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Contradictory Business RevolutionThe emerging importance of business ethics and social responsibility
Bae Han-keol  |  hankcool@yonsei.ac.kr
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승인 2007.04.30  22:40:14
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THE SUMMER is yet to come but there were people who were eagerly awaiting it. Recently, it has been reported that four major ice-cream manufacturers have formed a cartel in order to increase ice-cream prices, consecutively raising 700 won products to 1000 won. Executives from these manufacturers agreed upon this price hike, exploiting their positional advantage in order to appropriate from the consumers. They were charged with heavy fines. White-collar crimes such as this case are increasingly becoming a controversy not just in Korea but globally, ultimately resulting in societal and economic losses with negative spin-off effects. On the other side of the road, there have been various firms, small and gigantic, that willingly gave helping hands to the needy. Educational support, supply of equipment and investment in the regional society are only some of the things done by corporations. In order to prevent white-collar crimes prior to becoming conspicuous, and to encourage good deeds by companies, international movement in reinforcing business ethics and CSR (Corporate Social Responsibility) is rising to the surface under the title of Ethics Round.

The terms CSR and Ethics Round   Then what exactly is CSR? The definition of CSR, Corporate Social Responsibility, is the obligation of corporations to be ethical, as well as socially and environmentally responsible. For most people, the term CSR is either not heard of or is not familiar at all. Moreover, to those who are vaguely aware of this concept, it seemingly contradicts the most basic principle of the corporation, which is to maximize profit by allocating limited resources.
How did CSR come about? “In ‘80s, various global economic forums, rounds and agreements emphasizing environment raised issues for businesses. As time passed, the importance factor moved from the environment to society. The public then started to pay attention to ‘good’ companies, which contributed to both the environment and society,” said Choi Hyuk-joon, the CEO of Limeglobe. The world responded with NGOs as well as international organizations instituting rules and regulations concerning business ethics and CSR. The UN’s Global Impact and DJSI, Dow Jones Sustainability Index, are some of the organizational efforts established to improve business conditions and regulate unethical business behaviors.
  The most recent effort is the ISO (International Standards Organization) 26000, a standard for social responsibility of organizations. Scheduled to be enacted by the ISO in October 2008, it is likely to be proclaimed and be applied to all organizations worldwide. Although the terms and conditions of the ISO 26000 are not enforced by the committee, organizations, especially private corporations will suffer from great disadvantages if they don’t abide by them. For example, firms will prohibit trading with firms, which did not meet the rules of the index. Many companies that depend on exports will form an implicit agreement among corporations around the world, which will naturally develop into a global Ethics Round.

Background Information
  Then why is this highlighted as such a global issue? In the past, most private firms solely pursued their intrinsic nature; creating as much profit for the firm and its stockholders as possible. All executives focused their efforts into effectively achieving this through all means, whether it involved managerial reconstruction or environmental destruction. However, this is not exactly the case recently. The public has witnessed many globally competitive corporations go downfall, even they were evaluated as well-functioning in business terms. Enron is the perfect example showing how unethical behaviors could tear a company apart in a short period of time. Once ranked seventh among the list of top 500 companies in 2000, it became bankrupt shortly after its accounting fraud was revealed.

 

 

 

"The public then started to pay attention to ‘good’ companies, which contributed to both the environment and society,” Choi Hyuk-joon, CEO of Limeglobe

 


 

 

 

"Companies that are not socially responsible will not only implode, but will ultimately affect the national economy as well,” Jeong Woon-yong, Director of Ethics Academy

 


  Moreover, the aftereffect of unethical corporate behavior is devastating. “After the Enron-gate, NASDAQ dropped to 1114 points, a substantial 78% drop, whereas the September 11th attack resulted in a mere 300 points drop,” exclaimed Jeong Woon-yong, the director of Ethics Academy. “This single comparison shows how important business ethics are. Companies that are not socially responsible will not only implode, but will ultimately affect the national economy as well,” Jeong added.
  These examples brought attention to other aspects, which could have affected the corporations. Business analysts have come to realize that even though the economic element of a business is perfectly fine, there are other factors that could shatter the corporation. They attribute these factors to business ethics, social responsibility and environmental friendliness. There are studies that actually confirm the correlation between corporate profitability and the factors listed above. Among many companies listed in Dow Jones, which were invested with $30,000 in 1985, profit of those with written Code of Ethics exceeded those without by nearly tenfold.

External efforts
  There are different ways a corporate could pursue CSR, but they could consequently be reduced down under two categories: external and internal efforts, with external being more proactive and internal being more reserved.
For most people, it is likely to only think of external efforts as mere social donations in monetary forms. However, that is not always the case. It is true that the monetary donations are often made by corporations. But instead, society demanded to have corporations with social responsibility and not just social contributions. Moreover, companies started to ponder how effectively their contribution could be used in society and how they could fulfill their social responsibility.

 

 

 

Bill and Melinda Gates

 


  First of all, there are various funds and foundations that are supported by corporations. The most famous and the largest foundation is the Bill and Melinda Gates Foundation, which was valued at $29 billion before joining with the billionaire Warren Buffett. Under the management of world’s richest man, it mainly concentrates on global education and health. Activities from these funds and foundations include helping the needy such as parent-less children, the disabled as well as supporting recovery from calamities in foreign nations.
  In addition, there are also national-campaign-turned-corporate-campaigns. These are first started off as campaigns pursued by individual enterprises in order to make positive changes in society. These campaigns do not necessarily need monetary funding nor is the workforce only limited to the employees of a company. Some of the most successful ones have turned into national campaigns. Famous and established campaigns in Korea include Yuhan-Kimberly’s over 20 year-old environmental campaign, which encourages tree planting and provides students with ‘Summer School for Field Studies,’ a chance for students to learn more about the environment.
  Moreover, being environmentally friendly has increasingly become important. Since the 80s’, various rounds and agreements concerning environmental issues such as ISO 14000, where people paid attention to environmentally friendly corporations. According to ISO 14000, primarily concerned with environmental management, organizations including corporations should minimize harmful effects to the environment caused by its activities, and achieve continual improvement of its environmental performance.

Internal efforts   Currently, corporations are under strict regulations, whether it is the laws of the government or the public institutions such as NGOs, so that business ethics should be effectively pursued. Of course, most of these do not actually break the laws. But, to everyone’s surprise, the companies commit more unethical conduct by deviously avoiding such laws. “Laws and regulations are necessary for businesses to operate well, but they are not sufficient. Ethics should be the integral part of the business,” said Kim Hyung-chul (Prof., Dept. of Philosophy).
  What are some of company’s typical internal issues? First of all, accounting fraud is an issue that could result in consequences affecting people both inside and outside the company. The most infamous case is Enron-gate. The American energy giant Enron fabricated its share price of the cooperation with Anderson, one of “Big Five” large international accounting firms. Although Enron hosted investment for a short period of time, after their deeds were revealed, both Enron and Anderson collapsed, creating a huge impact on both America and the world economy.
  Deceiving consumers is another issue that is manipulated by the inner circle members of one or more corporations. For example, consumers suffer from economical losses in contrast to corporations’ increasing profit, especially if corporations form a cartel in order to simultaneously raise prices. Top executives of the same industry meet discreetly in order to illegally raise prices so that no rival company is disadvantaged from price competition, as can be seen from the recent illegal price hike in ice-cream prices.

 

 

 

“Laws and regulations are necessary for businesses to operate well, but they are not sufficient. Ethics should be the integral part of the business,” Kim Hyung-chul (Prof., Dept. of Philosophy)

 


 

 

 

Eron-gate was catastrophic for the national economy of the US

 


  Bribery among company employees is also important. This criminal behavior takes away the equal chance for people to compete fairly. Those with the financial competency could easily go up to higher positions of a company. Even as the performance-based evaluation system is being dispersed across the globe, there are still frequent cases of bribery, especially in developing countries where such a concept is not fully settled or completely understood.
  As a solution to these problems, an increasing number of companies are installing a separate department to control such ethical issues. People in such departments vigilantly look for unethical behavior, such as ones mentioned above, and punish those who break the company’s regulations. Some Korean enterprises, namely POSCO and Shinsegye, have set up such system and are effectively achieving their aims.

The situation in Korea
    Korea is ranked only at 42nd on the 206 Corruption Perceptions Index, relatively low considering its economic power. “In Korea, accounting fraud and bribery are frequently happening,” commented Prof. Kim. “These problems cannot be solved in one day because they are such historically chronic and habitual problems,” he added.
The concept of CSR has started to settle in Korean businessmen’s minds only at the beginning of the 21st century. For this reason, prior to that period, most of the corporations’ socially responsible efforts were concentrated on social donations and small scale monetary support. However, the ways and the size of donations and contributions are becoming ever more varied now. For example, numerous banks contribute 1% to 5% of their profits, which account for approximately several billion won in charitable donations .
  However, the results of these efforts have not yet surfaced in Korea because of the nature of social contributions. First of all, a social contribution, whether it is financial or non-financial, has to be committed constantly in a long time-span period. Only when a social contribution is made for a certain period of time, can it become a national campaign, in which the nation and possibly the world could become aware of. “It would be very hasty to expect direct results from Korean companies’ social contributions right now. However, visible results will surface within a few years,” commented Choi.
  As a consequence of various campaigns and efforts from national enterprises, the anti-corporate sentiment in Korea has declined and is inclined to experience a further downfall. According to a survey conducted by the Korea Chamber of Commerce & Industry and Hyundai Research Institute, the overall Corporate Favorable Index increased to 50.2 points out of 100 in 2007, from 38.2 when it was first conducted in 2003. “By retrieving trust and faith in companies through continuous social activities, anti-corporate sentiment is decreasing,” commented Jeong.

Conclusion
    It is about time to rethink the phrase “The business of business is business” once stated by a Nobel Prize Laureate in Economics, Milton Friedman. The international CSR and ethics wave in business is progressing steadily but rules and regulations are certainly not enough to ensure full implementation. “Without a change in one’s consciousness, a system cannot function effectively,” said Prof. Kim. What is most important is not another set of laws and rules but a change in perspective to think outside of self-egoism. This does not only apply to only corporations but also to any form of organization. Only when we are aware of this importance, will we be able to build a society where corruption does not raise societal issues.

Box 1

 

 

 

 

* Act with uncompromising honesty and integrity in everything we do
* Satisfy our customers with innovative technology and superior quality, value and service
* Provide our investors an attractive return through sustainable, global growth
* Respect our social and physical environment around the world
* Value and develop our employees' diverse talents, initiative and leadership
* Earn the admiration of all those associated with 3M worldwide
- 3M’s Commitment to Legal and Ethical Business Conduct

Box 2

 

 

“ISO 26000 will add value to existing initiatives for Social Responsibility by providing harmonized, globally relevant guidance, based on international consensus among expert representatives of the main stakeholder groups and so encourage the implementation of best practice in Social Responsibility worldwide.”
Executive summary on ISO and Social Responsibility

Spotlight
While writing this article, I was first stunned by the number cases of unethical business behavior. Most university graduates first become hired by organizations of some kind. Through this article, I hope students get a sense of CSR as well as ethics and will contribute to creating a corruption-free nation and the world.

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