[CSR Monitor Vol.5] An Evaluation of Korean Corporations' Corporate Social Responsibility Activities and Strategies for Social Enterprise Conversion

I. Introduction

Should corporations engage in Corporate Social Responsibility (CSR)? Opinions vary widely on this question. Opponents argue that "the illusion that socially responsible corporations can change our society is a misconception (Chamberlain, 1973)," thus evaluating the effects of CSR negatively. They contend that corporations fulfill their responsibilities by contributing to the local and national economy through profit maximization, thereby providing economic welfare to citizens, and that CSR activities can actually have adverse effects on corporations and their regions. The grounds for this argument are threefold: first, engaging in social responsibility increases costs and reduces profits due to the "internalization of social costs," thereby jeopardizing the company's survival (Pave & Krausz, 1996); second, it constitutes a deviation from the manager's inherent duty to serve shareholders; and third, forcing CSR could lead to the government's intervention in all corporate activities through legal regulations and administrative pressure, potentially resulting in collusion between politics and business or the emergence of government-affiliated corporations.

Conversely, proponents of CSR, like David S. Ford who stated, "We do this because we have to," emphasize its moral and ethical imperative. In contemporary society, large corporations wield immense power, and this power should be utilized for the public good. In other words, the extent of a corporation's power should correspond to its sense of responsibility (Song Ho-shin, 2010: 149). More recently, the concept of CSR has been expanded to argue that it is not merely an obligation to benefit the community or a duty to be fulfilled, but rather an essential activity for corporate sustainability from a strategic perspective. Landon & Smith (1997) demonstrated that CSR contributes to improved business performance by fostering a positive corporate reputation, thereby supporting the efficacy of CSR. Margolis et al. (2007) found a positive correlation between Corporate Social Performance (CSP) and financial performance.

The international community also leans towards the positive aspects of CSR, as evidenced by initiatives such as the UN Global Compact, the ISO 26000 standard for social responsibility, and the Global Reporting Initiative (GRI) for sustainability reporting. In South Korea, discussions surrounding CSR have intensified since the 2000s, leading to an increase in corporate social contribution expenditures. According to the Federation of Korean Industries' "White Paper on Social Contribution," large corporations' social contribution spending tripled from 1.087 trillion KRW in 2002 to 3.124 trillion KRW in 2011.

This report utilizes the findings from the Korean survey conducted jointly by GlobeScan, the East Asia Institute (EAI), and the Institute for Social Enterprise Research to examine how the Korean public perceives corporate social responsibility, how Korean corporations are embracing it, and to consider future directions. Specifically, we aim to identify the reasons why CSR activities are important in Korea and why a social enterprise conversion strategy is necessary for corporate sustainability, and to assess the current level of CSR in Korean corporations.

II. Public Perception of the Social Role of Corporations

1. Public Demand for the Social Role of Corporations

In the late 1990s, research indicated that among the world's top 100 corporations, 51 were private and 49 were state-owned, suggesting that the power and influence of private corporations had surpassed that of central governments (Anderson & Cavanagh, 2000). Similarly, in South Korea as of 2014, private companies constitute a higher proportion among the top 100 corporations than state-owned enterprises. Beyond these objective indicators, the social influence and roles expected by the public from corporations are as follows: When issues of economic and social justice and equality arise, 16% of the public identified large corporations as the entity responsible, second only to the government (51%). Furthermore, large corporations were also identified as the second-highest entity responsible for resolving these issues, after the government (20%). While there is a significant gap between the government and large corporations in terms of responsibility (35 percentage points) and resolution (39 percentage points), these results clearly indicate a high demand for the social role of large corporations. This demonstrates that the public expects corporations to take an active interest in and respond to social issues as influential actors in society.

<Figure 1> Responsible Parties and Resolution Actors for Social Issues (%)

Source: GlobeScan, East Asia Institute, Institute for Social Enterprise Research RADAR 2014 International Survey (Q29, Q30)

Examining the social roles that corporations are perceived to be responsible for, by sector, reveals the extent to which the public understands corporate social responsibility. Survey results from 2005 to 2011 on what large corporations should be responsible for show a stable or declining trend in roles related to corporate profits, such as economic stability, reduction of the wealth gap, and development of affordable, high-quality products. Conversely, there has been a growing recognition of the importance of CSR activities, including environmental protection, ethical business management, support for charitable activities and social enterprises, and support for local education and vocational training. Environmental protection, in particular, was identified as the most crucial corporate role, with 86% of respondents in 2011 believing large corporations should be responsible, an increase of 16 percentage points from 70% in 2005. Ethical standards saw an 18 percentage point increase, and support for charitable activities and social enterprises increased by approximately 12 percentage points. This indicates that from the public's perspective, it is increasingly important for corporations not only to contribute to society through profit generation but also to return profits to society through ethical and moral actions, and that the scope of social responsibility is expanding to include environmental protection and local education.

<Figure 2> Changes in Perception of Large Corporations' Roles (%)

Source: GlobeScan, East Asia Institute, Institute for Social Enterprise Research RADAR 2005/2007/2009/2011 International Survey (Q2t)

The public's demand for social roles from corporations can be interpreted in various ways. One interpretation is the increased power and influence of corporations; as their influence grows, it is natural to demand corresponding responsibilities (Song Ho-shin, 2010: 152). Another interpretation is related to South Korea's unique economic growth background. During the 1960s-70s, economic growth was a national priority, and corporations rapidly grew into chaebols with government support. Consequently, the public perceives a need for corporations to reciprocate these achievements. Following liberation, the rapid economic growth in a short period was accompanied by irregularities in capital accumulation due to the immaturity of the capitalist economic order and the instability of market mechanisms. Particularly after the 1997 Asian financial crisis, issues related to wealth accumulated through privileges, corruption, political-business collusion, speculation, tax evasion, and mismanagement came to light, leading the public to develop a negative view of corporations. Discussions on social responsibility in Korea began to emerge driven by anti-chaebol sentiment, directed more towards chaebols than corporations themselves (Lee Sang-min, 2008: 233). The negative perception of wealth held by the rich supports this argument. In 2012, 56% of the public responded negatively to the question of whether the wealthy in Korea deserved to enjoy their wealth. This negative perception reflects the public's critical evaluation of the wealth accumulation process and suggests a cynical view of the social responsibility of the wealthy class in Korea.

<Figure 3> Do the Wealthy Deserve to Enjoy Their Wealth? (%)

Source: GlobeScan, East Asia Institute, Institute for Social Enterprise Research RADAR 2012 International Survey (Q7At_gt)

2. Evaluation of the Social Role of Corporations and Its Impact

Why should corporations pay attention to public perception of CSR? The answer is readily found when considering what happens if corporations fail to meet the public's demands for social responsibility.

While empirical evidence directly linking CSR to corporate trust is limited, it is possible to infer a correlation between CSR and corporate trust by comparing <Figure 4> Corporate Trust by Industry and <Figure 5> Corporate CSR Reputation by Industry. The results of the corporate trust survey by industry show that the public's trust is highest for information technology, followed by automobiles, and then mobile telecommunications and mobile phone companies. The CSR reputation survey by industry also shows positive evaluations for information technology, mobile telecommunications and mobile phones, and automobile companies, indicating similar outcomes for trust and CSR reputation. Similarly, at the lower end, mining and tobacco companies receive negative evaluations in both trust and CSR reputation. This suggests that public evaluation of corporate social responsibility roles and corporate trust mutually influence each other.

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This CSR reputation directly translates into corporate performance. Consumers are more likely to purchase products from companies that actively engage in CSR activities, even at a higher price. When asked if they would be willing to do so, the proportion of respondents answering affirmatively rose by 5.4 percentage points from 69.1% in 2011 to 74.5% in 2014. Although this represents a 2.7 percentage point decrease compared to 2013, a majority still prefer products from companies with strong CSR performance. The proportion of people who purchase or recommend products from companies with good CSR practices has also increased significantly, from 44.7% in 2009 to 69.8% in 2014, an increase of nearly 25 percentage points.

Consumers' favorable perception of corporate CSR activities leads to behavioral loyalty towards the company (Choi Ji-ho & Moon Yeon-hee, 2011: 109), which in turn enables voluntary regulation of CSR activities, fostering a virtuous cycle. While there can be a significant gap between consumers' stated intentions and actual behavior, and CSR alone may not be the sole determinant of purchasing decisions (e.g., a consumer may not buy clothing from a company with good CSR if the style does not suit them), it is undeniable that the public places considerable weight on CSR. This is a factor that companies pursuing sustainable growth in the rapidly changing global economy cannot overlook.

<Figure 6> Consumer Sentiment Towards Companies with Strong CSR (%)

Source: GlobeScan, East Asia Institute, Institute for Social Enterprise Research RADAR 2014 International Survey (Q28t_dt, et)

III. The Current State of CSR Activities in Korean Corporations

1. Evolution of the Concept of CSR Activities

The concept of CSR has evolved from an ethical perspective emphasizing stakeholder engagement to strategic CSR and Creating Shared Value (CSV). The discussion on CSR began with Bowen (1953) in his book "Social Responsibilities of the Businessman," defining it as "the obligations of businessmen to pursue those policies, to take those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society." Although Friedman (1970) argued that a corporation's sole social responsibility is to increase profits, many scholars like Davis (1973) and Jones (1980) asserted that corporations have obligations to society as a whole, not just to shareholders.

Subsequently, Kotler & Lee (2005) integrated CSR with marketing, presenting successful corporate examples and highlighting its strategic importance. Porter & Kramer (2011) emphasized the significance of strategic social contribution for achieving long-term socio-economic goals and proposed CSV. CSV is presented as a new management paradigm that not only addresses social needs through corporate products and services but also realizes corporate economic benefits through innovation in the value chain and the formation of industrial clusters for sustainable management. While CSR primarily emphasizes corporate citizenship and deviates from the principle of profit maximization, CSV is integrated with profit maximization, presupposing both social performance and corporate profitability. Furthermore, CSV differs from strategic CSR, which aims to contribute to society by extending core competencies based on the existing value chain, in that CSV deeply investigates social needs, re-examines and reorganizes the existing value chain to create value (Kim Se-jung & Park Ui-beom, 2012: 6). CSV can be viewed as an evolution of strategic CSR into a business endeavor, representing a clear business strategy from the outset, rather than mere donations or charitable acts. This is based on the logic that corporations can achieve sustainable growth by growing together with the local community and its people.

2. Stages of CSR Activities in Korean Corporations

Lakin & Scheubel (2011) categorize the development stages of CSR activities into four levels: 1) Foundation, 2) Intervention, 3) Innovation, and 4) Transformation. Level 1 refers to CSR primarily focused on corporate donations and charitable activities. Levels 2 and 3 involve strategic CSR, where donations are strategically concentrated based on core competencies, and Level 4 represents CSV.

<Table 1> Stages of Corporate Social Responsibility Activities

Source: Lakin & Scheubel (2011: 52). Reorganized from "Corporate Community Involvement."

In more detail, companies at Level 1 approach CSR through charitable donations and activities without a specific strategy. The direct motivation for implementing CSR is often job creation or tax benefits driven by ethical and moral considerations, and donations are typically made to areas or activities favored by the CEO or their spouse. These activities are often reactive, influenced by public opinion or social trends, and tend to be one-off. They may also be superficially conducted to enhance corporate image or cover up issues such as CEO misconduct. These activities are operated independently of the company's core business operations, without dedicated management, and are not subject to reporting or verification.

Companies at Level 2 exhibit CSR characteristics where charitable donations and activities are strategically oriented towards managing direct stakeholders and generating corporate profits. Examples include sponsoring initiatives with social impact or offering products with charitable connotations to customers. There are clear criteria and implementation guidelines for selecting and supporting specific areas, methods, and procedures for CSR. A CI (Corporate Identity) manager responsible for corporate image management, or a dedicated CSR manager (either part-time or full-time), oversees CSR. Activities often involve not only cash and in-kind donations but also employee volunteerism. Furthermore, related reports are prepared to communicate the company's CSR initiatives internally and externally.

Companies at Level 3 aim for more direct social engagement with a longer-term perspective than at Level 2. They implement CSR by recognizing the social and commercial benefits of long-term partnerships between the company and society. To achieve this, they focus on a specific social area and establish long-term partnerships based on mutual benefit, closely linking CSR with the company's core competencies. CSR is actively pursued in conjunction with business operations, and a dedicated CSR team collaborates with other business units. They build social contribution capabilities and demonstrate social competence through partnerships with local NGOs, thereby promoting sustainability. Like IBM, they may commission external organizations to review their CSR activities.

Level 4 signifies the integration of CSR activities into corporate management, realizing socially value-driven management. CSR is implemented to redefine the value of profit generation, considering corporate stakeholders. Consequently, CSR activities are integrated into business strategies and functions, shaping industry agendas. While the means of CSR vary by company, they extend beyond financial assets, management resources, and volunteer work used in previous stages to include various experimental tools for driving next-generation innovation. Furthermore, by integrating with the core business departments, CSR is embedded within the company, promoting sustainable development. Transparency is ensured externally through independent audits of CSR-related activities.

Based on several criteria from Lakin & Scheubel (2011), the current stage of CSR activities in Korean corporations can be examined as follows. A survey conducted in 2013 by the Federation of Korean Industries, the Korea Chamber of Commerce and Industry, and the Korea National Council on Social Welfare among companies ranked 1st to 1,000th by sales revealed that 355 out of 434 companies (82%) engaged in CSR activities in 2012. Among large corporations, all 255 companies participated, while 130 out of 209 mid-sized and small-to-medium enterprises (SMEs) (62.2%) conducted CSR activities. The total expenditure on CSR activities amounted to 3.2494 trillion KRW for large corporations and 44.2 billion KRW for mid-sized and SMEs in 2012, with an average per-company expenditure of 14.442 billion KRW for large corporations and 340 million KRW for mid-sized and SMEs.

Examining the status by sector, Korean large corporations primarily exhibit characteristics of Level 2, while mid-sized and SMEs tend towards Level 1. Firstly, the approach and leading stage of CSR activities can be distinguished by whether they involve intermittent support for broad causes based on the needs and appeals of community organizations, as done by charities, or whether the company selects specific social issues within a defined scope and provides support according to guidelines (Lakin & Scheubel, 2011:139). Social welfare received the highest proportion of support for both large corporations (31.7%) and mid-sized/SMEs (83.1%). Education and academic research followed at 16.1% and 31.5%, respectively, with culture, arts, and sports at 11.1% and 15.4%. The low proportions for emergency relief and overseas aid (8.5% and 7.7%, respectively) among mid-sized/SMEs suggest selective responses to demands with specific objectives, rather than ad-hoc support. This indicates that in terms of approach, both large corporations and mid-sized/SMEs are positioned at Level 2.

<Table 2> Breakdown of Social Contribution Expenditures by Sales Revenue for Mid-sized and SMEs

Source: Korea National Council on Social Welfare, Korea Chamber of Commerce and Industry (2013). "2013 White Paper on Social Contribution of Mid-sized and SMEs."

Based on the composition of corporate social contribution expenditures and employee volunteer participation rates, large corporations are transitioning from Level 2 to Level 3, while mid-sized and SMEs are moving from Level 1 to Level 2. Large corporations allocated 62.5% of their total expenditures to donations and 37.5% to direct projects. Among responding companies, over seven out of ten reported that more than 50% of their employees participated in volunteer activities, and 85.9% of responding companies had a company-wide volunteer organization. In contrast, mid-sized and SMEs allocated 86.5% to donations and 13.5% to direct projects. Among the 130 mid-sized and SMEs that reported engaging in CSR activities, 37.7% indicated no direct expenditure. Furthermore, 63 out of 209 mid-sized and SMEs had volunteer groups, with those having such groups reporting an average of 22.7 volunteer hours annually. When analyzed by sales revenue, the proportion of direct participation increases with higher sales revenue.

Regarding organizational structure for CSR activities, large corporations recorded over 60% in most categories, including the establishment of dedicated CSR departments and the introduction of budget systems, indicating that CSR has become an established function within these companies. With the formation of dedicated CSR teams, large corporations can be considered to have entered Level 3, establishing collaborative relationships with other departments. Among mid-sized and SMEs, only 19 out of 130 companies (approximately 15%) had dedicated departments or full-time staff, while 92 companies had part-time staff, constituting the majority. An additional 19 companies reported having no employees responsible for CSR activities. This suggests that mid-sized and SMEs are still at Level 1 in terms of structural/organizational aspects.

Overall, Korean corporations are either implementing strategic CSR or showing movement towards it. Large corporations, in particular, largely exhibit characteristics of Level 2, but by establishing a systematic framework in structural/organizational aspects, they are laying the foundation for strategic CSR at Level 3.

In recent years, emphasis has shifted beyond CSR to the social economy and social enterprises. Consequently, the government enacted the Social Enterprise Promotion Act in 2007 and established the Korea Social Enterprise Promotion Agency in 2010. With the enforcement of the Cooperative Basic Act in December 2012, social cooperatives, another form of social enterprise, have also emerged. Furthermore, plans are underway for the enactment of a Basic Act on the Social Economy and the establishment of bodies such as the Social Economy Committee and the Social Economy Council (Media Pen, 2014). The social economy is important for addressing issues of polarization and winner-take-all dynamics resulting from market failures, and for responding to increasing welfare demands and strengthening social cohesion through cooperation with the government (Noh Dae-myung, 2007). However, some view this as a logic contrary to the free market economy. Specifically, they argue that government support for social enterprises, including mandatory measures, weakens their self-sufficiency and sustainability, and ultimately undermines the excellence of the free market economy (Media Pen, 2014). To dispel these critical views, a transformation akin to Level 4 in <Table 1> is necessary. That is, enabling all stakeholders to share the value created when corporate profit-generating activities positively transform society (CSV) is a viable method to realize the social economy while maintaining the order of the free market economy (Porter & Kramer, 2011). Although many companies are actively engaged in CSR, it often lacks systematic implementation and sustainability. As observed earlier, CSR activities are frequently conducted in a fragmented manner, separate from the corporate management goal of profit maximization. Moreover, the results from Chapter II indicate that public expectations of corporations are continuously rising, making it difficult to meet these expectations with current CSR activities alone.

Therefore, it is necessary for corporate leaders to adopt a social entrepreneurship mindset and transform organizational structures, cultures, and management strategies to achieve social enterprise conversion from a long-term perspective. By practicing 'social enterprise conversion' starting with large corporations, which possess ample capital and capabilities and implement relatively high levels of CSR, the transformation of mid-sized and SMEs can be promoted. Concurrently, a platform should be established to facilitate the social enterprise conversion of general corporations. An example of this is a social venture support policy similar to venture support policies that promote innovation for corporate profit maximization. This is because nurturing social venture companies with unique technological development, niche market exploration, and creative challenging spirits can lead them to compete in the global market (Kwon Ki-dae & Kim Jong-woong, 2003). This is achievable through government efforts, voluntary corporate participation, and collaboration with large corporations. In other words, a shift is needed from government-mandated social economy initiatives to a collaborative governance model where corporations voluntarily participate and work together with the government. This approach simultaneously drives social innovation and corporate profit generation, leading to significant social and economic ripple effects and ushering in an era of sustainable responsible management.

IV. Conclusion

This report aimed to examine the actual demands of the Korean public towards large corporations and the extent of development in corporate CSR activities, based on the <2014 RADAR> Korean survey results from GlobeScan, the East Asia Institute, and the Institute for Social Enterprise Research, as well as corporate white papers on social contribution.

First, as corporations have grown and their influence has increased, there has been a rising demand for them to play a role not only in causing problems but also in resolving them, i.e., a heightened expectation for their social role. Notably, due to the unique national context of corporate growth supported by extensive government assistance from the 1960s-70s, there appears to be a consensus that chaebols should reciprocate these benefits.

Second, through comparisons of CSR reputation and trust by industry, and consumer sentiment towards companies with strong CSR, it was found that CSR activities form the basis for sustainable corporate growth by influencing corporate trust, image, and consumer purchasing behavior. Of course, CSR does not automatically guarantee increased corporate performance, nor does excelling in CSR resolve all corporate issues. In sectors like apparel, CSR may not significantly influence consumer purchasing decisions, and in industries such as tobacco or oil and chemicals, issues related to health and the environment may create a low correlation between business operations, image, and CSR. However, the findings suggest that while CSR may not yet be a prerequisite for sustainable growth in Korea, it holds the potential to influence future corporate development.

Given the increasing public awareness of CSR, an analysis of the current state of CSR in Korea reveals gradual, albeit slow, progress. While mid-sized and SMEs still exhibit characteristics of Level 1 in areas such as organizational structure, they are entering the strategic CSR phase in other aspects. Large corporations are evolving from Level 2 to Level 3, implementing strategic CSR. This signifies that Korean corporations increasingly perceive CSR as a strategy necessary for business operations, moving beyond purely ethical and moral considerations. However, current CSR efforts are still insufficient to meet the growing and more specific demands of the public, which is reflected in low corporate trust. To meet public expectations and ensure sustainable corporate growth, companies must establish integrated visions and goals with CSR, considering their unique characteristics, and act as agents of social change. To achieve this, general corporations need to adopt a 'social enterprise conversion' strategy that shares the purpose and vision of social enterprises, thereby leading social innovation.

The views and content presented in this report are those of the author and do not necessarily reflect the official positions of the collaborating research institutions, the Institute for Social Enterprise Research and the East Asia Institute. When citing data from this report, please attribute it to "Survey by GlobeScan, East Asia Institute, and Institute for Social Enterprise Research."