Professor Wu:enterprises should not only be responsible to shareholders, but also shoulder social responsibility for all stakeholders.

Why do we need to raise corporate social responsibility to such a high level today? Why will corporate social responsibility become a new trend in the 21st century? Understanding these problems should start with the general background of the development o

Professor Wu:enterprises should not only be responsible to shareholders, but also shoulder social responsibility for all stakeholders.

Release Date:2018-04-15 17:46:20

Professor Wu Jinglian, a famous economist, a researcher at the Development Research Center of the State Council, and a professor at China Europe International Business School CEIBS. He advocated the maintenance of market rules and long-term concern for grassroots strata. He has won the Sun Yefang Prize for Economic Science in China several times.

Professor Wu believes that corporate social responsibility will become a new trend in the 21st century. In his view, enterprises should not only be responsible to shareholders, but also shoulder social responsibility for all stakeholders.

The following is an excerpt from Professor Wu Jinglian's live speech at the China-EU Forum on Social Responsibility given on April 15, 2018. The subtitle is added by the editor and revised by the speaker.

 

Professor Wu

01 Corporate social responsibility has become a new trend in the 21st century

Why do we need to raise corporate social responsibility to such a high level today? Why will corporate social responsibility become a new trend in the 21st century? Understanding these problems should start with the general background of the development of modern society.

With the deepening  division of labor in modern society and the dramatic increase in the scope and frequency of transactions between people, the problems that need to be dealt with in the public sphere will become more and more complex.

In this case, not only has the "field dichotomy" model of public affairs, which was formed in the 19th century by the government and private affairs by the family and enterprises, broken through, but also the "third sector", which is composed of non-governmental public welfare organizations dealing with local public affairs. The latter is often stretched in dealing with more and more complicated public problems due to the limitation of donation resources. Harmony among them is not enough.

Under such circumstances, further breaking the boundaries between the public and private spheres and mobilizing more resources to deal with various social problems and public affairs have been put on the agenda.

In this way, in the late 20th century, there emerged a new trend of traditional public welfare organizations and traditional commercial enterprises. On the one hand, many public welfare organizations no longer rely solely on donations and donations to support social services, and began to try to run enterprises to do public welfare, and use commercial means to obtain business income to strengthen the ability to provide social services.

 

On the other hand, some commercial enterprises no longer regard economic returns as the sole purpose of operation, but take the initiative to commit themselves to fulfilling more social responsibilities. As a result, a number of "mixed organizations" with public welfare and commerciality, such as "social enterprises" and "the fourth sector", have emerged.

Among them, it is particularly noticeable that a number of commercial enterprises have set clear social goals for themselves. The emergence of this new type of enterprise is of great significance, because if tens of millions of enterprises can also play the entrepreneurial spirit of innovation and entrepreneurship to do public welfare, the power to solve social problems can be expanded dozens of times, hundreds of times, thousands of times.

 

02 Companies are responsible not only to shareholders but also to other stakeholders

In fact, as early as the late 20th century, some insightful people began to advocate that for-profit commercial enterprises not only strive to maximize corporate profits and shareholders' profits, but also take social responsibility as their important business objectives.

 

Anyone who knows the history of modern companies knows that in the early 1990s, a "corporate governance movement" was launched around the world. The main content of this campaign was to establish the principles of "investor sovereignty" and "shareholder interests first" and "owner (shareholder) controlling the final control rights in the corporate governance structure, aiming at the problem of "insider control" of senior managers under the circumstances of separation of ownership and management rights. However, it is in this process that some economists raise further questions.

They pointed out that it is not only stockholders but also stakeholders, including employees, spare parts suppliers, product distributors, residents of the community where the enterprise is located, and even the whole society, who bear risks other than those stipulated in the contract (i.e., residual risks) and have the right to obtain "residual income" (i.e., company profits).

An American economist named Margaret Blair wrote a book entitled Ownership and Control: Rethinking Corporate Governance in the 21st Century in 1994, demonstrating that companies are responsible not only to shareholders, but also to other stakeholders.

However, at that time, this idea was not recognized by the society. In the business world, most people still believe that directors' fiduciary responsibility is to be responsible to shareholders. As long as they run their own enterprises well and make more money for shareholders, they fulfill their responsibilities. Only after entering the new century, under the impact of actual social contradictions and the impetus of social ideological trend, more and more people have accepted the idea that enterprises should bear greater social responsibility.

The vision of many enterprises has changed from maximizing shareholders' value to maximizing the value of all stakeholders. Social responsibility has been upgraded to the important position of corporate objectives, and has gradually become a new trend of corporate culture. Some countries also require public companies to publish reports on corporate social responsibility to society.

 

03 Common Benefit Enterprises Promote "Business Goodness"

Some countries have established a legal framework for this new type of for-profit enterprise. In the United States, for example, since Maryland enacted a law in 2010 to establish a new type of company, the Benefit Corporation, 35 states have enacted the Benefit Corporation Act so far.

Common-benefit enterprises do not enjoy tax preferences, but they are required to specify their social responsibilities in their charters, and the board of directors is responsible for the company's fulfillment of these responsibilities and report to the society. The Common Benefit Enterprise Law of some states also stipulates that the successor directors of a company may not change the social responsibility stipulated in the original articles of association.

Effective operation of the system of common-benefit enterprises also needs to solve a problem, that is, how to help and supervise these common-benefit companies to fulfill their social responsibilities. Relevant legal provisions are often abstract. Other than  self-restraint of enterprises, they also need help and supervision from the society.

One way for Americans to solve this problem is for independent civil certification organizations to certify the performance of corporate social responsibility according to their own evaluation criteria, and to issue certificates to enterprises that meet this criteria. In this way, they hope to promote the dual achievements of common-benefit enterprises in both commercial and social interests, and become the force to promote the improvement of the whole business and social environment, i.e. the so-called "Business as a force for Good".

There are many such certification organizations in the United States. Among them, a certification organization named B Lab issued a certificate named "B Corp Certification" to qualified companies. At present, more than 2,482 enterprises in 130 industries in more than 50 countries have passed B Lab certification. Danone, Kickstarter and other familiar enterprises are all Co-benefit enterprises that have been certified by B Corp.

In 2017, the Beijing Leping Public Welfare Foundation set up the "B Corps China Task Force" in cooperation with B Lab to actively promote the development of common-benefit enterprises in China. At present, nine mainland Chinese enterprises have passed the B Lab certification.

Most of these certified Chinese common benefit enterprises are small and medium-sized enterprises. The founders of these enterprises are mostly "post-80s" and "post-90s". At the beginning of their entrepreneurship, they often agree that enterprises should fulfill the concept of social responsibility, and practice their responsibilities to various stakeholders in the process of business operation. Therefore, they are likely to become a new force to strengthen the ranks of social entrepreneurs.

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Wu Jinglian hopes that in the near future, corporate forms such as Common Benefit Enterprises will also be included in China's Company Law. At the same time, professional certification organizations such as B Lab can help more Chinese enterprises to improve their quality and realize the dual value of business and society.

At the end of the speech, Wu Jinglian said that such a system as Common Benefit Enterprises is developing from an imaginary and theoretical discussion to a reality in China. If more and more Chinese entrepreneurs are willing to redefine success, fulfill their social responsibility while pursuing business value, and more and more institutions and individuals are willing to participate in promoting the all-round development of enterprises in the dimensions of system, evaluation and certification, and concept advocacy, such a trend will have a profound impact on China's economic and social development. Positive impact.

 


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