The Implementation Mechanism of Social Responsibility in Chinese State-owned Companies

Economic Management Journal May 2015, Volume 4, Issue 2, PP.15-20

The Implementation Mechanism of Social Responsibility in Chinese State-owned Companies Qingru Liu Northwestern Polytechnical University, Xi’an, China Email: 767040898@qq.com

Abstract The concept of corporate social responsibility was origined in the United States in the early 1990 s. This theory is put forward, and quickly caused the widespread attention of various disciplines. With the transition of the planned economy to market economy in our country, most of the enterprises in China will still refuse to take care of the social responsibility and a series of problems become the biggest contradiction in China's economic development and social development. So it is necessary for China to slove these problems.

Keywords: Corporate Social Responsibility; Chinese State-owned Companies

1 BACKGROUD The concept of corporate social responsibility arises from the Western countries in the late 19th century. It had been attracting the attention of all subjects such as economics, management science, laws, sociology, ethics, et, al.

Undoubtedly, it became a basic idea to build a harmonious relationship between corporate and society.

In the era of the planned economy, Chinese State-owned enterprises took all the responsibilities for the State, society and employees, which is known as "enterprise social networking". After the Opening-up and Reform, the social function of the state-owned enterprises gradually strips,with the development of state-owned enterprise. They had paid more attention to the profits. However, as the most important economic entities in China, state-owned enterprises need to take responsible for protecting the interests of the society and promoting the development of harmonious society.

Nowadays, most of state-owned enterprises, especially the central enterprises actively fulfill their social responsibilities, such as improving business performance, publishing social responsibility reports, saving energy, participating philanthropy et, al. Meanwhile, there are many problems, such as ignoring the interests of labors and consumers, damaging the ecological environment and releasing error information. There are several reasons for these problems. Firstly, the social responsibility awareness of state-owned enterprises is insufficient. Secondly, internal mechanism of state-owned enterprises is an unsound mind, which is the defect of corporate social responsibility implemented system. In addition, the related social environment is not sound for the state-owned enterprises to fulfill their social responsibilities.

2 THE THEORY AND DEVELOPMENT OF CORPORATE SOCIAL RESPONSIBILITY Howard Bowen, 1953, in merchant's social responsibility, firstly proposed the concept of corporate social responsibility. However, the international community's understandings of corporate social responsibility are at least more than 200 years. The reason is that the different scholars from different countries would have different understandings of corporate social responsibility in different periods and it also changes with the development of social economy.

Foreign scholars have analyzed the content of corporate social responsibility by different ways, which includes three - 15 www.emj-journal.org

points:

2.1 The Theory of Concentric Circles In 1971, U.S. Committee for Economic Development elaborated on “the responsibility of three concentric circles”.

They thought the social responsibility can be considered as concentric circles. The inner of circles means the social environment. The middle one means the social values. The outside one means economy.

2.2 The Internal and External Responsibility of Enterprise George Steiner believed that corporate social responsibility includes the internal and external responsibility.Internal responsibility is the development of internal human resource. Companies should enhance employees’ benefits and improve the work environment. External responsibilities are divided into three parts: participating in the community activity, making use of entities and preservation of the environment, providing the products and better services.

2.3 The Hierarchical Responsibility The hierarchical responsibility considered the social responsibility is a triangle. This triangle has 4 parts. The top one is economic. The next one is legal. The third one is ethical. And the last part is spontaneous.

Chinese scholars also defined the corporate social responsibility, such as economy, legal, ethical and philanthropic aspects, and protect corporate shareholders, employees, customers, partners, governments, communities, the environment and other stakeholders.

3 THE HISTORY OF CHINESE STATE-OWNED COMPANIES 3.1 The Era of Planned Economy In the era of the planned economy, the state controls all the resources for a city to survive and configures these resources through the business units. State-owned enterprises exist as appendages of the government organs. Their basic task is to implement all the directives and instructions of superiors. Some economists pointed out that these enterprises mean nothing, under those traditional system.

3.2 The Beginning of Market Economy From the opening and deepening reform of economic system, a socialist market economy was preliminarily established. Large and medium state-owned enterprises must continue their reform to convert themselves into standard companies in compliance with the requirements of the modern enterprise system and improve their corporate governance. Against this major background, the enterprises had moved away from the traditional model of “enterprise social networking”. Enterprises began to chase profits in the environment of market economy.

3.3 The Era of Market Economy Along with the perfection of the Chinese market economy, the reform of state-owned enterprise has been deepened and many state-owned enterprises completed the primitive accumulation. At the same time, lots of social problems appeared since they ignored the social responsibility. People began to rethink the relationship between the economic interests of state-owned enterprises and the basic interests of society. As the main body of Chinese market economy, state-owned enterprises don’t only own economy responsibility, but also have non-economic social responsibility.

4 THE PARTICULARITY OF SOCIAL RESPONSIBILITY OF THE STATE-OWNED ENTERPRISE IN OUR COUNTRY Under the conditions of a market economy, the main functions of state-owned enterprises is to make up the shortcomings of market failure. As a kind of production organization form of state-owned enterprises, it has the characteristics of corporation for profit and welfare. Its profit embodies the pursuit of value and the value of stateowned assets. The public welfare reflected for the establishment of state-owned enterprises is usually to realize the goal of national economic regulation. It plays a harmonious development of all aspects in the role of national - 16 www.emj-journal.org

economy. The special social nature of state-owned enterprises decided it should have a special social function. The special social function should have different requirements such as different countries or regions, the same country or region in different historical conditions and economic conditions.

At the present stage, the general enterprises should undertake the social responsibility and have special social functions: 1) The promotion of the national comprehensive economic strength.

2) The protection of economic and social security.

3) Promoting social justice.

4) Promoting the construction of Harmonious Society.

5 THE INSUFFICIENT ACCOUNTABILITY WHICH STATE-OWNED ENTERPRISES TAKE Nowadays, we are deepening economic restructuring, establishing modern enterprise system and building the environment of equal competition to all enterprises in our country. Yet in the process of our market-oriented reform, the impulsion of pursuing profit are continuously growing in the state-owned enterprises. Thus in reality, there are many problems of these enterprises taking accountability due to the internal factors as well as the external environment.

5.1 Rights and Interests of Employees Are Ignored by Part of the State-Owned Enterprises The social accountability of the state-owned enterprises to their employees contains not only implementing labor rights written in labor laws, but also the moral obligations above the requirement of law. In the process of reorganization and reform, however, the state-owned enterprises have ignored rights and interests of their employees to some extent.

For instance, issues about work safety and occupational health are ignored by state-owned enterprises. Driven by the desire for economic interests, some state-owned enterprises attach no importance to national statutes and laws and employees’ safety of life and property, so their investment to essential security devices and equipment are insufficient and their safety production standards cannot meet the criterion made by related laws and regulations. All these have led to a comparatively high rate of occupational diseases among employees which has cause severe damage to their health.

5.2 Some State-Owned Enterprises Infringe the Interests of Consumers Taking advantage of their dominant position and monopoly advantage, some state-owned enterprises are infringing the interests of consumers to some extent, which are reflected mainly by: Firstly, the monopoly price. By virtue of their monopoly position in various industries, state-owned enterprises have made monopoly price for certain products, defrauded consumers about price and deprived consumers’ surplus ,particularly in the industries of tele-communication, aviation, automobile fuel, electric power and medical care.

Secondly, low-quality service. The elimination system within state-owned enterprises is slacken and the work is comparatively stable, thereupon the possibility of employees being fired is minimal. Moreover, some industries’ close association with consumers and their monopoly position make consumers have no other alternatives to their production and services. These have led to the poor attitude and inefficiency of services in some industries. Such as the bank, post service, the railway sector and bus system in urban areas, which are sectors being criticized more frequently than others for their attitudes.

Thirdly, appropriation of standard terms. By exploiting the unfamiliarity of consumers about laws and regulations concerning the details of the transactions, many state-owned enterprises revise them arbitrarily to escape from obligations and limit consumers’ entitled rights to know and right to fair trade. And when exposed to the standard terms provided by some monopolistic enterprises, consumers cannot but accept.

5.3 Part of the State-Owned Enterprises Pay No Attention to Energy Conservation and Environment Protection Enterprise information refers to all the business transaction data and other related materials created by the enterprises’ - 17 www.emj-journal.org

operating activities during a certain period. Being one of the significant social resources, enterprise information serves as a main basis for the managers, investors, creditors and the public to improve operating management, appraise the financial situation, decide upon investment, prevent financial risks and stipulate fiscal and taxation policies, it is also the foundation of the nation building up macro-control policies to ensure the normal operation of market economic order.

The financial and accounting system of the state-owned enterprises have basically come into being after years of reform, yet quite a few state-owned enterprises haven’t followed the financial and accounting criteria of national unity in management, lack of efficient internal control mechanism.

6 THE ANALYSIS 0F THE CAUSE OF INSUFFICIENT ACCOUNTABILITY WHICH STATEOWNED ENTERPRISES HAD TAKEN 6.1 Some State-Owned Enterprises Infringe the Interests of Consumers Despite of the gradual formation of the sense of social responsibilities, decision-makers in most state-owned enterprises aren’t fully aware of the corporate social accountability. Part of them are short of understanding to it and don’t carry it out in their strategies for operation and management, moreover, they only implement the accountability in terms of “doing charity and donation”

6.2 Internal Mechanism of State-Owned Enterprises to Implement Social Accountability is Unsound Nowadays, large and medium-sized enterprises in our country have accomplished the corporate reform in general, nevertheless, there remain some internal mechanical defects which impede the state-owned enterprises from carrying out social accountability. Styling themselves with special status, state-owned enterprises often fail to manage internal staff and serve the public in a human-based manner, which has led to the absence of responsibilities of them to stakeholders. The imperfection in the internal governance structure results in the fact that the mechanism of stateowned enterprises to carry on social accountability cannot be guaranteed. Nowadays, the constitution of board of directors in today’s state-owned enterprises is irrational for the lack of representatives of state-owned shares and Primary and secondary stakeholders, and it is difficult to gain the effective constrains upon enterprise managers, thus the interests of investors and the public cannot be granted; the limp inspection of the board of supervisors can neither tackle the problem of hegemony.

6.3 The External Environment of State-Owned Enterprises is Imperfect In our country, an external environment in which enterprises are encouraged and to carry out their social responsibilities has not been built yet, which is reflected in: firstly, lack of an all-round legal system of supervision. The research of legislation of corporate social responsibility is still in the preliminary state, and the practice is lagging behind.

Nowadays, there are a great amount of laws and regulations that touch upon the corporate social responsibilities, but they are all in a fragmented system. For instance, the company law, the labor contract law, law on the protection of consumers’ rights and interests, product quality law, law of environmental protection and so on. Most of them are too rigid, inoperable and lack of effective mechanism for supervision and evaluation, for them are not stipulated particularly for the supervision and management of corporate social accountability. It has come into being a consensus that enterprises should carry on social responsibility, but how to inspect and appraise comprehensively to whether enterprises have committed social accountability in a positive way and the extent to which they have committed them appears to be a new question.

7 IMPLEMENTATION MECHANISM OF SOCIAL RESPONSIBILITY IN CHINESE STATEOWNED COMPANIES 7.1 Improve Laws and Regulations, and Make It Possible for the Companies to Obey the Laws 1) Improve the Company Law The traditional concept of corporate governance is “the interests of shareholders and owners must be the primary”.

According to the theory of corporate social responsibility, shareholder or owner is not the only one who benefits from - 18 www.emj-journal.org

the company’s stakeholders. They should pay attention to the public employees, consumers, creditors, communities and other reason, which may affect the companies. The interests of other creditors, consumers, environmental beneficiaries and other community stakeholders also could appoint their representatives into the internal governance structure to achieve its prior security interests.

2) Pay attention to the consumers’ rights The heavier punishment could help the companies to promote their social responsibility. It would make the companies dare not defy the laws, which will pay more attention to protect the interests of consumers. Corporate social responsibility would be achieved in this way.

3) Set environmental public interest litigation mechanism to strengthen corporate social responsibility Environmental public interest litigation is a system that citizens or social group can take judicial proceedings to the court to protect public environmental interest, when public environmental interest is violated or at the time of being violated by public authorities, companies or other organization and individuals. This kind of litigation can either be an administrative action or a civil one. Public environmental interest litigation, which is related to company's social responsibility, is subjected to the category of civil public interest litigation.

The requirement of accuser qualification should exclude the “have direct interests with the object of litigation ". Since the accuser is suing for the public interest, it should not be limited to traditional theory of civil public interest litigation.

And this would encourage social group and public to protect the individual and public environmental interest with public environmental interest litigation.

7.2 Improve Laws and Regulations, and Make It Possible for the Companies to Obey the Laws Improving government regulation, strengthening incentives and guidance on corporates’ fulfillment of social responsibility Statutory corporate social responsibility can be legally enforceable, while for moral corporate social responsibility， law can take promoting norms to make it clear. At present, because less use of promoting legislative norms about corporate social responsibility, the ethical requirements of corporate social responsibility is clearly insufficient.

Government can regulate firm on its social responsibility fulfillment by following policies: A. Advocate the concept of social responsibility in the company.

B. The government should gradually establish a stable rewards and punishment incentive mechanism on social responsibility.

C. Establishing and perfecting the supervision mechanism of government regulators.

7.3 The Strengthening of the Company's Social Supervision Community supervision includes supervision of employees, consumers, public opinion and social organizations. Weak rights sense of employees resulted to defy the law in some companies. Therefore, staff should strengthen supervision awareness on corporate behavior. Consumer protection organizations should strengthen communication with the government and deepen market research. It will not only provide a source of information for government decisionmaking, but also help to promote the company to fulfill its social responsibilities. Finally, The Trade Unions and the mass autonomous organizations should play a supervisory role.

7.4 The Establishment of Social Responsibility-Oriented Corporate Culture, Consciously Practice Social Responsibility Companies establish the social responsibility-oriented corporate culture and consciously practice social responsibility. For corporate social responsibility, the real risk does not lie in advance, but rather avoid. Companies voluntarily undertake social responsibility to develop in terms of a major strategic significance. Social responsibility is part of the excellent corporate culture. Excellent company culture should be bound to require the company to take - 19 www.emj-journal.org

the social responsibility inherently.

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Carrol B, Buchhlatz K. Business and Society: Ethics and stakeholder Management. South-Western Pulishing, 2000

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Liu Junhai. Corporate social responsibility [M], Law Press, 1999: 6-8

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Yan Jing. Research on the realization mechanism of the state-owned enterprise social responsibility [D]. Tianjin：Tianjin

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Howard Bowen. the merchant's social responsibility.1953

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Jan Jizhi. Legal reflection mechanism to realize the state-owned enterprise social responsibility [D]. Journal of Zhongnan

University of Commerce, 2007

University of Economics and Law, 2006, (3) [6]

Zhu Linxing. Strengthen the sense of social responsibility of state-owned enterprises [N]. Liberation daily, 2007-05-23.013

AUTHORS Qingru Liu Xi'an, born in 1990-05-25, from 2008 to 2012, got her Bachelor's degree of business administration in North China Electric Power University, Baoding. from 2012 to 2015, studied for Master's degree of economic law in Northwestern Ploytechnical University, Xi’an. Her research field is the company law.

In the summer of 2013, she worked as a trainee in Shaanxi Hao Yuan Law Firm for one month. She published “The comparison of social responsibility implementation mechanisms between China and the U.S” in “Legal System and Society” (2015.1). She had taken part in the compilation of “Enterprise and Company Law” (Xi’an: Northwestern University press, 2014.8). Her research interests focus on the management of the enterprise and the Corporations’ social responsibility.

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