe – a high-profit real estate firm – seeing itself having to offer a public apology and raising its contribution with a second donation of 100m RMB.

And although symbolic CSR still occurs, this is rather the result of low levels of commitment within the firm. Prof. Zheng states that when organisational commitment is present it will affect a firm’s adoption of philanthropic and sustainability initiatives differently. Higher commitment, she affirms, will be particularly useful in the strengthening of internal legitimacy on sustainability implementation – because sustainability is associated with positive modifications to its value creation process, employee wellbeing and operations. This in turn means a better integration of ethics practices, increased employee satisfaction and solidified trust in the organisation.

Whatever the commitment, firms may use the choice of two strategies simultaneously – compliance or adaptation. Zheng and her colleagues argue that this is because the former – compliance – appeases stakeholder demands and avoids unnecessary risks, while adaptation allows firms to optimize their CSR efforts and have greater freedom in choosing what CSR initiatives to pursue and to what extent. Both philanthropy and sustainability – two extremes in terms of initiatives – can be used, each with a different impact on specific categories of stakeholder: philanthropy works best externally, sustainability internally. If we return to the examples of Li Wei and Wang, the student, cited at the beginning of this paper, it can be seen that both CSR initiatives have a strong and highly desirable effect that is win-win for all: customer, company, community, and planet. The only thing to do to achieve this is very simply to commit – and make it legitimate.

 

Useful links:

  • Read the full research paper Achieving legitimacy through corporate social responsibility: The case of emerging economy firms http://www.sciencedirect.com/science/article/pii/S1090951614000340
  • Visit prof. Qinqin Zheng’s profile on the School of Management Fudan website
  • Other publications by Prof. Zheng
  • Browse School of Management Fudan’s education offer
  • Learn more on CSR from the Council’s member schools in the Global Voice eMagazine

The Council on Business & Society Global Alliance is an international alliance between four of the world’s leading business schools and an organiser of Forums focusing on issues at the crossroads of business and society – The Council Community helps bring together business leaders, academics, policy-makers, students and journalists from around the world. Follow us on Twitter #The_CoBS

One response to “Solving the Chinese CSR Puzzle: How Chinese firms satisfy stakeholder pressure

  1. Pingback: Ethical leadership, Words of Wisdom | The Council Community: A global alliance of leading schools of business and management·

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