Corporate social responsibility practices and performance improvement among Chinese national state-owned enterprises

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Corporate social responsibility practices and performance improvement among Chinese national state-owned enterprises Qinghua Zhu, Junjun Liu, Kee-hung Lai

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Int. J. Production Economics

Received date: 23 October 2013 Accepted date: 7 August 2015 Cite this article as: Qinghua Zhu, Junjun Liu, Kee-hung Lai, Corporate social responsibility practices and performance improvement among Chinese national state-owned enterprises, Int. J. Production Economics, http://dx.doi.org/ 10.1016/j.ijpe.2015.08.005 This is a PDF file of an unedited manuscript that has been accepted for publication. As a service to our customers we are providing this early version of the manuscript. The manuscript will undergo copyediting, typesetting, and review of the resulting galley proof before it is published in its final citable form. Please note that during the production process errors may be discovered which could affect the content, and all legal disclaimers that apply to the journal pertain.

Corporate social responsibility practices and performance improvement among Chinese national state-owned enterprises

Qinghua ZHU1 Antai College of Economics and Management, Shanghai Jiaotong University, 535 Fahua Zhen Rd., Shanghai 200052, China Tel: 86-21-63933203, E-mail: [email protected] School of Business Management, Dalian University of Technology, Dalian, Liaoning Province (116024), P.R. of China

Junjun LIU School of Business Management, Dalian University of Technology Dalian, Liaoning Province (116024), P.R. of China Tel: 86-411-8470-7331, Fax: 86-411-8470-8342, E-mail: [email protected]

Kee-hung LAI Department of Logistics and Maritime Studies, The Hong Kong Polytechnic University Hung Hom, Kowloon, Hong Kong Tel: 852-2766-7920, Fax: 852-2330-2704, E-mail: [email protected]

1

Corresponding author

Corporate social responsibility practices and performance improvements among Chinese national state-owned enterprises

Abstract: Based on the stakeholder theory, this study develops "7+2" dimensions for CSR practices measurement among Chinese national state-owned enterprises (CNSOEs), and examines if their CSR practices bring financial and social performance improvements. By analyzing the 2011 CSR reports that cover 100 CNSOEs, we identify that these CNSOEs highlight CSR practices related to the environment, labor practices, political responsibility, and human rights in their reports. However, three CSR practices related to managing the supply chains, fair operating practices, and community development need more of their attention. We evaluate the social performance of CNSOEs by using the two performance ranking systems developed by the Chinese Academy of Social Sciences. Regression results obtained through Structural Equation Model (SEM) using the partial least square (PLS) method indicate that CSR practices pertinent to organizational governance, human rights, and the environment are beneficial for their social performance. With secondary data inputs from the annual operating performance evaluation conducted by the State-owned Assets Supervision and Administration, we identify that four CSR practices can bring financial performance, but two of the four concerning communities and managing the supply chains are implemented at the lowest level among the others. Our "7+2" CSR practices dimensions together with their underlying measurement items extend the use of stakeholder theory for studying CSR practices, which can also serve as a checklist for evaluating how well CSR practices are implemented at CNSOEs. Our study results identify the need for CNSOEs to highlight community-related CSR practices in their operations and expand CSR efforts to the management of their supply chains. Key words: corporate social responsibility; stakeholder theory, practice; performance; Chinese national state-owned enterprises

Highlights: *We develop "7+2" dimensions to evaluate corporate social responsibility (CSR) practices. *Chinese national state-owned enterprises (CNSOEs) highlight environmental-related CSR. *CNSOEs implement political CSR practices which bring them financial performance. *CNSOEs should extend their CSR practices to supply chains for financial performance. *CNSOEs should highlight community-related CSR practices for financial performance.

1. Introduction Corporate social responsibility (CSR) has gained the increasing attention from both enterprises and the academia. Performance improvement is a key consideration for enterprises in determining whether or not to implement proactive management practices. In recent years, many researchers have begun to examine if CSR practices can bring financial performance to organizations (Lee et al., 2013; Wu and Shen, 2013). Leading enterprises on CSR such as those on the top 10% of the Dow Jones Sustainability World Index 2009/2010 list show better performance than the rest in terms of the Dow Jones Global Total Stock Market Index (Skare and Golja, 2012). Enterprises can possess better ability to gain consumers' acceptance due to their CSR efforts during a financial crisis (Perez-Ruiz and Rodriguez-del Bosque, 2012). However, controversies on the performance value of CSR practices remain. For example, CSR practices show a positive relationship with financial performance when economy develops well (Skare and Golja, 2012), but this relationship does not hold during economic crisis such as that in 2008 (Ducassy, 2013). Most studies on CSR are concerned with investigating the practices implementation by companies in developed countries. The limited CSR studies devoted to enterprises in developing countries so far suggest differences in geographic, political, and economic situations exist in developing countries that cause variations in understanding of CSR and hence promotion of CSR practices in different ways relative to their developed country counterparts (Griesse, 2007). The Chinese central government has been actively promoting the importance of CSR to enterprises, beginning from those state-owned enterprises (SOEs), and urging them to implement CSR practices. State-owned Assets Supervision and Administration Commission of the State Council (SASAC) publicized a CSR guideline in 2008. The SASAC further required all Chinese national SOEs (CNSOEs) in 2009 to publicize CSR or sustainability reports within three years. In 2012, a new CSR guiding committee required CNSOEs to publicize their CSR reports annually. The practice of developing and disseminating CSR report is still at the very initial stage for most Chinese enterprises to adopt (Noronha et al., 2013), but CNSOEs are mandated to publicize their CSR reports due to regulatory requirements by the government. Meanwhile, the SASAC developed CSR indicators with CSR practices included in the annual evaluation system for SOEs. Thus, CNSOEs are taking a lead role to implement and promote CSR in China. Chinese enterprises characterized with better performance show higher tendency to publicize their CSR performance, and CSR disclosure is found a positive link with firm performance but the link is weak for SOEs (Li et al., 2013). In the face of more and stricter requirements from the central government of China for CSR, CNSOEs are pressurized to undertake CSR practices in greater breadth and depth to improve their operations and behave as a socially responsible corporate citizen. A previous study shows that for non-state-owned Chinese enterprises, corporate ownership dispersion has a positive effect on CSR practices adoption by enterprises, but for CNSOEs such effect is in the opposite direction (Li and Zhang, 2010). This paper aims to extend CSR studies to a developing country context by examining the CSR practices-performance improvement relationship in a typical company type, i.e., SOE, in China to reflect the current state of adopting CSR practices in this typical developing country. To begin with, after a brief introduction of CSR practices and related challenges among CNSOEs, we use the stakeholder theory to develop the CSR practices dimensions as well as the two hypotheses characterizing the relationships between CSR practices and performance in Part 2. In Part 3, we introduce the questionnaire development and data collection procedures employed in this study. Results and discussions of the analyses are presented in Part 4. Finally, we summarize the findings with conclusions and provide future research directions for CSR practices in Part 5.

2. Background and theoretical development 2.1 Background Due to the requirements by the Chinese central government as well as the public pressure, CNSOEs have begun to implement CSR practices in response to the CSR trend in the country. With a series of laws implemented since 1994, especially the Labor Contract Law implemented in 2008, Chinese enterprises have paid increasing attention to employee rights and labor practices (Taylor, 2011). The following cases illustrate the evolving CSR practices undertaken by CNSOEs in China. Northern General Electronics Group Co., Ltd., attached to a CNSOE, China North Industrial Group Corporation, has made efforts to develop an effective wage and motivation system as well as to provide career development opportunities for employees. China Southern Airlines Co., Ltd donates ten fen (1 RMB = 100 fen) of each travel cost to a charity foundation. Shanghai Aircraft Manufacturing Co., Ltd, a final assembly manufacturing center of a CNSOE, i.e., Commercial Aircraft Corporation of China, Ltd, integrates environmental concerns into design and manufacturing of its operations, and promotes economic value of greening to its supply chain partners. Sinosteel Corporation actively communicates with local communities so as to better participate in public affairs and integrate in local culture, especially when it explores its market opportunities abroad. China Southern Power Grid makes efforts to improve service quality by learning from its international leading counterparts such as Tokyo Electric Power Company, and Electricit de France. China Grain Reserves Corporation takes the political responsibility to guarantee grain supply within the country. In China, enterprises with better performance are prone to disclose their CSR efforts (Li et al., 2013). In view of the requirements by the central government, CNSOEs become more proactive on disclosure of their CSR reports. In 2000, PetroChina publicized its Health, Safety & Environment report. BaoSteel released its environmental report as early as 2003. In March of 2006, State Grid Corporation of China published its first CSR report in China. By the end of 2011, 76 of 117 CNSOEs regularly release their CSR reports. This practice on CSR disclosure covers 109 among all 113 CNSOEs at the end of 2012 and this increasing trend is expected to linger on in the years ahead. . Compared to developed countries, China is still at an early stage for CSR reporting among CNSOEs with a number of hurdles challenging them. Most CNSOEs are unclear about what practices should be included in their CSR efforts. In China, charity actions such as donation for disaster relief are considered a key, if not the only, dimension of CSR practices (Gao et al., 2012; Gao, 2011). Due to the melamine contamination incident in 2008, China began to realize that consumer right is also a key aspect for CSR practices to address while the government and investors should and could take the role to promote CSR in the country (Kong, 2012). Considering the background situations described above on CSR practices in China, it is a timely topic to identify and evaluate CSR practices dimensions for CNSOEs to better understand CSR practices to improve their operations. Studying CSR practices in CNSOEs is important as they belong to the typical company type characterizing the evolution of enterprises in developing countries. As performance improvement is a key driver motivating enterprises to embrace CSR practices in their operations, an investigation of the CSR practices-performance relationship is highly desirable to understand the performance value of CSR practices adoption. Toward this end, we will present how to develop CSR practices dimensions and develop two hypotheses on the CSR practices-performance improvement relationship based on the literature review in the following section of 2.2. Our study contributes knowledge on CSR research by an extension to a developing country with the

performance implications on CSR practices adoption in CNSOEs. 2.2 Theoretical development Stakeholder pressure influences the decision of enterprises on whether or not to adopt CSR practices (Crilly et al., 2012; Surroca et al., 2013). It is appropriate to use the stakeholder theory as the theoretical lens to study the adoption of CSR practices by CNSOEs and the performance implications in this study (Freeman, 1984). For many enterprises, they understand the strategic importance of responding to their stakeholder concerns which are a critical part of improving their competitive stance. The stakeholder theory suggests that enterprises can cause externalities to other parties (the stakeholders), which are both internal and external to their operations (e.g., customers, employees, competitors, suppliers, government). Due to these externalities, stakeholders will exert pressures on enterprises to mitigate their negative external damages caused (e.g., pollution) and enhance the positive types (e.g., charity). For instance, there are studies examining the pressures imposed by stakeholders on enterprises to close the loop of their supply chains (Zhu et al., 2008b). The stakeholders are an important part of motivation for enterprises to adopt CSR practices. One major contribution of the stakeholder theory is to analyze the behavior of an enterprise towards its identified stakeholders and its corresponding actions (e.g., CSR practices) for managing its relationship with them. Hence, CSR practices can be a viable way for enterprises to direct organizational resources with the aim to generate benefits for their stakeholders. Donaldson and Preston (1995) suggest three distinct aspects of the stakeholder theory, they are, descriptive, instrumental, and normative, which can be helpful for us to understand the elements of CSR practices and the performance value of their adoption. These three aspects provide the theoretical framework to guide our research on the CSR practices-performance links. The descriptive model describes CSR efforts considering stakeholders' concerns, and thus we use it to develop CSR practices measurement. The instrumental model explains how enterprises achieve competiveness, and we use it to analyze the relationship between CSR practices and financial performance. Social normative model is used to determine if CSR practices can lead to public acceptance in the form of social image among CNSOEs. Learning from a previous study (Liu et al., 2013), we use these three models of the stakeholder theory to examine CSR practices and their association with performance among CNSOEs. 2.2.1. CSR practices dimensions development Different countries may have different national-institutional arrangements for enterprises to operate (Fransen, 2013). CNSOEs are typical type of enterprises in China even thirty years after the open-door policy in 1979. The CNSOEs still need to shoulder CSR as commonly expected for other enterprises such as private ventures and multinational corporations in the Chinese society. Thus, we specifically develop the CSR practices dimensions as they relate to the stakeholders serviced by the CNSOEs in China. ISO 26000 is an standard defining the normative CSR domain (Helms et al., 2012). ISO26000 is a well-accepted voluntary international standard publicized by the International Organization for Standardization on November 1 of 2010, and it includes inputs from multiple stakeholders including industry, governments, consumers, labor, non-governmental organizations and service, support, research and others (Balzarova and Castka, 2012). To evaluate the CSR efforts of CNSOEs, we develop seven CSR practices dimensions on the basis of the ISO 26000 framework. The seven dimensions cover the main stakeholder concerns of enterprises, including (1) organizational governance, (2) human rights, (3) labor practices, (4) the environment, (5) fair operating practices, (6) consumer issues, and (7) community involvement and development (Balzarova and Castka, 2012).

The Chinese central government is one of the key stakeholders for CSR practices among CNSOEs. CSR studies have evolved through three stages from classic, instrumental, to new political CSR stage (Makinen and Kourula, 2012). In recent years, CSR studies have been extended to examine the political role of CSR practices (Fooks et al., 2013). As non-private enterprises, CNSOEs have the mandate to assume political and social related responsibilities, especially during difficult times such as economic crises or natural accidents. We have seen developed countries enterprises shrugging their CSR practices particularly during economic recession, for instance, the financial tsunami in 2008 (Harwood et al., 2011). However, due to their political role, CNSOEs must take social responsibilities such as no worker layoff and salary reduction in China even when economic recession happens. Thus, we include an additional political dimension to examine CSR practices among CNSOEs in this study. With the increasing trend for globalization of production and marketing activities in particular for multi-national enterprises, suppliers and customers are important stakeholders in their operations (Fu et al., 2012; Sarkis et al., 2011; Zhu et al., 2008a), and thus CSR practices have been extended to consider management of the supply chains. CSR is a viable way for enterprises to mitigate supply-side disruption risks, social risks, and demand-side uncertainty (Cruz, 2013), or even control potential CSR-related issues (Anner, 2012) in managing their global supply chains. Leading enterprises in developed countries have begun to impose CSR requirements on their suppliers and establish intra-sector cooperation among partners in their international supply chains (Risso, 2012). Chinese enterprises need to comply with the CSR-related requirements of their international customers to gain export markets. The pursuit of such CSR efforts can be helpful for them to establish sustainable supply chains in the long run (Chi, 2011). CNSOEs are characterized with their large size in employee establishment and they assume an important political role in China to maintain stability of labor market in the country. It is natural that they extend CSRs to the management of their supply chains and promote CSR practices in the country due to their organizational nature and political mission. Thus, we include another dimension related to the management of supply chains for studying CSR practices in China. In sum, we develop the "7+2" dimensions of CSR practices for evaluating the CSR efforts of CNSOEs based on the descriptive model of the stakeholder theory. Details of the "7+2" CSR dimensions and their measurement items are summarized in Table 1.

2.2.2. CSR practices and financial performance The descriptive view of the stakeholder theory can help explain the use of CSR practices by enterprises to manage the stakeholder interests. How CSR practices are defined and implemented reflect the behaviors of enterprises in responding to the stakeholder expectation of being a socially responsibility corporate citizen in the society. One major concern by enterprises whether to adopt CSR practices relate to the performance value of the practices. The instrumental aspect of the stakeholder theory demonstrates that CSR practices under ethical principles such trust, trustworthiness, and cooperativeness can bring significant competitive advantage for enterprises (Jones, 1995). The instrumental model of the stakeholder theory is useful for examining if an enterprise can benefit from their CSR practices by considering its stakeholders' needs (Gilbert and Rasche, 2008). This instrumental perspective of the stakeholder theory may shed light on the connection or the lack of it for CSR practices as a stakeholder management approach for enterprises to achieve their organizational objectives such as profitability and growth. Some studies show a positive relationship between CSR practices and financial performance. A previous study about CSR in the US airline industry shows that operational-related CSR practices can bring financial performance (Lee et al., 2013). An

empirical study with a sample of 162 banks in 22 countries during 2003-2009 from the Ethical Investment Research Service databank and Bankscope database shows that CSR practices can benefit return on assets, return on equity, net interest income, and non-interest income (Wu and Shen, 2013). Implementation of CSR practices has a positive link with firm performance among Chinese enterprises, but this link is weaker for CNSOEs than their non-state-owned counterparts (Li et al., 2013). There are disputes as to whether the adoption of CSR practices provides performance value. CSR adoption has a positive link with financial performance during stable economic development, but this relationship may disappear during economic downturn (Ducassy, 2013). Enterprises can use one of the three approaches namely, descriptive, instrumental, and normative approaches for their CSR practices. The instrumental approach can bring performance in short-term, whereas the normative approach can bring performance in both short-term and medium-term. Nevertheless, the descriptive approach cannot bring definite performance at all (Boesso et al., 2013). A neutral relationship was found between normative CSR measures and financial performance measures of Return on Assets (ROA) and Tobin's Q when firm unobserved heterogeneity and past financial performance were controlled (Belu and Manescu, 2013). Even though there are plentiful studies on the relationship between CSR practices and financial performance improvements, the results are mixed without widely accepted conclusion. On the other hand, these previous publications examined CSR practices mostly in developed countries where the descriptive, instrumental, and normative models on stakeholder management for CSR practices are more mature than in a developing country context. In recent years, Chinese enterprises begin to achieve financial performance through their extended supply chain environmental management practices (Zhu and Sarkis, 2007; Zhu and Sarkis, 2004). Chinese enterprises lacking CSR efforts may encounter problems to achieve financial gains (Lu et al., 2012). Based on the discussions above, we develop the first hypothesis to examine if CSR practices can bring financial performance among a typical type of companies in a developing country, China. Hypothesis 1: CSR practices are positively associated with financial performance among CNSOEs. 2.2.3 CSR practices and social image The normative stakeholder theory links ethics with politics (Wijnberg, 2000). An institution should convert its ethical considerations and efforts to cover its stakeholders (Purnell and Freeman, 2012). The normative aspect is fundamental to other CSR practices and performance improvement (Donaldson and Preston, 1995), which indicates that CSR practices can bring competitiveness to enterprises but normative approach is the baseline. There is a positive relationship between social performance and annual CSR report disclosure practices (Dawkins and Fraas, 2013). CSR practices can be helpful for enterprises to establish and improve their corporate image (Virvilaite and Daubaraite, 2011). CSR practices, especially those related to environmental issues, are beneficial for establishing brand image and hence bringing social performance (Kucukusta et al., 2013). A study has found positive relationships between CSR disclosure and corporate reputation (Berjillos et al., 2012). Implementation of CSR practices can signal corporate identity by differentiating enterprises from their competitors on social responsibility (Grigore and Stancu, 2011), which also serve to enhance their social status (Hildebrand et al., 2011; Powell, 2011). Typically, enterprises publicize their CSR reports in the hope of improving their socially responsible reputation in China (Zhao et al., 2012). CNSOEs have experienced pressure to improve their social image, and at the same time publicize their CSR report due to the

regulatory requirements by the government. Thus, we develop the second hypothesis. Hypothesis 2: CSR practices are positively associated with social image among CNSOEs. 3. Methodology 3.1. Questionnaire development As introduced in Section 2.1, we develop "7+2" dimensions of CSR practices for CNSOEs considering the concerns of their different stakeholders. The seven dimensions are adopted from the seven subjects outlined under the ISO26000 framework. We further develop measurement items for evaluating all the seven dimensions according to the ISO26000 guideline. Furthermore, we include political and supply chain management related CSR practices dimensions considering the unique stakeholder of the Chinese central government and the supply chain enterprises that CNSOEs should consider in China. For items on managing the supply chain, we develop eight questions to address this aspect of CSR practices. Seven questions ask if a CNSOE prefers to choose a supplier that highlights each of the seven CSR practices dimensions in the ISO26000 framework. Besides, we include the eighth question about coordination and experiences sharing of enterprises among partners in their supply chains. We develop eight items for evaluating political CSR practices. All developed items went through three-round discussions with five general managers of filiales from five different CNSOEs. According to the suggestions from these five general managers, we added one or two items for four dimensions while deleted one item for one dimension. The dimension of human rights contains eight items in the ISO26000 and we expanded with two new items to ten items. Three dimensions that are expanded with a new item are labour practices, the environment, and fair operating practices. For the dimension on community involvement and development, we delete one item concerning technology development and access. We keep the same numbers of items as core issues of the seven subjects (dimensions) for two dimensions, they are, one item for organizational governance and seven items for consumer issues. Thirty-five general managers of filiales or department directors from different CNSOEs reviewed all the items that underpin the "7+2" dimensions. The respondents agreed that all the items are important areas for evaluating CSR practices among CNSOEs and no important items are missing for this purpose. We reworded each items based on suggestions from these 35 general managers. Details of all the CSR practices dimensions and items are shown in Table 1. For CSR practices measurement, we reviewed the CSR reports publicized by CNSOEs and evaluated each of the nine CSR practices dimensions by checking all items in each dimension. Details about CSR reports collection are introduced in the following section of "3.2 Data collection". The scale used for evaluating CSR measurement is anchored on: 1=no mention about it; 2=related contents exist, the CSR report refers to some (less than one third) CSR items in this dimension (subject), which indicates that the CNSOE has related discussions; 3=clearly mention it, the CSR report includes over half of CSR items in this dimension (see details in Table 1), but the implementation effectiveness is not included in the report; 4=implement it, the dimension (subject) is introduced as a separate section in the CSR report with the implementation effectiveness and the majority (over 80%) of the CSR items in this dimension included, which indicates that the CNSOE has implemented related practices

successfully; 5=emphasize it, the dimension (subject) is introduced as a separate section in the CSR report with the implementation effectiveness and almost all CSR items in this dimension included, which indicates that the CNSOE implement it successfully and understand its importance. For dependent factors, we design two dimensions of financial and social performance. For financial performance, we used the annual operating performance ranking publicized on the official website of State-owned Assets Supervision and Administration. Such ranking include five scales of A, B, C, D, and E. For social performance, we referred to the CSR index and CSR reporting ranking publicized by the Research Center for Corporate Social Responsibility, Chinese Academy of Social Sciences. CSR index includes five scales, they are, 5=outstanding enterprise, 4=leader, 3=follower, 2=starter, and 1=observer. The CSR report ranking uses a five-star system to classify enterprises on the basis of their CSR achievements. This ranking system evaluates CSR reports for over 800 Chinese enterprises according to six dimensions, they are, completeness, substantiality, balance, comparability, readability, and creativity. Each enterprise is evaluated for these six dimensions with the total score of 100. An enterprise is ranked into seven levels using scales of 5 (outstanding), 4.5 (leading), 4 (excellent). 3.5 (good), 3 (pursuing), 2 (developing) and 1(starting) with the scores of over 90, 80-90, 70-80, 60-70, 50-60, 30-50, and less than 30, respectively. 3.2. Data collection Due to the continuous merger and reorganization, the number of CNSOEs has changed. We chose 113 national SOEs as our study targets which are publicized on the State-owned Assets Supervision and Administration (SASA) website in August of 2013. The SASA requires all CNSOEs to publicize their annual CSR reports since 2012, but only thirty-seven of the 113 CNSOEs publicized their 2012 CSR reports until August of 2013. Thus, we chose to use the 2011 CSR reports as the sampling frame for our study. We downloaded the 2011 CSR reports from either enterprises' own websites or the SASA website, and got 109 usable CSR reports for analyses. Four CNSOEs which provide no available CSR reports are excluded from this study, they are, China National Nuclear Corporation, Chinatex Corporation, ZhuHai Zhen Rong Company, and Fiber Home. By analyzing the CSR reports and using five-level measurement scales, two postgraduate master students gave scores to the "7+2" CSR dimensions for each of the CNSOEs. We compared the evaluation results by the two students, and the majority of the given scores are consistent. For the few inconsistent scores, we further checked the CSR reports and discussed with the two students about the discrepancy. In sum, we obtained all scores of the "7+2" CSR practices dimensions for all the 109 CNSOEs. For financial performance, we used the results of the annual operating performance evaluation by the SASA. This evaluation system includes basic and classification indicators. The basic indicators consider the total amount of profit and economic added value. The SASA determined the classification indicators by comprehensively considering enterprise' operations management level and risk control capability according to the characteristics of industries and functional orientation of the CNSOEs. As indicated above, the evaluation results include five scales comprising A, B, C, D, and E. For CNSOEs with a profit loss or economic added-values, they could not be ranked as "A". However, CNSOEs with annual losses may result from the macro international and domestic environment. To avoid the potential bias, we excluded eight CNSOEs experiencing profit loss in 2011. Besides, China

Reform Holdings Corporation LTD. was only established recently in December of 2010, and it was not ranked due to its short operations history. Thus, we used the 100 CNSOEs identified from the 2011 CSR reports and ranked their financial performance using the information available in the SASA for our analyses. For social performance, we referred to the two ranking systems that were publicized by the Chinese Academy of Social Sciences. Such publicized rankings affect consumers' acceptance and preferences of enterprises, and thus the ranking information can reflect their social image (Noronha et al., 2013). The first ranking system is "One hundred leading SOEs in terms of Social Responsibility index ranking (2012)". These 100 leading SOEs include 71 CNSOEs, among which 64 are included in our study samples. Such index ranking evaluates CSR performance in four dimensions, they are, responsibility management, marketing responsibility, social responsibility, and environmental responsibility. Among our 64 sample CNSOEs, 2 are outstanding enterprises (social performance=5), 16 are leaders (social performance=4), 20 are followers (social performance=3), 12 are starters (social performance=2), and 14 are observers (social performance=1). Considering that some of the CNSOEs were not involved in the index ranking, we also referred to the second ranking system entitled "Chinese enterprises' social responsibility report star ranking (2012)". Eight hundred and eighty-five enterprises were ranked by seven levels, including 5 star (8 enterprises), 4.5 star (22 enterprises), 4 star (29 enterprises), 3.5 star (43 enterprises), 3 star (61 enterprises), 2 star (214 enterprises), and 1 star (508 enterprises). Among the 885 enterprises, 72 are CNSOEs in our samples. Comparing the two ranking systems, 57 CNSOEs of our 100 samples appear on both lists, and the ranking values are generally consistent. The differences between the two ranking values are below 1.00, while the values in the second ranking system are relatively higher with the average difference of 0.50. Thus, we added 15 more sample enterprises according to the second ranking system while deducting the star values by 0.50. Totally, we have 79 samples (64 using the first ranking results, and 15 added according to the second ranking system) for evaluation of social performance. 4. Results and discussions 4.1. Results and discussions on descriptive analysis Mean values and standard deviations of the "7+2" CSR dimensions related to different stakeholders among CNSOEs are shown in Table 2. Eight of the nine CSR practices dimensions attain the mean values over 3.00, which indicate that the eight CSR practices have been implemented and clearly mentioned in their CSR reports. The only exception with the mean value less than 3.00 is concerned with the supply chain management-related CSR practices. Table 3 further shows correlations among each couple of CSR practices. The dimension (subject) on the environment has the highest mean value of 3.96, which indicates that environmental-related CSR practices are introduced in a separate section of CSR reports and the majority items in Table 1 are implemented among CNSOEs. Table 3 further shows that the environmental-related CSR practices are significantly correlated with the other two CSR dimensions on labor practices and supply chain related CSR practices,

respectively. Such result can be attributable to a series of policies on energy saving and pollution reduction in China. Two dimensions related to employees also achieve high mean values, 3.73 for human rights, and 3.89 for labor practices. Employees are the first important stakeholder group for CSR practices among CNSOEs. Table 3 shows that these two CSR dimensions are positively correlated. Furthermore, the dimension of human right is positively correlated with political responsibility. The dimension of labor practices is positively correlated to most of the other dimensions, except the two on organizational governance and consumer issues without significant correlations. The political CSR practices dimension has a high mean value of 3.78 in this study. Beyond the economic responsibility, CNSOEs, especially those operating at the national level, are expected to incorporate political responsibilities in their operations. All the managers participating in our interviews for development of the dimensions and items highlight the political roles for CNSOEs. Table 3 shows that the CSR dimension on political responsibility is positively correlated with the other dimensions except the two on environment and fair operating practices without significant correlations. Two dimensions of CSR practices related to fair operating practices and community attain relatively low mean values, and both are close to 3.00. Table 3 shows that the CSR dimension on fair operating practices is positively correlated only with the dimension on labor practices while the community-related dimension is positively correlated with four dimensions, they are, organizational governance, the environment, consumer issues, and political responsibility. Suppliers and customers have become important stakeholders for an enterprise to achieve sustainability (Zhu et al., 2012). Unfortunately, the dimension of supply chain management-related CSR practices receives the lowest mean value of 2.67 in this study. International leading enterprises have made efforts to promote CSR throughout their global supply chains (Risso, 2012). As a result, Chinese enterprises have experienced pressures to comply with CSR requirements when they expand to service the international market (Chi, 2011). CNSOEs should extend their CSR efforts to cover partners in their supply chains. However, as one interviewed manager indicates that most CNSOEs only care about the CSR practices of their own. Government should take a lead role to motivate the adoption of CSR practices by other enterprises in the supply chain-wide context. In sum, our results demonstrate that the CSR concept with “7+2” dimension are reasonable CSR practices for CNSOEs to adopt. CNSOEs have realized the importance of incorporating stakeholders in their CSR practices. Regulatory policies such as environmental and labor contract laws have successfully motivated CNSOEs to implement related CSR practices. However, CNSOEs have not paid enough attention to community-related and extended supply chain CSR practices in their operations. CNSOEs should be more proactive to implement community-related CSR practices. As larger enterprises are characterized with stronger market power, CNSOEs need to better expand their CSR efforts to cover their supply chain partners, which can also be an effective way for the Chinese government to promote CSR among all Chinese enterprises in the years ahead. 4.2. CSR practices and performance We used regression analysis to examine if CSR practices are positively associated with

financial and social performance of CNSOEs. Structural Equation Modeling (SEM) by means of maximum likelihood estimation is a ‘hard modeling’ method which requires heavy distribution assumptions and needs to have useful sample of several hundreds. In contrast, SEM using the partial least square (PLS) approach can be considered as a ‘soft modeling’ method which is less stringent in distribution assumptions where smaller sample size is acceptable (Tenenhausa et al., 2005). Distributions of two dependent performance factors are found abnormal, and thus SEM using the PLS approach was chosen to examine the associations between CSR practices and performance among CNSOEs. The study results using the PLS analyses are shown in Table 4 and Figure 1. Performance can be associated with CSR practices, but not with all the CSR dimensions (Michelon et al., 2013). Four CSR practices of the CNSOEs are found to have positive association with social performance while three CSR practices are positively associated with financial performance. The results shown in Table 4 indicate that financial performance can result from four CSR practices, they are, labor practices (x3), community involvement and development (x7), supply chain (x8), and political responsibility (x9). Equation (1) shows such result in regression analysis, which provides partial support for Hypothesis 1. Such results also demonstrate that CSR efforts to meet some of stakeholders' needs can bring competitiveness for CNSOEs. y1=a02+0.537x3+0.123x7+0.211x8+0.215x9+e1

(1)

The CSR dimension of labor practices has the most significant beta of 0.537 on financial performance. With the Labor Contract Law enacted, employees' income and safety is better guaranteed in China. How to attract and keep qualified employees has become a key issue to excel in financial performance among Chinese enterprises. CNSOEs have special political-related CSR practices, and the results shown in Table 4 and Equation (2) indicates that such practices can bring financial performance. Two CSR practice dimensions, namely community involvement and development, and management of the supply chain, are also associated with financial performance. Unfortunately, results in Table 2 show that both of these two CSR practices receive the least attention among others by the CNSOEs. Social performance of CNSOEs can result from three CSR practices, they are, organizational governance (x1), human rights (x2), and the environment (x3). Equation (2) shows the regression analysis result which provides partial support for Hypothesis 2. y2=a01+0.218x1+0.298x2+0.339x4+e2

(2)

According to the normative stakeholder theory, this aspect of CSR efforts to achieve social performance is fundamental for enterprises to gain financial performance (Donaldson and Preston, 1995). Organizational governance has one item; that is, establishing the institutional and organizational structure. The high coefficient of 0.218 in the regression for the relationship indicates that a formal department on CSR can improve social image of a CNSOE. Our statistical results show that efforts to guarantee human rights, mainly about employee rights among CNSOEs, can also be helpful to establish and improve public acceptance. CSR practices related to environmental management has the highest regression

coefficient of 0.339. Such result indicates that efforts on environmental management and practices are important for CNSOEs to improve their social performance. Based on the regression results, part of the CSR practices are found positively associated with social or financial performance. However, two important CSR practices related to community and supply chain relationships can bring financial performance, but both have not been well implemented relative to the other CSR practices. For higher performance improvement, CNSOEs need to care about emergent stakeholders and be more proactive in community development and cooperation with enterprises in their supply chains. Two CSR dimensions on fair operating practices and consumer issues show no effect on both financial and social performance. In China, CNSOEs have been criticized for their endowed power from the government shaping an unfair and unhealthy environment for private and foreign enterprises in some industrial fields such as civil aviation and bank to compete. As a result, even CNSOEs have made efforts in fair operating practices, such efforts could not bring financial and social performance yet. Consumers may not be well aware of CSR practices undertaken by CNSOEs since CSR publicization and the diffusion are still at the initial stage for Chinese enterprises (Noronha et al., 2013). Moreover, some bad stories of product safety problems including lead-tainted toys, melamine tainted milk, toxic toothpaste, defective tyres, and fake medicines have destroyed consumers’ confidence on "made-in-China" products (Lu et al., 2012). Therefore, CSR practices related to consumer issues are not associated with performance improvements and CNSOEs need to instill market confidence on the customer-related aspect of their CSR practices adoption. 5. Conclusions Based on the descriptive stakeholder theory, we developed seven CSR practices dimensions incorporating the key stakeholders' concerns outlined by the ISO26000 framework as well as two dimensions on political responsibility and supply chain management considering the characteristics of CNSOEs in China. Our study extends the previous studies of CSR mainly conducted in developed countries (Surroca et al., 2013; Zhang et al., 2013a). Our developed CSR concept with “7+2” dimensions contribute knowledge to limited studies on the adoption and performance implications of CSR practices in developing countries (Zhang et al., 2013b; Zhao, 2012). By examining the 2011 CSR reports among 100 CNSOEs, we conclude that most of the "7+2" CSR practices have been highlighted and implemented, especially for those related to the environment, labor practices, political responsibility, and human rights. However, different from those in developed countries concerning CSR practices on communities (Ansari et al., 2012; Prieto-Carron et al., 2006) and extended supply chain practices (Risso, 2012), CNSOEs need to pay more attention to these CSR practices. Therefore, the Chinese government should develop more policies such as further integrating related CSR efforts into annual evaluation for CNSOEs to motivate their implementation of CSR practices catering to the communities. Moreover, being larger enterprises with stronger market power, CNSOEs have the ability and responsibility to extend their CSR efforts to cover stakeholders in their supply chains. The instrumental stakeholder theory is used to examine relationships of CSR practices and competitiveness. Using financial performance as the indicator of competitiveness, we referred to the results of annual operating performance evaluation by the State-owned Assets Supervision and Administration. Four CSR practices can bring financial performance, but two of them related to communities and management of the supply chains are implemented at the lowest level among the CNSOEs. The normative stakeholder theory is used to examine if CSR practices can bring normative acceptance (social performance) among CNSOEs. For social performance, we used the CSR

ranking compiled by the Chinese Academy of Social Sciences in the analysis. CSR practices related to organizational governance, human rights, and the environment are found to have positive association with social performance, and all these three CSR practices are generally implemented at a higher level in CNSOEs. This study employs the descriptive stakeholder theory to develop a framework for evaluating CSR practices with "7+2" dimensions, which incorporate the political and supply chain management aspect of CSR in typical and important type of enterprises in China, i.e., CNSOEs. Such framework can be used by the Chinese government to evaluate CSR practices among CNSOEs. Our results can help CNSOEs to identify their weakness of CSR efforts such as those on community-related practices. We further extend the instrumental and normative stakeholder theories to explore if CSR practices by CNSOEs can bring financial and social performance, respectively. The study results also provide implications for both the Chinese government and CNSOEs to promote supply chain related CSR efforts and enhance financial performance improvement. There are several potential areas to extend this line of research. First, we used secondary data from CSR reports among CNSOEs for evaluating their CSR practices. However, a gap may exist between CSR disclosure and real CSR practices (Font et al., 2012). How to evaluate CSR practices is a worthy topic for further studies. Second, Second, due to unavailability of the data, we could not have information for evaluating each item. Instead, we use a five-level measurement scale for evaluating each dimension but not each item. It is desirable for future research to collect data for evaluating each item to test the validity and reliability of the constructs, especially for two of the nine constructs (i.e., supply chain and political responsibility) beyond the ISO26000 framework. Third, we used the secondary data for measuring both financial and social performance in CNSOEs. A more specific and in-depth study can be carried out if primary data are available to understand the performance impact of CSR practices on CNSOEs. It is also insightful to understand CSR practices in different industrial sectors beyond manufacturing such as shipping and transport logistics operations (Lai et al., 2013; Lam and Gu, 2013). Fourth, we only used the 2011 data publicized in 2012 for our analysis. A longitude comparison can be useful to understand the evolution of CSR practices implementation and changes of relationships between CSR practices and the performance of CNSOEs. Acknowledgements: This work is supported by a grant from National Science Fund for Distinguished Young Scholars (71025002), the National Key Basic Research Program of China (973 Program, 2011CB013406), the National Natural Science Foundation of China Projects (71033004) and the Major Program of the National Social Science Fund of China (13&ZD147). Lai is fully supported by the General Research Fund of the Research Grants Council of Hong Kong Special Administration Region, China (GRF 5455/11). References: Anner, M., 2012. Corporate social responsibility and freedom of association rights: The precarious quest for legitimacy and control in global supply chains. Polit. Soc. 40, 609-644. Ansari, S., Munir, K., Gregg, T., 2012. Impact at the 'Bottom of the Pyramid': The role of social capital in capability development and community empowerment. J Manage Stud 49, 813-842. Balzarova, M.A., Castka, P., 2012. Stakeholders' influence and contribution to social standards development: The case of multiple stakeholder approach to ISO 26000 development. J Bus Ethics 111, 265-279. Belu, C., Manescu, C., 2013. Strategic corporate social responsibility and economic performance. Appl Econ 45, 2751-2764. Berjillos, A.D., Lozano, M.R., Valencia, P.T., Ruz, M.C., 2012. An approach to the relationship between the

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Organizational governance (x1) 0.218 Human rights (x2)

0.298

Labor practices (x3)

0.339

Social performance (y2)

The environment (x4) 0.537 Community involvement and

0.123

development (x7) 0.211

Financial performance (y1)

Supply chain (x8) 0.215 Political responsibility (x9)

Figure 1 A path model of CSR practices and performance

Table 1 “7+2” core subjects and items of CSR practices among Chinese state-owned enterprises Core subjects Items Establish the institutional and organizational structure 1. Organizational governance 1. Due diligence of investigation on employee rights 2. Human rights

3. Labor practices

4. The environment

5. Fair operating practices

6. Consumer issues

7. Community involvement and development

8. Supply chain

9. Political responsibility

2. Control infringement of events on employee rights such as hire of kids 3. Formulate rules and regulations to avoid infringement of employee rights 4. Deal with employee complaints and strengthen communication 5. Avoid discrimination of vulnerable groups 6. Guarantee employees' personal and political rights 7. Guarantee employees' economic, social and cultural rights 8. Guarantee employees' fundamental rights at work 9. Care employees' living conditions, and effectively solve problems for employees 10. Keep labor regulations transparency 1. Respect labor contract relationships with employees 2. Satisfy conditions of labor and social protection 3. Establish public relations and the employee negotiation mechanism 4. Keep good union relationships 5. Guarantee health and safety at work 6. Provide help for human development and training programs 1. Reduce waste emissions, prevent and treatment pollution 2. Recycle and reuse resources 3. Save energy use to mitigate and adapt to climate change 4. Invest in environmental protection to improve technological processes 5. Protect and conserve the environment, biodiversity and restoration of natural habitats 1. Comply with laws and regulations 2. Establish anti-corruption policies and measures 3. Involve in policies design and establishment reasonably and legally 4. Abide by market rules, do not involve in price fixing and unfair competition 5. Promote social responsibility in the value chain 6. Respect property rights 1. Implement marketing promotion fairly 2. Protect consumers' rights including those on health and safety 3. Produce energy-efficient or environmental products to promote sustainable consumption 4. Provide service for consumers, and resolve consumers' complaints and disputes 5. Protect consumer data and privacy 6. Guarantee consumers to access to essential services 7. Provide training for consumers to improve their awareness 1. Involve in community development plan 2. Promote community education and cultural construction 3. Create job opportunity and provide skills development for a local community 4. Create wealth and income for a local community 5. Maintain community environment and population health 6. Involve in Social and public welfare undertakings 1. Prefer to choose suppliers which highlight CSR on organizational governance 2. Prefer to choose suppliers which highlight CSR on human rights 3. Prefer to choose suppliers which highlight CSR on labor practice 4. Prefer to choose suppliers which highlight CSR on the environment 5. Prefer to choose suppliers which highlight CSR on fair operating practices 6. Prefer to choose suppliers which highlight CSR on consumer issues 7. Prefer to choose suppliers which highlight CSR on community involvement and development 8. Strengthen coordination and experiences sharing among supply chains 1. Proactively comply with needs of national security and politics 2. Guarantee value increase of state-owned assets 3. Improve sustainable profitability continuously 4. Promote innovation and technological progress 5. Make efforts to ensure production safety 6. Promote the development of overseas markets 7. Actively participate in public welfare such as charity, donations, and support public welfare undertakings such as education, culture, health 8. Actively provide resources during major natural disasters and emergencies

Table 2 Descriptive results of "7+2" CSR practices Core subject

Means*

Standard deviations

Organizational governance

3.41

0.49

Human rights

3.73

0.43

Labor practices

3.89

0.40

The environment

3.96

0.29

Fair operating practices

3.00

0.43

Consumer issues

3.14

0.45

Community involvement and development

3.03

0.47

Supply chain

2.67

0.50

Political responsibility

3.78

0.39

*Notes:

1=no mention about it; 2=related contents exist, the CSR report refers to some (less than one third) CSR items in this dimension (subject), which indicates that the CNSOE has related discussions; 3=clearly mention it, the CSR report includes over half of CSR items in this dimension (see details in Table 1), but the implementation effectiveness is not included in the report; 4=implement it, the dimension (subject) is introduced as a separate section in the CSR report with the implementation effectiveness and the majority (over 80%) of the CSR items in this dimension included, which indicates that the CNSOE has implemented related practices successfully; 5=emphasize it, the dimension (subject) is introduced as a separate section in the CSR report with the implementation effectiveness and almost all CSR items in this dimension included, which indicates that the CNSOE implement it successfully and understand its importance.

Table 3 Correlations among nine dimensions of CSR practices x1 Organizational governance (x1)

1

x2

x6

x7

x8

.091

.028 -.061 .119

*

*

.244 .269**

1 .320**

.136 .000 .082

.060

.005 .284**

.028

x3

x4

x5

Human rights (x2)

.028

Labor practices (x3)

.091 .320**

The environment (x4)

.028

.136 .246*

1

.020 .084

-.061

*

.020

1 -.013

Fair operating practices (x5) Consumer issues (x6)

.119

Community involvement and development (x7) .225* Supply chain (x8) .244*

1

.000 .207 .082

.191

.060 .316**

.246* .207* .191 .316** .348** .551**

.084 -.013

**

**

1

.083 .276** -.038

.030

.140 .238*

1

.189 .297**

.155 .140

.189

*

**

.167 .030 .238 .297

.155

.167

*

.216

.083 -.038 .216*

.005 .348** .276**

Political responsibility (x9) .269 .284 .551 Notes: * Correlation is significant at the 0.05 level (2-tailed). ** Correlation is significant at the 0.01 level (2-tailed). **

.225

x9

1 .324** **

.324

1

Table 4 Regression results of CSR practices and performance Independent variable

Organizational governance x1 Human rights x2 Labor practices x3 The environment x4 Fair operating practices x5 Consumer issues x6 Community involvement and development x7 Supply chain x8 Political responsibility x9 Note: ***p<0.001, **p<0.01, *p<0.05

Dependent variable Social performance y1

Financial performance y2

Beta

Beta

0.218* 0.298*** -0.033 0.339*** 0.058 0.125 0.072 0.123 -0.040

t value 2.418 3.333 0.281 3.818 0.608 1.608 0.779 1.091 0.357

0.029 -0.038 0.537*** 0.059 0.014 0.056 0.123** 0.211** 0.215**

t value 0.540 0.666 7.123 1.106 0.264 0.968 2.675 2.648 3.118