KoreaToday Good Intentions, Good Business
By Kim Tong-hyung
Staff Reporter
South Korean business leaders have been prating ad nauseam about corporate responsibility in recent years. However, it's easy to question their sincerity when famous tycoons keep appearing on the evening news ducking cameras and microphones in the wake of their latest corruption scandal.
So now that it's that time of year when the winds turn bitter and chief executive officers (CEOs) tour children's homes and hospitals with a hoard of public relations (PR) people, cameramen and kimchi glove-wearing executives, one can find it hard to suppress a sarcastic smirk.
But perhaps, at least some of the companies on the corporate social responsibility (CSR) bandwagon do deserve the benefit of the doubt when they say they are strengthening their commitments to doing good.
Although most companies still regard CSR, which has entered the vernacular of local business talk in recent years, merely as cosmetic treatments to beautify their reputations, others seem serious about testing the logic that responsible business correlates to lucrative gains.
Such change in corporate thinking looks to be a product of globalization. As local companies look to expand and integrate themselves further into the global market, CSR becomes just more than a glorified PR tool, but a crucial business strategy to astutely manage risks and opportunities in different places on the planet, experts say.
While CSR has become critical for companies entering new markets and gaining acceptability there, which obviously means winning licenses and building up their brands, there is also pressure from within for them to push CSR higher on their list of priorities.
The social pressure from activists were always there, and with foreign investors now throwing increasing weight in their boardrooms, improving accountability has become a must for Korean companies.
For those in need of a reminder, the hostile takeover attempt by U.S. billionaire Carl Icahn for local tobacco maker, KT&G, in 2006 serves as a chilling memory, an event that sparked urgency among Korean companies to improve their corporate governance.
And with a positive CSR reputation now becoming a factor in luring top talent, there is a growing acknowledgment in the local business scene that CSR activities mean more than photo-ops.
``In today's world, to be successful on the world stage means not only being competitive with your product or services, but also capable of managing non-financial issues, as you have to operate in different landscapes. Going global means going local in many other places,'' said Georg Kell, executive director of the U.N. Global Compact, in an earlier interview with The Korea Times.
The Global Compact is the U.N. initiative launched in 2000 to encourage companies worldwide to adopt sustainable and socially responsible policies. The member companies agree to adopt 10 core principles on human rights, labor, environmental and anti-corruption standards, and are required to report annually on their progress.
About 6,700 companies from 130 countries are now joined together under the Global Compact, which includes 156 South Korean firms and organizations led by SK Telecom, SK Energy, KT, STX and Hyundai Motor.
Although the recession forced many companies around the world to cut back on their CSR budgets, the Global Compact experienced an increase in membership.
And despite the tightened purse strings, environmental issues garnered renewed focus from many of the companies, as ``greener'' solutions in energy, supply chains and communications often meant cheaper costs.
``The economic downturn seems to have reminded companies of the basic understanding about how to build a sound organization, reinforcing their commitment to long-term value creation, instead of just chasing short-term gains,'' Kell said.
Export Juggernauts Lead the Way
The increasing energy spent on CSR is connected to the attempts by the companies to go global. So it's no wonder that the most visible efforts on the corporate responsibility front is being made by the country's export powerhouses.
The Korea Exchange (KRX), which integrates the country's three spot and future exchanges ― the Korea Stock Exchange, Korea Futures Exchange and Korean Securities Dealers Automated Quotation (KOSDAQ) ― introduced a social responsible investing (SRI) index in September to evaluate the ability of local companies in balancing financial return and social good.
Of the 70 companies in the index, 39 of them, including industrial heavyweights Samsung Electronics, POSCO, Korea Electric Power Corporation (KEPCO), Hyundai Motor and LG Electronics, received the top ``AAA'' grade.
The Korea Productivity Center collaborated with U.S. financial information firm Dow Jones and Company to introduce a Korean version of the Dow Jones SRI (DJSRI) index in October.
After an evaluation of the corporate governance and CSR activities of the country's 200 biggest firms, 41 of them made the DJSRI Korea list, including Samsung Electronics, LG Electronics and SK Energy.
According to the Korea Productivity Center, the firms on the DJSRI Korea list have so far had a more profitable year than their competitors.
The stock prices of the firms on the DJSRI Korea list gained by an average of more than 40 percent at the end of November compared to the start of the year, compared to the Korea Composite Stock Price Index (KOSPI) average of 34.4 percent.
Six Korean firms ― Samsung Electronics, Samsung Electro-Mechanics, Samsung SDI, POSCO, Lotte Shopping and SK Telecom ― are currently on the Dow Jones' international SRI list.
``It would be a stretch to say that strong CSR activities have directly resulted in better profit for these companies, which already belong among the country's industrial powers,'' said Cho Dae-yeon, an official from the Korea Productivity Center.
``That said, it is undeniable that firms with good CSR records are considered as more reliable bets in the eyes of investors, here or abroad. There is room for improvement, however, as only about 6 percent of the firms listed on KOSPI offer annual reports on their progresses on sustainable management. The companies that fail to effectively handle non-financial issues will have a hard time competing in the global markets.''
Samsung Group, the country's largest conglomerate, has been one of the local business groups that have been increasing their investment in CSR efforts.
Samsung Electronics, the world's largest consumer electronics maker and the crown jewel of Samsung's corporate empire, began producing an annual report on the progress of its CSR activities last year, based on the guidelines of the global reporting initiative (GRI).
The company first produced an ``environmental report'' in 1998 on its efforts for sustainable business management. It currently operates a dedicated CSR division under Vice Chairman Lee Yoon-woo to self-evaluate the company's corporate governance, green efforts, relations with partner companies and improvements in consumer products and services.
The company also announced a ``green management'' initiative in July, with the goals of expanding its lineup of environment-friendly products, reducing greenhouse gas emissions throughout its manufacturing process and improving recycling of used consumer electronics products through a series of projects that continue through 2013.
SK Group, which was ranked highest among Korean companies in Fortune magazine's list of the world's ``most accountable companies'' last year, is also picking up its CSR efforts.
In September, the group launched ``SK Pro Bono,'' which is comprised of employees with expertise in law and accounting who will now dedicate themselves to charity work.
SK is also planning to spend 50 billion won (about $43 million) through 2011 to establish a working body within the group to integrate and support the CSR efforts of key affiliates such as SK Energy, Korea's top refiner, and SK Telecom, the country's top mobile telephony carrier.
SK Group Chairman Chey Tae-won is currently the only Korean member on the board of the U.N. Global Compact.
GS Caltex, the country's No. 2 refinery, plans to spend 100 billion won over the next 10 years on charity and public projects through its newly established ``GS Caltex Foundation.''
Doosan Group, with key subsidiaries in heavy industries, construction, clothes and food, recently announced that it would spend 0.3 percent of its total revenue on CSR activities from next year.
Kumho Asiana Group had been known for its variety of scholarship programs for underprivileged children and students, long before CSR became a buzz term.
LG Chem, a leading producer of chemicals and rechargeable batteries, is currently accelerating its green technology efforts.
KEPCO, the country's sole provider of electrical power, is setting a solid example for CSR activities among state-run companies, getting high marks for its tight corporate governance and wealth of programs to financially support smaller business partners.