Ethical and CSR Challenges in the Chinese Communities

The concept of Corporate Social Responsibility is closely linked to business ethics and to individual responsibility of organizational leaders. Although regional differences may exist within the Chinese communities, common moral characteristics may be identified in Taiwan and Mainland China. Organizations in the Chinese communities are believed to have a strong collectivist culture with a high degree of power distance. Based on the soci0-cultural paradigm by Hofstede, leaders in the Chinese organizations are not only expected to set moral examples for their subordinates, but also to examine their own moral values and behavior more deeply.¹⁵² This may imply favorable conditions for good business ethics in case of high-moral leaders. Yet, in case of low-moral leaders, not only the moral environment deteriorates and demonstrably lowers employees‘ efficiency,¹⁵³ but imbeds the immoral values within the organization due to the high degree of power distance that is translated into employees‘ fear of taking action. As Chan et al. point out, Chinese

“people’s perception of organizational ethical culture is a significant factor influencing their judgement of whistleblowing.“¹⁵⁴

In Lite-On Technology, employees may use various communicational channels to express their suggestions or complaints. One of them is “Call Me David“ box, which is available in all Lite-On Technology’s facilities. However, the use of this channel is not common. Most employees prefer direct talks with their managers (also because employees in China do not have access to computers). Occasionally, the HR department receive emails from employees.¹⁵⁵ Besides these channels, the company holds two labor-management communication meetings every year, which specifically target labor issues and are attended by supervisors and top management¹⁵⁶ (but it is not clear whether union representatives may take part in these meetings too).

151 The Economist, March 31, 2012.

152 Jiang, Lin, Y.-C. & Lin, L.-C., 2011.

153 For the results of empirical study please refer to Jiang et al., 2011.

154 Chan et al., 2009.

155 Personal interview.

156 Lite-On CSR Report, 2010.

According to Wang, a hierarchical relationship between trade union officer and personnel manager is very common in Taiwanese companies in order to facilitate labor control.¹⁵⁷

Jiang et al. have identified several moral value challenges that managers and employees face in the Chinese companies:

• Hiding colleague’s or supervisor’s illegal behavior;

• Bribing (including treating a potential customer to a vacation, giving gifts to important customers, especially during the Chinese New Year and trying to obtain an information from competitors‘ employee);

• Disrespecting job duty (simply not doing one’s best to accomplish work);

• Using a political ruse (taking credit for other people’s work or attributing mistakes to other people);

• Acquiring corporate resources illegally;

• Cheating customers.¹⁵⁸

According to some researchers, the guangxi culture itself may lead to unethical behavior. Notably with relation to supervisor-subordinate guangxi, perceived unfairness and supervisor-targeted impression management are more likely to occur.¹⁵⁹ Decisions are guided by personal influence and not by well-established, functional administrative frameworks, which ultimately results in corruption. In the Chinese communities, interpretations of law are flexible and it is relationships, not law, that provide security and framework for doing business.¹⁶⁰

Besides the guangxi culture, gift giving and generous treatment are also special features of the Chinese business environment. Naturally, it is difficult to draw a boundary between ethical and unethical behavior, as the 2010 Lite-On CSR Report suggests:

157 Wang, 2005, p. 49.

158 Jiang et al., 2011.

159 Chan et al., 2009.

160 Blackman, C., 1997, p. 9-10.

“While dining is a necessary accompaniment of meetings between the employees and suppliers or customers, treatment should be appropriate and emphasize reciprocity.”¹⁶¹

Now, let us summarize CSR challenges in Taiwan’s business envionment from the government’s perspective. First, as mentioned earlier, there are loopholes in Taiwan’s company law, labor and environmental law. Government’s regulations are often unclear, too. Economic growth in Taiwan, as it is the case in other Asian tiger economies, is put ahead of regulation. In Western developed countries, CSR usually exists as a strategic extra-value in an already mature and functional legislative environment. Sometimes, CSR may even have the ambition to shift business and legal environment towards more justice (e.g. inclusion of environmental and social criteria in public tenders according to the directives 2004/17/EC and 2004/18/EC of the European Parliament and of the Council).¹⁶² In Taiwan, CSR so far exists as a necessary minimum reaction to pressure from international customers, yet parallel to an imperfect system of legislature and corporate governance.

Second, there is a lack of cooperation between ministries and agencies. This results in two major problems: poor central planning and poor tracking management. The government is aware of the need to respond to CSR somehow, but does not develop a concrete plan as to laying out how. Because the approach to CSR is fragmented, no comprehensive tracking management system can be developed. Instead of enforcing compliance, government awards certificates to few selected companies for their isolated achievements.

Third, inspection and audit agencies in Taiwan are highly underfinanced and understaffed. It is still a prevalent belief in Taiwan that strict regulation will bring slowdown to the country‘s economy. But the fact is that stricter, clearer, anchored regulation and more efficient supervision would create new opportunities and thus would contribute to Taiwan’s development in another, perhaps safer and increasingly righteous way.

Now, let us continue with the business perspective. Similarly to the government’s perspective, companies are aware of the urgent need to respond to global CSR trends

161 Lite-On CSR Report, 2010.

162 Butollo, Kusch & Laufer, 2009.

somehow, but do not know exactly how. When Lite-On asked for help from other stakehodlers‘ when establishing its CSER monitoring system, there was “(...) no help from Taiwan’s government“ and “very little help (some consultations) from global brands.“¹⁶³ This holds two consequences: for most companies, CSR is not one of the companies‘ strategic values and their resources are not used efficiently. In other words, most Taiwanese corporations do not develop and improve CSR continuously, but improvise in reaction to the situation in the market. Drifting in and out of CSR commitments is the consequence of this reality.

CSR challenges, especially those related to the social pillar, lie in a relatively conservative management culture in Taiwan: many Taiwanese companies still try to compete with China in the price and cost domain, although they are no longer competitive there. The understanding of true employee value is lacking, encouraged by the existence of imperfect legal framework. In many managers‘ eyes, working long hours with no holiday and silent participation to inefficient meetings are major criteria for a good employee assessment. One worker described the working environment in Taiwan as „tough, but stupid“.¹⁶⁴ Workers are simply regarded as expendable and easily replacable. Competitive recruitment, performance remuneration and management by objectives are still relatively new ideas.¹⁶⁵ Promotions are granted to those who have cemented different kinds of relationships over time and not to those with extraordinary performance. Workplaces also suffer from inability to take individual responsibility for one’s tasks,¹⁶⁶ both originating from fear of losing face opposed to an individual, culture. To oversimplify, people from individualistic cultures tend to think of themselves primarily as individuals and as distinct from others. People from collective cultures consider it a primary obligation to look

163 Personal interview.

164 Personal interview.

165 Blackman, C., 1997, p. 66.

166 Blackman, C., 1997, p. 127.

out for those who are connected to them by family, home town, or employer. In most Chinese companies, employees from the CEO down to the lowest-paid factory worker believe that harmony and loyalty should be maintained and confrontation avoided. Disagreeing with a colleague's or boss's opinion in a meeting or in public is out of the question. A collective culture is great for rapidly building an organization from scratch. But too often, companies with collective approaches continue to disempower individual employees and devalue their intellectual contributions.“¹⁶⁷

Only recently, Lite-On Technology began to understand the importance and benefits of feedback from their employees and the wider community - especially after witnessing the success of feedback culture at its Taiwanese competitor, Delta Electronics. Now, Lite-On Technology employees‘ suggestions and feedback are slowly encouraged by offering financial bonuses, awards and other incentives to the employees.¹⁶⁸

After the implementation of the environmental accounting system, the biggest challenge for the Lite-On corporation in 2011, two major challenges for Lite-On’s CSR in 2012 and onwards were identified:

1. deeper community involvement;

2. employee assistance.

The community involvement has been made the priority and the LBG methodology is applied to this aspect of CSR, but the results are mixed depending on the facility and employee’s position in the company. Generally, more encouragement is needed, especially for corporate volunteering. Yet, it is hard to overcome this problem in an environment of frequent overtime work.

The second challenge - employee assistance - seems even harder to overcome. In fact, Lite-On Technology’s factories in China suffer from a very high turnover of employees (as described in the fourth chapter). The company feels that measures to increase employees‘ loyalty need to be taken urgently, but it is difficult because the reasons behind the high employee turnover are manifold. Two main reasons may be

167 Harward Business Review, December 7, 2011.

168 Personal interview.

quoted here: wages and personal characteristics of nowadays strawberry generation,¹⁶⁹ who quit jobs easily, soon become frustrated and cannot deal with pressure.

6.7 Outlook

While Lite-On has just started to develop its CSR program in one of its subsidiaries, the leading brands in the West are moving beyond CSR. Some western managers have started thinking about new ways of:

• How to bring business and society together;

• How to legitimize the business after the general sentiment has been developed in the Western society that companies create profit at the expense of communities;

• How to achieve economic profits.

Some corporations began to realize that moving their operations to low wages locations is not only a short-sighted strategy - as in the case of China, where wages have risen by 22% since 2010¹⁷⁰ - but also an unsustainable strategy. Michael E.

Porter and Mark R. Kramer propose the new principle of shared value as a new way of profit making by criss-crossing profit and non-profit boundaries in corporate operations:

“(...) the principle of shared value, which involves creating economic value in a way that also creates value for society by addressing its needs and challenges.

(...) Shared value is not social responsibility, philanthropy, or even sustainability, but a new way to achieve economic success. It is not on the margin of what companies do but at the center. We believe that it can give rise to the next major transformation of business thinking.“¹⁷¹

169 Strawberry generation is a Chinese neologism for young generation of Taiwanese people born after 1980 who were raised in overprotection from their parents and economic prosperity. In older

generation’s eyes, they cannot withstand social pressure and hard work as the older generation could, and bruise easily, like a strawberry skin. The term is now used commonly in Taiwanese society and media. As for the generation of Chinese youth born under the one child policy, the high turnover in factories is emphasized by their inability to adapt when they reach adulthood, because as single kids they lack social skills and draw the whole family’s attention and resources (syndrom of little emperor).

170 Financial Times, January 4, 2012.

171 Harvard Business Review, January 2011.

Porter and Kramer’s rethinking of Corporate Social Responsibility suggests that companies should stop pursuing the old CSR rule of what is good for business is then good for society, but look at the business-society relationship from a reversed perspective: what is good for society is good for business. Porter goes even beyond this definition by saying that creating a societal benefit is a powerful way of creating economic benefit.¹⁷² By producing products that are actually good for people and address their real needs, companies could make a kind of profit that creates a shared value and thus is not profit made at the expense of society. Porter gives fair trade products as concrete examples of such meaningful products.

Even though the concept of shared value is very new and a comprehensive framework is missing, its emerging form may be already found in Taiwan. For example, after the typhoon Morakot hit Taiwan in 2009, most corporations donated money to help rebuild the affected communities. Yet, a small company Canmeng chose a different approach: instead of philanthropy, the company targeted a group of aboriginal women and provided them with an employment opportunity to manufacture birthday gifts for the company’s staff.¹⁷³ This approach helped cement the community spirit among local people and enriched both the company and the local community.

However, the concept of shared value may not be applicable to OEM/ODM companies, which are dominant in Taiwan, because the nature of their businesses designates them to follow their customers‘ orders. Referring back to Dunning’s scheme, only companies possessing ownership advantage would be able to shift the core of their production, while their first-tier suppliers would be left with the competition for margins. Even in this concept, a more exclusive collaboration between global brands and their suppliers is needed in order to resolve CSR issues in the supply chain.

In conclusion, a successful way of developing a sustainable business nowadays needs to be interrelated with individual responsibility, long-term strategy and an excellent understanding of communities in which the company operates. Some corporations have begun to realize that the CSR phase is over. In the future, businesses may move to the next phase by creating a shared value for consumers and society. Such approach

172 Ibid (audio podcast).

173 Euroview, August/September 2011.

might bring together the two seemingly antagonistic business objectives: making real impact and reaching sustainable profit. It will be a new challenge for Taiwanese companies to participate in this new trend.

7. Conclusion

The idea of sustainability and the concept of Corporate Social Responsibility are both built on three pillars: economy, society and environment. The implementation of this concept has to be undertaken by all actors in the international community. Yet, in light of multinational corporations that become increasingly powerful at the expense of other stakeholders, it is the MNCs that need to engage in this implementation in a much more serious manner than has been the case until now. The model of CSR represents a means of how business may mitigate the negative impacts of globalization, but only under the condition that elaborate controlling mechanisms exist. Corporate operations and perplexed supply chains have evolved into an uncontrollable net, which is diffucult to monitor and manage not only by the corporations themselves, but also by state and international institutions. Keeping track of the entire production chain has proven to be an extremely difficult task. Drawing consequences from impact of MNCs‘ operations in the developing world turned out to be impossible.

In order to address the problem of consumers‘ goods being produced in developing countries with weak legislation and poor rule of law, the MNCs, often after a collaboration with non-governmental organizations, developed various instruments of how to improve the environmental and working conditions in their supply chains.

Although the progress has been slow, MNCs, including Lite-On, claim to have achieved some improvements: especially after they paid repeated visits to factories, after global brands started to cooperate closely with their suppliers, and after suppliers established reliable systems to gather and analyse CSR data. However, the time period, during which the information from auditors has been collected, is too short to conclude whether the improvements will be sustained or just temporary.

Codes of conduct are the most widespread CSR instruments. However, they do not seem powerful enough to trigger the shift towards more ethical production. Audits and compliance programs bring mixed results. Generally speaking, they collect valuable data about the situation, but this analysis has shown that the more audits are carried out in factories, the more evidence about code violations they bring. Industry initiatives, like EICC, remain closed and non-transparent to other than

business-member stakeholders and therefore do not provide a helpful platform for CSR. The intergovernmental initiatives, such as the United Nations Global Compact, have not brought the desirable outcomes either. Many corporations do not take this scheme seriously, although it is believed to possess the most advanced controlling mechanisms. Furthermore, this approach did not improve transparency with regard to other stakeholders, as the international community initially hoped.

In fact, it is the business model of just-in-time manufacturing, shorter life cycle of products, frequent changes in design and demand volatility, which impose substantial challenge to CSR. Thus, even if a factory improves its management and technical capabilities, the risk of labor issues may persist. With the business models unlikely to change in the near future, corporations have no choice than to work more exclusively with their suppliers, incorporate them into the production processes and continuously evaluate these procedures. This may also help increase workers‘ loyalty and decrease the high turnover in factories, as emphasized in the case of Lite-On.

Given the relatively modest impact that CSR brings to corporations and communities, some leaders started to rethink the concept of CSR altogether. The idea of shared value may remodel the current, almost hostile relationship between business and society. If a sophisticated framework is provided for this concept, businesses may not only discover a new way of making a real impression on the territories in which they operate, but also a new strategy on achieving a sustainable profit-making.

Since Taiwanese companies have vital links in the global supply chains, particularly in the production of electronics, they face increasing scrutiny from their customers.

Up to now, the motivation for CSR in Taiwan primarily stems from the pressure from upstream players - global brands - that are leaders in innovations and CSR. But, this pressure has been put on the first-tier suppliers only recently and thus, the concept of Corporate Social Responsibility is still relatively new to the Taiwanese business community.

Taiwanese corporations are currently at the initial stage of the development of their CSR programs. As shown in this analysis, OEM/ODM suppliers are in an uneasy position: they receive minimum benefits from CSR and operate on very low margins.

Yet, Lite-On Technology and a few other corporations still invest their efforts and resources into development of CSR program and try to improve the situation in the

electronic supply chain. Most Taiwanese companies focus on selected aspects of CSR, prioritizing the environmental pillar due to their limited budgets. Besides financial reasons, they pursue this prioritization again in relation to their global customers and in order to remain competitive on the global market. Many of them go green in their operations because they see CSR as an opportunity to decrease their operating costs.

Lagging behind the environmental aspects in Taiwan are the labor and social aspects.

Lagging behind the environmental aspects in Taiwan are the labor and social aspects.