By Dr. Jeffrey I. Kim
It has been over four decades since the concept of "corporate social responsibility (CSR)" was developed. CSR activities by multinational enterprises (MNEs) used to be considered a voluntary self-regulation. These days, however, many host countries impose CSR on foreign direct investors as mandatory.
There is much evidence that socially responsible corporations (SRCs) can create and distribute "social values" to the public more efficiently than the government.
The concept of social value has been widely accepted. When it comes to its measurement, however, scholars and practitioners have different voices. Value is inherently subjective in any country so that when a social-value creating project leads, funders and partners tend to fight over ways to measure the social value.
Chairman Chey Tae-won of SK Group has recently disclosed an intriguing measurement method. He has been playing the role as a worldwide evangelist propagating the necessity of CSR. He has passionately participated as a panelist in the global forums.
Chey advocated that CSR management has become the most effective long-term business strategy and that large-scale companies had better adopt the double bottom-line accounting method to quantify the social values. So he has created a new business model, called "the social value model."
The bottom line refers to either the "profit" or "loss" which is usually recorded at the very bottom line on a statement of revenue and expenses. In contrast, the double-bottom-line (DBL) approach considers both the conventional economic value and the social value. By adopting the new DBL model, the performances of SRCs can be assessed appropriately.
As part of the social value model, SK has developed an innovative method of measuring the social values. They considered three areas ― wages, raw materials, and the commodities/services and suggested a new measuring standard:
― Firstly, when hiring the disabled or people in socially disadvantaged conditions, including the youth and retirees, the SRCs pay a wage higher than the average wage which would be paid to the people in the same category if they are in the labor market. That difference in wage is taken to be the social value.
― Secondly, when the SRCs manufacture new products by recycling the garbage, the government can reduce its garbage-disposal costs to a certain extent. So that much of cost-saving is estimated and taken to be the social value.
― Finally, when the SRCs provide a commodity or service for the welfare recipients at a price lower than its market price, that price differential is estimated and taken to be the social value.
The social value quantification method that SK has developed will bring about the following four economic and social benefits:
(1) It can assess the performances of the SRCs with ease so that other ordinary corporations may join the group of SRCs.
(2) It would cause the MNEs with CSR to be more welcomed by the people in the host country so that their consumer loyalty may increase significantly.
(3) It would make the employees become self-enlightened so that they may become more productive in the making of commercial products as well as social values.
(4) It would help other countries to resolve numerous economic and social problems at lower resource costs.
Today's business world is characterized as highly globalized and interconnected. A problem in one country is immediately perceived as the same problem in all other countries. Economic risks and uncertainties keep increasing.
Market competition is getting stiffer. Income inequality is fast spreading worldwide like a contagious disease. The business models in most countries are centered on short-term profit maximization.
The job opportunities for the youth and socially disadvantaged people are diminishing. Free market capitalism is under great attack.
SK's social value model encompasses other activities as well. It tries to build ecosystems in such a way that private financial companies and even private equity firms are induced to invest in SRCs. This is possible if each partner takes a more stable position of lower risk-lower return.
As more companies on earth exercise the social value model, a greater number of global citizens will get benefits. Their life will be enriched and the entire world will be a much better place to live in. We hope that warm market capitalism will soon be rooted.
Dr. Jeffrey I. Kim (ickim@skku.ac.kr), former foreign investment ombudsman, is a professor emeritus at Sungkyunkwan University. He earned a Ph.D. in economics at the University of Chicago and taught at the University of Colorado, Boulder, and the American University, Washington, D.C.
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There is much evidence that socially responsible corporations (SRCs) can create and distribute "social values" to the public more efficiently than the government.
The concept of social value has been widely accepted. When it comes to its measurement, however, scholars and practitioners have different voices. Value is inherently subjective in any country so that when a social-value creating project leads, funders and partners tend to fight over ways to measure the social value.
Chairman Chey Tae-won of SK Group has recently disclosed an intriguing measurement method. He has been playing the role as a worldwide evangelist propagating the necessity of CSR. He has passionately participated as a panelist in the global forums.
Chey advocated that CSR management has become the most effective long-term business strategy and that large-scale companies had better adopt the double bottom-line accounting method to quantify the social values. So he has created a new business model, called "the social value model."
The bottom line refers to either the "profit" or "loss" which is usually recorded at the very bottom line on a statement of revenue and expenses. In contrast, the double-bottom-line (DBL) approach considers both the conventional economic value and the social value. By adopting the new DBL model, the performances of SRCs can be assessed appropriately.
As part of the social value model, SK has developed an innovative method of measuring the social values. They considered three areas ― wages, raw materials, and the commodities/services and suggested a new measuring standard:
― Firstly, when hiring the disabled or people in socially disadvantaged conditions, including the youth and retirees, the SRCs pay a wage higher than the average wage which would be paid to the people in the same category if they are in the labor market. That difference in wage is taken to be the social value.
― Secondly, when the SRCs manufacture new products by recycling the garbage, the government can reduce its garbage-disposal costs to a certain extent. So that much of cost-saving is estimated and taken to be the social value.
― Finally, when the SRCs provide a commodity or service for the welfare recipients at a price lower than its market price, that price differential is estimated and taken to be the social value.
The social value quantification method that SK has developed will bring about the following four economic and social benefits:
(1) It can assess the performances of the SRCs with ease so that other ordinary corporations may join the group of SRCs.
(2) It would cause the MNEs with CSR to be more welcomed by the people in the host country so that their consumer loyalty may increase significantly.
(3) It would make the employees become self-enlightened so that they may become more productive in the making of commercial products as well as social values.
(4) It would help other countries to resolve numerous economic and social problems at lower resource costs.
Today's business world is characterized as highly globalized and interconnected. A problem in one country is immediately perceived as the same problem in all other countries. Economic risks and uncertainties keep increasing.
Market competition is getting stiffer. Income inequality is fast spreading worldwide like a contagious disease. The business models in most countries are centered on short-term profit maximization.
The job opportunities for the youth and socially disadvantaged people are diminishing. Free market capitalism is under great attack.
SK's social value model encompasses other activities as well. It tries to build ecosystems in such a way that private financial companies and even private equity firms are induced to invest in SRCs. This is possible if each partner takes a more stable position of lower risk-lower return.
As more companies on earth exercise the social value model, a greater number of global citizens will get benefits. Their life will be enriched and the entire world will be a much better place to live in. We hope that warm market capitalism will soon be rooted.
Dr. Jeffrey I. Kim (ickim@skku.ac.kr), former foreign investment ombudsman, is a professor emeritus at Sungkyunkwan University. He earned a Ph.D. in economics at the University of Chicago and taught at the University of Colorado, Boulder, and the American University, Washington, D.C.
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