Thursday, December 01, 2011

Corporate Social Responsibility in Korea

Corporate Social Responsibility (CSR) represents a departure from the traditional bases of corporate governance in law based on the fundamental duty of the corporate entity to shareholder/enterprise welfare maximization. Originally CSR might have been understood as originating in corporate charity, an activity at first grudgingly and then more open handedly permitted under the laws of many states.  While for many, charity marks the limits of CSR, the concept has substantially moved beyond this concept and the legal structures under which it was framed.

Beyond charity, CSR is now sourced in social norms--either those derived from the customs and expectations of firms, or as memorialized by an increasingly large number of governance instruments (soft law in relation to the hard law of statutory regulation) developed by private or public actors. It is also impacts-based; it is measured with reference to the effects of corporate activity on stakeholders in any one of a number of fields of corporate activities. See, Backer, Larry Catá, Multinational Corporations, Transnational Law: The United Nation's Norms on the Responsibilities of Transnational Corporations as Harbinger of Corporate Responsibility in International Law. Columbia Human Rights Law Review, Vol. 37, 2006. 

Though CSR can be understood as a unifying concepts grounded in this "stakeholder-impact" framework, it is not uncommon for corporate entities, and the states in which they operate, to disaggregate impacts and to arrange them vertically in some sort of order of importance.  As a consequence, cultures of CSR may vary, and perhaps sometimes considerably, based on the place where CSR is meant to be applied. 

Simultaneously, civil society actors and public international organizations have been working hard to develop and implement a harmonized approach to CSR in which national or regional variations in CSR is minimized and prioritization of stakeholder impacts is avoided.  See, e.g., Larry Catá Backer, Backer, Larry Catá, From Institutional Misalignment to Socially Sustainable Governance: The Guiding Principles for the Implementation of the United Nation’s 'Protect, Respect and Remedy' and the Construction of Inter-Systemic Global Governance (September 5, 2011). Pacific McGeorge Global Business & Development Law Journal, 2011. 

The tensions between CSR convergence trends and the emergence of national or cultural variations in CSR application might be more noticeable among important Asian states.  My research assistant, Shing Kit Wong (SIA MIA 2012 expected) and I have begun to explore Asian approaches to CSR in that context.  See, Larry Catá Backer, Corporate Social Responsibility with Chinese Characteristics, Law at the End of the Day, Nov. 9, 2011;   The Power of Soft Law in Japan: Voluntary Codes, The Power of Non-State Based Authority and the Regulation of Business Behavior in Japan, Law at the End of the Day, Oct. 16, 2011; Japanese Approaches to Corporate Social Responsibility (企業の社会的責任) and Global Human Rights--Between the Law-State and Corporate Culture, Law at the End of the Day, Sept. 14, 2011; The "Five Coordinations" (五个统筹) As Party Line and State Policy in China, Law at the End of the Day, March 30, 2011. 

For this post we consider  an aspect of Korean CSR.  In some respects, Korean CSR reflects the continued impact of traditional notions of corporate CSR as charity.  
"According to the Korea Chamber of Commerce and Industry, most companies in Korea are concentrating their CSR activities into supporting the under-represented people such as charity activities either directly by their own volunteer groups or through NGOs. (35.1%). Meanwhile, companies were equally interested in contributing for academic activities such as scholarship programs and high education support (15.8%), catastrophe recovery (15.8%), and community development (15.3%)." (From Korea's CSR Environment, The Europe-Korea Foundation)
But it also strongly evidences both a move toward regionalism in CSR, and the countervailing push to global harmonization.  See, e.g., Richard Welford, Korean CSR disclosure under the spotlight, CSR Asia, May 4, 2010 ("A new research report on the CSR reporting practices of Korean companies finds strong reporting on environmental issues but reveals a relatively poor understanding of and reporting on social issues, especially human rights."). See also Seungho Choi and Ruth V. Aguilera, Corporate Social Responsibility Dynamics in South Korea and Japan: A Comparative Analysis (2008)

(From Hyundai CSR)

Shing Kit Wong has prepared a short essay focusing on the environmental aspects of Korean CSR in this context:

Corporate Social Responsibility in South Korea
Environmental Responsibility

Shing Kit Wong

            South Korea was one of the poorest countries in the world after the Korean War in 1950s. Many infrastructures in the country were destroyed during the war and millions lived in poverty at the time with thousands of unemployed people struggling to fulfill basic needs. South Korea depended mostly on foreign aid coming from the United States and Japan at the time. When General Park Chung-hee came into power in 1961, he focused on developing the rural part of the country. The government’s effective use of cheap labor started to spark the Korean economy. On the other hand, Korean government carried out another effective economic development plan known as “Five-Year Plan”. There were more than five plans created specifically designed to revive the economy, and contributed tremendously in industrialization along with enlarging the marketplaces of South Korea. Due to the national export-oriented industrialization, South Korea advanced from an agricultural country to a highly-technological industrialized country within forty years, which is known as the Miracle of Han River. The rise of large export-oriented companies, corporations, and conglomerates, known as “Chaebol”, has played an extremely important role in the national development during the industrialization period of the country. Chaebol refers to corporate groups that exercise monopolistic or oligopolistic control in manufacture and industries in South Korea. It was mainly started by a family group and can be compared with conglomerates of the United States and the Zaibatsu of Japan. The government, under Park’s administration, facilitated the improvements of these groups for the benefit of Korean economy growth. Inside the operations of Korean corporations, there are many branches that each of family members control and operate. One of the most important characters in these corporate is the Korean family relationship. All the corporations in Korea were started by a family group and 70% of which are still governed by family members nowadays. In addition, many of these groups form alliances through marriage to strength the power of their status, examples include Samsung and Hyundai. On the other hand, many political affiliations are also created within Korean corporate, so their existence in the government can be described as extremely significant. With governmental help and associations, chaebols are still the greatest influence in the Korean economy today. They achieved recognition for their special role and responsibility for the well-being of the Korean society.
Social Responsibility in South Korea
            Korean society has a trend of recognizing the significance of corporate social responsibility (CSR) during financial crises. The first crisis in the near twenty-year shook the Korean economy during the mid 1990s and its deficit increased from 2% of GNP in 1995 to 5% in 1996. The growth of exports slowed down and foreign debt increased dramatically to $100 billion in 1996. Cheabols, as one of the most significant players during the Miracle of Han River, had been impacted fatally during the financial disaster. This financial crisis introduced the concepts of CSR to Korean society. As cheabols were primary blame as the cause of financial crises in South Korea, they use CSR activities to restore their reputation and credibility. They established CSR or ethical departments and got involved in a variety of CSR activities including donations, community involvement, and adopting the codes of conduct. Korean CSR activities have a focus on donations since large donation is able to easily draw the attention of media and give the public a favorable impression yet do not require follow-up efforts afterward. Nonetheless, many cheabols simply consider CSR as the extension of social contribution and community involvement. The survey of the Korea Enterprise Institute in 2004 showed that only 20.6 % of cheabols are familiar with the concepts of CSR as described in international framework including the UN Global Compact and the OECD Guideline. These huge amounts of donations are widely used as an impression management tool to repair the corporate reputation and to increase brand value rather than internalizing long-term CSR into corporate philosophy or core strategy. The Samsung Slush funds scandal in 2008 was a perfect example of the phenomena. Samsung Group chairman, Lee Kun-hee, was found guilty by Seoul Central District Court that Samsung was responsible for a slush fund used to bribe influential political figures in South Korea. He donated $ 0.85 billion to charity and then the Korean government pardoned Lee in 2009 to help the country’s bid for hosting the 2018 Winter Olympics. Lee eventually returned to Samsung Group as Chairman in 2010. Other example includes Hyundai Motor Group chairman Chung Mong-Koo’s donation of $1 billion in shares of an affiliate to charity to remedy a deepening bribery scandal. These cases showed the tendency of cheabols relying heavily on monetary donations as a solution for CSR problems.
            In terms of legal obligation, the Korean constitution guarantees basic employment standards including the right and obligation to work, the right to freedom of association, collective negotiations and actions, and special protection for working children and women. Furthermore, human dignity is the highest commandment of the Labor Law in South Korea. The “Trade Union and Labor Relations Adjustment Act” and the “Labor Relations Commission Act” regulate collective negotiations and actions along with their reconciliation. These acts forbid unfair work practices and entitle employees to join a union. On the other hand, the “Labor Standards Act” regulates internal working conditions, child labor, forced labor, as well as discrimination against employees based on their nationality, religion, social status, or gender. Equality is also regulated by the “Equal Employment Act,” especially with respect to employment and salary, working conditions and legal protection against sexual harassment.
            The social responsibility of corporations is playing an increasing role in South Korea. According to a survey by the industrial association Federation of Korean Industries (FKI) in 2006, 75% of the 120 largest corporations in the country is engaged in CSR projects. These include Samsung, SK Energy, and Hyundai-Kia Motor Group. Nevertheless, these large Korean corporations spend only approximately 2% of their profits on CSR activities, thus they are well below the standard values of the United States and Japan. Although the number of corporations publishing CSR reports has increased rapidly with the use of the Global Reporting Initiative framework for guidance, the quality and the lack of materiality in report are the major concerns. 
            A new research report entitled Unlocking Investment Potential: ESG Disclosure in Korean Companies in 2010 found out that many Korean corporations  have strong reporting on environmental issues but reveals a relatively poor understanding of and reporting on social issues, especially human rights and other concerns on stakeholder. The report indicated that many of them do not report within the financial service sector and amongst holding companies. They also exhibited poor reporting of policies on political donations, which leads to corruption issues specific in South Korea. In addition, reporting on human rights is mostly ignored with disclosure on the issue being non-existent or superficial. Imbalance treatment between workers in South Korea and those who are overseas subsidiaries is among the concerns. In contrast, all of the Korean corporations cover environmental issues in detail and display excellent reporting on environmental policies, management systems, global coverage, and board-level responsibility for environmental issues, quantitative emission data and quantitative reduction targets.
Environmental Responsibility in South Korea
            The recent “Low Carbon, Green Growth” policy of the Korean government is the most powerful driver for corporate responsible investment. As the government desire to shift the country toward a low carbon economy, it launched a Smart Grid National Project to achieve green growth in a comprehensive and efficient way. The project lays the foundation for a low carbon, green-growth economy by building an evaluation system to estimate the sustainable growth of the economy in the future. In order to advance the electrical industries, the Power IT National Program was developed to bring innovation and higher value to electric power services. Power IT refers to technology which enables electric power devices and systems to become digital, environmentally-friendly, and intelligent through the convergence of electric power technology and information and communication technology.
            Korean government also enacted the Framework Act on Low Carbon, Green Growth to effectively address climate change and energy issues; and promote sustainable development by flexibly bringing all the challenges together and integrating them. South Korea currently imports 97 percent of its energy supply with 84 percent derived from fossil fuel sources. The Presidential Commission on Green Growth (PCGG) adopted a strategy modeled on the five-year planning approach in order to support the national objectives of reducing the dependence on imported fossil fuels for the enhancement of security, and  adopting a proactive stance on environmental sustainability and combating global climate change. The PCGG adopted a long-term National Strategy from 2009 to 2050 and Five-Year Plans for green growth. The first Five-Year Plan covering the period from 2009 to 2013 contains budgetary earmarks and tasks delegated to relevant the Korean ministries and targets spending of 2 percent of the nation’s GDP on green growth. It grossed an investment of $88 billion during the five years period and was achieving the goals of this policy. Such investment will be initially weighted toward infrastructure projects to help combat the sagging economy with spending shifting toward export-focused green-tech R&D over time.
            Under the Framework Act on Low Carbon, Green Growth, Korean government enforces the national strategy for the reduction of greenhouse gases emission and sustainable development, the strategy for promotion. In contract, corporate is responsible to initiate green management, reduce greenhouse gases emission and pollutants in the entire course of its business activities, and expand investment and employment in research and development of green technology to fulfill social and ethical responsibilities for the environment. They need to actively participate and cooperate in policies enforced the government to achieve the green development.
            Korean government provides different degrees of support for establishing a foundation for standardization of green technology and industries under the development within the country in order to meet international standards. Certification of conformity will also be granted for green technology, projects, and products or accreditation of specialized green corporations in order to facilitate the development. Different types of support are also established to encourage corporations for investment in green development. Companies that are engaged in investment activities on green technology are eligible for government funds. In contrast, the Financial Services Commission would demand green technology investing corporation to submit data or report on the business for evaluation. Central administrative agency could demand the Financial Services Commission to submit relevant data for further evaluation as well. Furthermore, the Korea Credit Guarantee Fund and the Korea Technology Guarantee Fund can provide credit guarantees preferentially to green industries in conditions of guarantee. The Korean government also support corporations related to green technology and development by abating or exempting them from income tax, corporate tax, acquisition tax, property tax, and registration tax as provided for by the Restriction of Special Taxation Act and the Local Tax Act.
            In order to encourage small enterprises to be engaged in sustainable development in South Korea, the government supports joint projects between large corporations and small enterprises with assistance in technical guidance, technology transfer, and dispatch of human resources. Furthermore, Korean government would utilize federal facilities to aid the development of green technology and foster the commercialization of such technology for small enterprises.
            With the national vision of a “Low carbon, Green Korea” and all the supports the government provides, the vast majority of the industry in South Korea has positive respond. Leading industrial corporations in the country have taken up the challenge as many have already pursued plans to massively expand their R&D, manufacturing and export programs in the areas of wind, solar, electric and hybrid vehicles, smart grid and many other related green technology. For instance, Samsung Group, as the largest corporate in South Korea, has announced that it would invest $21 billion into clean energy technology in the next ten years particularly into solar cells, rechargeable batteries for hybrid cars and energy-saving light emitting diode (LED) technologies. The company has originally committed $5 billion over a four-year period to reduce greenhouse emissions by 50 percent and produce greener products. In addition, Samsung’s envision on green technology development consist of big economic payoffs as they anticipate 45,000 new tech jobs and associated revenues of $44 billion by 2020. On the other hand, second largest corporate of the country—LG Group committed to invest $18 billion within the next ten years to develop green business strategies and reduce greenhouse gas emissions by 40% of its 2009 levels. The group will use the investment to fund R&D activities on green technologies and construction of greener buildings, and aims to cut its emissions by 50 million metric tons a year by 2020. As the third largest corporate and Korean largest automobile manufacturer, Hyundai-Kia Automotive Group has a significant part of overall investment of $8 billion in green technology as Hyundai Motor Company itself already planned to spend $3.3 billion until 2013 in R&D activities to meet new emissions and fuel efficiency legislation. Approximately $1.8 billion will be dedicated to the development of hybrid vehicles; and another $1.1 billion for the improvement of the efficiency of the engine overall. The remainder will be used on energy facilities to cut emissions.
            Large export-oriented companies, conglomerates, and corporations have played an extremely important role in the development of South Korea during the industrialization period after the Korean War in 1950s. These corporations are mostly under the governance of family members, which is the most important character in business in the country. The government usually has a strong relationship with these large corporations since they consist of the greatest influence in the Korean economy and the well-being of the society. Although the number of Korean corporations publishing CSR reports has increased in the 2000s, only a small amount of them are familiar with the concepts of CSR as described in existing international frameworks. In addition, huge amounts of donations are usually used as an impression management tool to repair the reputation of a corporation instead of a truly contribution to the society. As the Korean government desires to shift the country toward a green society, different policies and projects are launched in order to achieve “Low Carbon, Green Korea”. With governmental supports, the vast majority of Korean corporations has a positive respond and focuses their CSR effort in environmental issues. Many leading corporate includes Samsung Group, LG Group, and Hyundai-Kia Automotive Group has already invested heavily in their R&D activities and manufacture in green technology.

British Embassy Seoul, South Korea: Low Carbon Green Growth Law Comes into Force, April 2010

Corporations, Unions and CSR in South Korea, <>

Emerging Market Disclosure Project Korea Team, Unlocking Investment Potential: ESG Disclosure in Korean Companies, April 2010

Jeremy Moon, Nahee Kang and Jean-Pascal Gond, Corporate Social Responsibility and Government in Western Europe and Northeast Asia from a National Governance Systems Perspective

Jianmin Feng, Heng-Ja Jo, Weili Chen, Song Na, The Difference in Corporate Culture between China and South Korea under the Co-operation of East Asia’s Economy

LG To Invest $18B To Cut Emissions, Ramp Up Enviro-Friendly Business, <>

Ministry of Government Legislation, Framework Act and its Presidential Decree on Low Carbon, Green Growth in Korea

Seungho Choi and Ruth V. Aguilera, Corporate Social Responsibility Dynamics in South Korea and Japan: A Comparative Analysis

Slee on Sun, Corporate Social Responsibility in South Korea, 04/24/2011, <>

Smart Grid in South Korea 10 Power IT Projects, <>

Smart Grids in South Korea Investment Plan for the Roadmap Implementation, <>

Smart grids in South Korea Korea's Future Plans for Green Growth, <>

South Korea’s “low carbon, green growth” initiative spurs renewable energy, <>

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