[CSR Monitor Vol.4-1] Three Characteristics Revealed in Public Distrust of Large Corporations

Domestic Large Corporations Lack Trust

The public's distrust of domestic large corporations remains deep. According to an international CSR (Corporate Social Responsibility) survey conducted by GlobeScan, a polling firm headquartered in Canada, across 26 countries, only 35% of South Koreans responded that they trust domestic large corporations (very trusting + generally trusting). Conversely, 62% responded that they do not trust them at all (not at all trusting + generally not trusting). This indicates that the percentage of respondents who do not trust domestic large corporations is 27 percentage points higher than those who do.

The severity of the public's distrust in domestic large corporations can also be understood by comparing it with the trust levels in other entities, such as the government or global large corporations. First, let's compare it with trust in the government. In South Korea, 47% of respondents indicated trust in the national government (very trusting + generally trusting), which is 12 percentage points higher than the 35% trust level for domestic large corporations. On the other hand, 52% responded that they do not trust the national government (not at all trusting + generally not trusting), which is 10 percentage points lower than the 62% who do not trust domestic large corporations.

Is this public distrust of domestic large corporations a temporary phenomenon? Given that the survey was conducted in January 2013, this possibility cannot be entirely ruled out. This is considering the specific timing, when the debate on economic democratization, sparked by the need for a new paradigm in economic management during the 2012 general and presidential elections, had expanded into a common political issue focused on 'large corporation reform.' However, the results suggest it is unlikely to be a temporary phenomenon. The finding that the public's trust level in domestic large corporations falls short of the trust level in the government was replicated in the East Asia Institute's December 2013 survey results. In a social trust survey conducted via face-to-face interviews with 1,000 adults aged 19 and above nationwide, including Jeju Island, the trust score for the government was 4.9 out of 10, higher than the trust score for large corporations, which was 4.7.

As indicated by the results above, the fact that the public's trust level in domestic large corporations is lower compared to their trust level in the government does not inherently need to be approached as a significant problem. In reality, there is no logical or empirical evidence to suggest that the trust levels in domestic large corporations and the government are mutually exclusive, i.e., in a zero-sum relationship. Therefore, the natural next step should be to examine the time-series changes in the public's trust levels in both entities. Specifically, it is necessary to confirm whether the public's trust levels in domestic large corporations and the government have been the same in the past.

The East Asia Institute conducted a face-to-face interview survey in December 2004 with 1,000 adults aged 20 and above nationwide, using the same questions as the December 2013 social trust survey. At that time, the trust score for the government was 4.6, and the trust score for large corporations was higher at 5.2. This confirms that, at least in 2004, the public's trust level in domestic large corporations was higher than their trust level in the government. Simultaneously, it can be confirmed that while the public's trust in domestic large corporations decreased from 2004 to 2013, the trust in the government increased.

This change might be attributed to the weakening of public trust in 'large corporations' as a whole due to the global financial crisis and economic recession. However, the conclusion is that this is not the case. The proportion of respondents who trusted global corporations operating domestically was 49% (sum of very trusting and generally trusting), which was higher than the 47% who responded they do not trust them at all or generally do not trust them. This suggests that the public does not exhibit low trust in large corporations as an entity, but rather shows a uniquely low level of trust in 'domestic large corporations.'

From the perspective of domestic large corporations, which have driven national economic growth and steadily increased their social contribution activities despite difficult domestic and international economic conditions, it can be frustrating to receive such low public trust. In fact, according to a survey released by the Federation of Korean Industries on October 30, 2013, the social contribution expenditures of 225 major domestic companies in 2012 amounted to approximately 3.2494 trillion KRW. The growth rate of expenditures also increased by about 5.2% compared to 2011. This increase in 2012 is not an isolated trend compared to 2011. According to the Federation of Korean Industries, the social contribution expenditures of the top 500 companies by sales have shown a steady increase from 1.2284 trillion KRW in 2004 to 1.4025 trillion KRW in 2005, 1.8048 trillion KRW in 2006, and 1.9556 trillion KRW in 2007. Even during the global financial crisis in 2008, expenditures increased to 2.1604 trillion KRW, and this upward trend continued in 2009 with 2.6517 trillion KRW.

The ratio of social contribution expenditures to sales and pre-tax profit is 0.22% and 3.58%, respectively, which is more than double the social contribution ratios of Japanese companies (0.08% and 1.71%). A press release from the Ministry of Economy and Finance on August 9, 2011, also indicated that the ratio of social expenditure to sales for domestic large corporations was 0.23%, significantly exceeding that of the United States (0.1%) and Japan (0.09%). How to interpret the situation where public trust in domestic large corporations is declining while trust in the government is increasing is a challenge to be addressed. It would be even better if trust in large corporations increased in proportion to the rise in trust in the government. This report aims to explore the possibility of domestic large corporations gaining trust comparable to that of the government. To this end, this report will begin by examining whether the low trust in domestic large corporations held by the public is a phenomenon unique to South Korea or a general trend observed in other countries. If it is an exceptional phenomenon in South Korea, we can identify specific peculiarities through a comparative perspective with other nations. Furthermore, we will propose, at least in a theoretical sense, potential areas for improvement from the perspective of domestic large corporations. The data used for this analysis are from 2013, and the year 2005 was also utilized to examine time-series changes. The 21 countries that participated in the 2005 survey were Nigeria, South Africa, Germany, Russia, Mexico, the United States, Brazil, Switzerland, Argentina, the United Kingdom, Italy, India, Indonesia, China, Chile, Canada, Turkey, France, the Philippines, South Korea, and Australia.

The reason for choosing 2005 as the comparison point is to compare the state before the global economic recession caused by the US-originated global financial crisis in 2008 and the European debt crisis in 2010 with the survey results from 2013, which falls after these events. The number of countries analyzed is 14, consisting of those that participated in both the 2013 survey (26 countries) and the 2005 survey (21 countries).

Three Characteristics

Analyzing the survey results reveals characteristics unique to South Korea that differ from other countries. These can be broadly categorized into three points.

1. First Characteristic: Reversal of Trust - Government Trust > Large Corporation Trust

Examining the trust in domestic large corporations and domestic government across the 14 countries that participated in both the 2005 and 2013 surveys reveals the following characteristics. First, in 2013, compared to 2005, trust in domestic large corporations and government has shown an upward trend in almost all countries. This means that the proportion of respondents who generally trust their domestic large corporations and government has increased in 2013 compared to 2005.

Second, a phenomenon of 'coupling' between trust in domestic large corporations and trust in the government has generally been observed. Coupling typically refers to the phenomenon where exchange rates, stock prices, interest rates, and economic conditions of two countries move together, such as the Korean stock market moving in tandem with the US stock market, or the value of the British Pound fluctuating with the Euro. A similar phenomenon was observed in the survey results from the 14 countries.

Furthermore, the relationship between trust in domestic large corporations and trust in the government became statistically closer in 2013 compared to 2005. The Pearson correlation coefficient between trust in large corporations and trust in the government was 0.585 (p < 0.05) in the 2005 survey, increasing to 0.696 (p < 0.01) in the 2013 survey.

Third, the fluctuation range in countries where trust levels in both domestic large corporations and the government were low was relatively larger compared to the fluctuation range in countries where both trust levels were high. For example, countries where trust levels in both domestic large corporations and the government were high in the 2005 survey included Indonesia, India, China, and Kenya. Conversely, countries where trust levels in both were low included Germany, South Korea, and France. In the 2013 survey, Indonesia, India, China, and Kenya could still be classified as countries with consistently high trust levels, but only South Korea was among those with consistently low trust levels. Additionally, Germany experienced a sharp increase in both domestic large corporation and government trust, while France showed a clear upward trend in domestic large corporation trust.

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How does South Korea differ from other countries? A comparison with the survey results of other countries was made, focusing on the extent of change in South Korea's survey results between the 2005 and 2013 surveys. First, in terms of changes in trust in domestic large corporations, South Korea experienced a 2%p decrease, classifying it as a country where trust in domestic large corporations declined, along with Mexico (15%p decrease). Conversely, the countries with the largest increase were Germany, with a 29%p increase, and Turkey, with a 19%p increase.

In terms of changes in trust in the domestic government, South Korea showed a 23%p increase in trust levels. While Germany and Canada had larger increases of 36%p and 26%p, respectively, this was a significant difference compared to Turkey, which showed the next largest increase at 17%p. Conversely, there were also countries where trust in the domestic government decreased. The country with the largest decrease was the United States, with a 12%p decline, followed by the United Kingdom (8%p decrease).

Consequently, South Korea is an exceptional country where trust in large corporations decreased while trust in the government increased, unlike most other countries (excluding Mexico, Indonesia, the United Kingdom, and the United States) where both large corporation trust and government trust have increased. Thus, compared to the 2005 survey results, the 2013 survey results for South Korea showed neither an upward trend in trust in domestic large corporations and the government nor a coupling phenomenon, with trust in domestic large corporations actually decreasing, making it a distinctive case.

Another noteworthy point is the comparison of the difference between trust in domestic large corporations and trust in the government between 2005 and 2013. Among the 14 countries, South Korea was the only one where trust in domestic large corporations was higher than trust in the government in the 2005 survey, but lower in the 2013 survey. The difference between trust in domestic large corporations and trust in the government, which was 14%p in the 2005 survey, dropped to -11%p in the 2013 survey. This result shows a sharp decline in trust in domestic large corporations compared to trust in the government.

This is a result that shows a sharp decrease in trust in domestic large corporations compared to trust in the government.

[Table 1] Comparison of Changes in Large Corporation Trust and Government Trust

2. Second Characteristic: Global Large Corporation Trust > Domestic Large Corporation Trust

Several characteristics can be identified in the results of trust in domestic large corporations versus global large corporations among the 14 countries that participated in both the 2005 and 2013 surveys. First, similar to the comparison between trust in domestic large corporations and trust in the government, both trust in domestic large corporations and trust in global large corporations showed an upward trend in the 2013 survey compared to 2005. Generally, trust in both domestic and global large corporations in the participating countries increased in 2013 compared to 2005.

Second, the fluctuation range was significant not only in countries where trust levels in both domestic and global large corporations were high, but even in countries where both trust levels were low. For instance, countries with high trust levels in both domestic and global large corporations in the 2005 survey included Indonesia, India, China, and Kenya. Conversely, countries with low trust levels in both included Germany, Russia, South Korea, and France. In the 2013 survey, Indonesia, Kenya, and India could still be classified as countries with consistently high trust levels, but only South Korea and Russia were among those with consistently low trust levels.

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A comparison with the survey results of other countries was made, focusing on the extent of change in South Korea between the 2005 and 2013 surveys. South Korea's trust in global large corporations increased by 16%p. It is also characteristic that no country experienced a decrease in trust in globally operating domestic corporations. However, this does not mean that the change in trust in globally operating domestic corporations was relatively larger compared to the change in trust in domestic large corporations.

Looking at the average change across the 14 countries, the difference in trust in domestic large corporations between 2005 and 2013 was 11%p, while the difference in trust in global large corporations was 12%p, showing no significant difference.

Consequently, South Korea, along with Mexico, can be classified as a distinctive country where trust in domestic large corporations decreased while trust in global large corporations increased in the 2013 survey compared to the 2005 survey. In fact, in 2013, South Korea, along with Mexico, showed higher trust in global large corporations than in domestic large corporations, a reversal from 2005 when trust in domestic large corporations was higher.

[Table 2] Comparison of Changes in Trust in Domestic Large Corporations and Trust in Globally Operating Corporations

3. Third Characteristic: Protectionist Sentiment ↑ & Domestic Large Corporation Trust ↓

The South Korean public exhibited a low level of trust in domestic large corporations, not only compared to the government but also compared to global large corporations. Furthermore, comparing the survey results from 2005 and 2013, South Korea was an exceptional, i.e., distinctive, country where trust in domestic large corporations, which was relatively higher compared to domestic government and global large corporations, actually decreased.

Despite this, the South Korean public held a highly protectionist and dualistic view of the global economic system. The proportion of people who agreed that protectionist trade policies are necessary to protect domestic industries and jobs was higher in the 2013 survey, as well as in the 2008 international CSR survey, compared to other countries. In fact, the percentage of South Koreans who agreed in the 2008 survey was 74%, which increased to 87% in the 2013 survey, and was higher than in other OECD countries. This indicates a contradictory situation where, despite low trust in domestic large corporations compared to the national government and global large corporations, the perception of protectionism is the highest among the compared countries.

Figure 5 _ Perception of Support for Protectionism (%)

Large Corporations: What Should Be Done?

There can be various reasons why domestic large corporations struggle to gain public trust. It could be due to the influence of the economic democratization debate initiated by the political sphere during the 2012 general and presidential elections. Repeated incidents involving large corporations may also be reasons for the lack of public trust. However, paradoxically, it is noteworthy that while large corporations as a collective entity fail to gain public trust, individual large corporations show the opposite results. The Power Organization Trust-Influence Survey, conducted jointly by the East Asia Institute and JoongAng Ilbo since 2005, consistently shows that the average trust level in individual large corporations such as Samsung, Hyundai Motor, SK, and LG has always surpassed the average trust level in government organizations like the prosecution, Constitutional Court, police, National Tax Service, Blue House, Supreme Court, Board of Audit and Inspection, and National Intelligence Service (see EAI Public Opinion Briefing No. 136).

This suggests that differences may arise depending on whether large corporations are approached as a concept or as individual entities when conceptualizing trust. This is because trust in the social contribution activities or CSR activities of leading South Korean large corporations like Samsung, Hyundai Motor, SK, and LG, as well as in their high-quality products and services that are competitive on the international stage, is likely to be approached from the perspective of 'confidence' rather than 'trust.' 'Trust' is used when referring to trust in the entity itself. 'Confidence' is also commonly used to refer to trust in an entity, but it can be distinguished from 'trust' in that the object of confidence is primarily related to ability, performance, and will.

[Table 3] East Asia Institute · JoongAng Ilbo Power Organization Trust-Influence Survey Results

Large Corporations: Samsung · Hyundai Motor · SK · LG

Government Organizations: Prosecution · Constitutional Court · Police · National Tax Service · Blue House · Supreme Court · Board of Audit and Inspection · National Intelligence Service

Furthermore, the difference in trust between large corporations as a whole and individual large corporations can also be inferred from the public's perception of the significant influence of large corporations and the resulting expectations regarding social issues. In the RADAR 2012 survey by GlobeScan and the East Asia Institute, 70% of the South Korean public responded that the social influence of large corporations is 'large.' Only 28% responded that it is 'small' (excluding 2% for don't know/no response). Conversely, only 28% responded that large corporations are 'doing well' in solving social problems, while 66% responded that they are 'doing poorly.' The negative evaluation of large corporations by the South Korean public becomes even more apparent when compared to the results from other countries. Among the 22 participating countries, the average response for social influence was 62% for 'large' and 34% for 'small.' For contribution to solving social problems, the average response across the 22 countries was 47% for 'doing well' and 41% for 'doing poorly.'

The reasons for domestic large corporations not receiving high public trust cannot be explained by a single factor. However, the results above indicate that new exploration and challenges are needed in the existing paradigm of social contribution activities. Domestic large corporations are already spending a significant proportion of social contribution costs compared to the United States and Japan, and this trend is steadily increasing. Nevertheless, the reality of not regaining public trust suggests that CSR activities alone are insufficient, and there is 'something' missing. While a highly complex approach is inevitable, acknowledging that one of the roles the public expects from domestic large corporations is contributing to the resolution of social issues necessitates more proactive efforts to expand social value. An example of this is Creating Shared Value (CSV), where companies consider social value alongside economic profit. Therefore, companies are urged to cooperate with the government in resolving social issues by practicing CSV.

The arguments and content of this report are the personal opinions of the author and do not represent the official position of the collaborating research institutions, the Social Enterprise Research Center and the East Asia Institute. When citing data from this report, please attribute it to "GlobeScan · East Asia Institute · Social Enterprise Research Center Survey."