Foreign firms’ growing CSR practices

      By Jeffrey I. Kim

 
The concept of CSR (corporate social responsibility) is still new to many people. It can be defined as a company’s sense of ethical and philanthropic responsibilities towards its community and environment. Ethical responsibilities refer to a corporate firm’s actions to promote and pursue social goals that extend beyond their legal responsibilities. Philanthropic responsibilities encompass those corporate actions that are in response to society’s expectations. Many businesses make donations for education, community improvement arts and culture, and other pursuits.

There are two ways in which CSR practices occur. One is that companies voluntarily conduct CSR activities as part of their long-term business strategies. The other is that they engage in CSR practices at the request of their stakeholders such as customers, employees, suppliers, and community groups.

The roots of the social responsibility movement can be traced to the period of 1945-1960, the early years of the Cold War. During this period, the communist movement led by the Soviet Union was a great threat to the free-market capitalism of the Western countries. Donald David, Dean of the Harvard Business School first mentioned CSR engagement. In 1946, he urged MBA students to take heed of social responsibilities. He argued that companies had to think not just about profits but also about their employees, customers, and the public at large.

David and other advocates of CSR believed that CSR management would be used as a means to defend free-market capitalism. They argued that CSR engagement brings about other benefits. It can build a positive corporate image and trust among customers and maximize long-term profits. It can enhance the morale of employees and increase their long-term productivity. Also it can significantly reduce market uncertainty.

By contrast, there are traditional arguments against CSR practices. Most notably, in 1962, Milton Friedman discounted the value of CSR engagement. He argued that management has one responsibility, maximizing the profits of its owners or shareholders. He went on to say that social issues are not the concern of businesspeople and that these problems should be resolved by the unfettered workings of the free market system. If the free market cannot resolve social problems, it falls not upon business, but upon government and legislation to do the job.

Critics argue that managers do not have the necessary social skills for such engagement. They further argue that business already has enough power and they should not be given the opportunity to wield additional power. Pursuing CSR activities will make their businesses less competitive globally.

The arguments for and against CSR are both plausible. However, whether a company should engage in CSR depends on the economic, political, and social conditions of a country where the company is operating. It also depends on whether the country is a developed or developing country because their political and cultural differences are significantly conspicuous. The world is full of uncertainties, and the degree of uncertainties varies with the country.

A number of empirical studies have been conducted to investigate whether or not CSR practices by Korean firms are profitable. They try to find out whether the relationship between CSR and CFP (corporate financial performance) exists. In their studies CSR scores were employed to measure CSR activities. To measure corporate financial performance, return on assets and the ratio of equity market value to equity book value were examined. Due to various measurement difficulties, some studies report that the relationship between CSR and CFP is positive but other studies turned out to be ambiguous for Korean firms.

However, the experiences of foreign firms in Korea are different from those of Korean firms. Income inequality in Korea has increased as its middle-income class shrank dramatically after the 1997 financial crisis. Thanks to the nation’s FDI inducement policy, about 17,000 foreign firms are currently operating in Korea. Under these circumstances, foreign firms’ stakeholders want to see more CSR practices occurring in Korea. Having sensed this, many foreign companies have extended their CSR activities.

Along this line, the Office of the Foreign Investment Ombudsman is hosting a forum for foreign firms to publicly share their experiences of CSR activities. This forum will be held on Sept. 28 during the Foreign Investment Week. Foreign firms have actively engaged in CSR in recent years and are expected to further increase their CSR engagement.

 https://koreatimes.co.kr/www/news/opinon/2016/09/197_214269.html