The Chinese Approach To Corporate Citizenship

31 Dec 2005 – John Elkington

Whatever else it has been, 2005 has been the Year of China. The giant country has loomed every larger on our radar screen as the year wound by, not least because of my first visit to the country in May. In addition to speaking at the Fortune 500 Global Forum in Beijing, I had wonderful opportunities to meet people from the Chinese government, business and NGO sectors courtesy of people like CGA, the China Business Council on Sustainable Development, Shell and WWF. Then, on 15 November, I took part in the first China Europe Business Summit, held in Geneva by Horasis (The Global Visions Community), which helped me to pull many of the loose threads together – although not all the conclusions were comfortable ones.

The China Europe event – now set to become an annual series – is the brain-child of Dr Frank-Jürgen Richter, who I had first met when he was the World Economic Forum’s Director of Asian Affairs. Now President of Horasis, he had asked me to chair a session on ‘The Chinese Approach to Corporate Citizenship’, which sounded intriguing. In welcoming delegates to Geneva, he stressed that “China’s rise to global eminence is providing formidable opportunities for European firms.” True, but the event also underscored the uncomfortable fact that European – and North American – firms are facing increasingly formidable competitive challenges from the same direction.

In the wake of CNOOC’s recent attempt to take over the US oil company Unocal [3], one panellist wondered aloud how long it would be before a Chinese company had a go at taking over Wal-Mart? Tongue-in-cheek, perhaps, but today’s lightly dismissed improbabilities have an uncomfortable way of becoming tomorrow’s probabilities and realities. And the same, inevitably, is going to be true for the Chinese. Issues that would have once have seemed impossibly remote to them, alien even, are now racing up the business agenda for Chinese companies with international aspirations.

CNOOC President Fu Chengyu was one of the top Chinese business leaders who made frequent reference to issues like climate change during the Geneva meeting. But perhaps the most interesting voice for the future of Chinese capitalism was the extraordinary Zhang Yue, who Forbes magazine listed – with his brother – as No. 25 in its 2001 survey of China’s 100 Richest Business People. Given that he was once a public school teacher, Zhang’s rise to success is even more striking. In 1988, he founded Broad Air Conditioning, where he is now CEO, and which has boasted an 80% share of the energy-efficient air-conditioning market in China. His personal quest, he says, is “to make society a better place to live.”

Zhang was also one of the panellists in the session I chaired. And while several speakers – including Serge Berthier who founded the quarterly Asian Affairs and chairs Oriental International Strategies and the Asia-Europe-Forum – questioned whether China could afford to adopt foreign standards of corporate citizenship any time soon, Zhang repeatedly stressed the stunning nature and scale of the environmental challenges his country faces. Like a number of the companies represented at the Geneva summit, he noted that Broad Air Conditioning’s ambition is to go global. In the process, he noted, the aim will not be to become a “big company, but a great one.” And for that to be sustainable, the international corporate citizenship agenda will become increasingly important.

Several other speakers discussed the rising expectations and standards that all high-brand businesses are now expected to meet. Perhaps most strikingly, we had Eva Biaudet, a member of Finland’s Parliament and a former Minister of Health and Social Services. Modestly introducing herself as “a typical Nordic woman politician”, with an interest in such areas as human rights and climate change, she accepted that it might seem strange that a country of 5 million could have something to offer to a country of 1.3 billion. But she noted that Finnish companies are increasingly active in China, with over 200 firms now employing some 24,000 local Chinese.

That was the positive side. More challengingly, she explained how she is teaching her children to choose between products offered by different companies on the basis of their environmental performance – and, she warned, the behaviour of such companies will increasingly be vetted by western consumers for their performance in relation to such issues as environment, working conditions and human rights.

In headlines, we discussed three main areas of the citizenship agenda: international companies moving into and operating in China; national Chinese countries operating in the domestic market; and, the big long term trend, the growing number of Chinese companies operating abroad.

From the presentations of people like Nick Butler, BP’s Group Vice President for Strategy & Policy Development, it was clear that the best of overseas investors in China are doing their best to ensure that their operations in the country are state-of-the-art. But several speakers underscored the political challenges that will surface as China moves onto the international stage.

Tom Spencer, Executive Director of the European Centre for Public Affairs at Surrey University, and a former Member of the European Parliament, recalled this year’s ‘Bra War’. This resulted in over 80 million items of clothing – including sweaters, trousers and bras – piling up in warehouses at European ports. Spencer accepted that Zhang Yue was highly unlikely to face a consumer boycott against air-conditioners any time soon, but continued to say that the range of contentious issues is growing rapidly. Among others, he spotlighted the continuing problems international companies trading into China face in terms of intellectual property and counterfeiting. In fact this issue surfaced repeatedly through the summit, with some participants arguing that this has been one of the features of Chinese business practice (or, more accurately, malpractice) that has been preventing more EU companies from getting involved.

Interestingly, Spencer also raised the distinct possibility that the early twenty-first century vision – in the West, at least – of ‘turbo-capitalism’ evolving along Anglo-Saxon lines will prove illusory. Instead, our session concluded, the future is likely to be one of multi-polar politics and multiple capitalisms, with huge implications for the types of ‘corporate citizenship’ that will take root (or fail to do so) in the various world regions.

Our last speaker – but one of the most interesting – was Zhao Min, the Harvard-trained President of Sinotrust Management Consulting. When he and two colleagues resigned from China’s former Ministry of Foreign Trade and Economic Cooperation in 1992, Zhao scarcely dared tell his parents that he was venturing into the private sector – and met with sarcastic comments when he went to register the new company with the Beijing Industry and Commerce Bureau. Now Sinotrust employs over 600 people at its offices in Beijing, Shanghai, Guangzhou and Hong Kong.

Zhao joked that in the old order, the smartest Chinese became government officials, the next level down went into education, and (by implication) the bottom of the barrel went into business. Although he commented that there are very few companies anything like Broad Air Conditioning, he reported that business is becoming increasingly popular as a career path for bright Chinese youngsters – and, in a parallel trend, many business leaders are beginning to acknowledge the need not just to pursue raw profitability but also to manage against a “balanced scoreboard”.

The relatively low turn-out for our corporate citizenship session – which faced competition from parallel events on such themes as intellectual property, intangibles, corporate governance and innovation – led some of us to conclude that the title should have been more along the lines of ‘How To Make Billions From Corporate Citizenship’. But it will be fascinating to track the evolution of the emerging Chinese scoreboards as Frank-Jürgen Richter and his colleagues continue to build their series of summits.