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Corporate social responsibility practices and performance improvement

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Article  in  International Journal of Production Economics · August 2015

DOI: 10.1016/j.ijpe.2015.08.005

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 Int. J. Production Economics 171 (2016) 417–426

Contents lists available at ScienceDirect

Int. J. Production Economics

journal homepage: www.elsevier.com/locate/ijpe

Corporate social responsibility practices and performance

improvement among Chinese national state-owned enterprises
Qinghua Zhu a,b,n, Junjun Liu b,1, Kee-hung Lai c,2
a
Antai College of Economics and Management, Shanghai Jiaotong University, 1954 Huashan Rd., Shanghai 20030, PR China
b
School of Business Management, Dalian University of Technology, Dalian, Liaoning Province 116024, PR China
c
Department of Logistics and Maritime Studies, The Hong Kong Polytechnic University Hung Hom, Kowloon, Hong Kong

art ic l e i nf o a b s t r a c t

Article history: Based on the stakeholder theory, this study develops “7 þ 2” dimensions for CSR practices measurement
Received 23 October 2013 among Chinese national state-owned enterprises (CNSOEs), and examines if their CSR practices bring
Accepted 7 August 2015 financial and social performance improvements. By analyzing the 2011 CSR reports that cover 100
Available online 18 August 2015
CNSOEs, we identify that these CNSOEs highlight CSR practices related to the environment, labor
Keywords: practices, political responsibility, and human rights in their reports. However, three CSR practices related
Corporate social responsibility to managing the supply chains, fair operating practices and community development need more of their
Stakeholder theory attention. We evaluate the social performance of CNSOEs by using the two performance ranking systems
Practice developed by the Chinese Academy of Social Sciences. Regression results obtained through Structural
Performance
Equation Model (SEM) using the partial least square (PLS) method indicate that CSR practices pertinent
Chinese national state-owned enterprises
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 þ2” 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.
& 2015 Elsevier B.V. All rights reserved.

1. Introduction 2012). Enterprises can possess better ability to gain consumers'

acceptance due to their CSR efforts during a financial crisis (Perez-
Corporate social responsibility (CSR) has gained the increasing Ruiz and Rodriguez-del Bosque, 2012). However, controversies on
attention from both enterprises and the academia. Performance the performance value of CSR practices remain. For example, CSR
improvement is a key consideration for enterprises in determining practices show a positive relationship with financial performance
whether or not to implement proactive management practices. In when economy develops well (Skare and Golja, 2012), but this
recent years, many researchers have begun to examine if CSR relationship does not hold during economic crisis such as that in
practices can bring financial performance to organizations (Lee 2008 (Ducassy, 2013).
et al., 2013; Wu and Shen, 2013). Leading enterprises on CSR such Most studies on CSR are concerned with investigating the
as those on the top 10% of the Dow Jones Sustainability World Index practices implementation by companies in developed countries.
2009/2010 list show better performance than the rest in terms of The limited CSR studies devoted to enterprises in developing
the Dow Jones Global Total Stock Market Index (Skare and Golja, 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
n
Corresponding author at: Antai College of Economics and Management, practices in different ways relative to their developed country
Shanghai Jiaotong University, 1954 Huashan Road, Shanghai 200030, PR China. counterparts (Griesse, 2007). The Chinese central government has
Tel.: þ 86 21 63933203. been actively promoting the importance of CSR to enterprises,
E-mail addresses: [email protected] (Q. Zhu), [email protected] (J. Liu),
[email protected] (K.-h. Lai).
beginning from those state-owned enterprises (SOEs), and urging
1
Tel.: þ86 411 8470 7331; fax: þ86 411 8470 8342. them to implement CSR practices. State-owned Assets Supervision
2
Tel.: þ852 2766 7920; fax: þ 852 2330 2704. and Administration Commission of the State Council (SASAC)

http://dx.doi.org/10.1016/j.ijpe.2015.08.005
0925-5273/& 2015 Elsevier B.V. All rights reserved.
418 Q. Zhu et al. / Int. J. Production Economics 171 (2016) 417–426

publicized a CSR guideline in 2008. The SASAC further required all learning from its international leading counterparts such as Tokyo
Chinese national SOEs (CNSOEs) in 2009 to publicize CSR or Electric Power Company and Electricit de France. China Grain
sustainability reports within three years. In 2012, a new CSR Reserves Corporation takes the political responsibility to guaran-
guiding committee required CNSOEs to publicize their CSR reports tee grain supply within the country.
annually. The practice of developing and disseminating CSR report In China, enterprises with better performance are prone to
is still at the very initial stage for most Chinese enterprises to disclose their CSR efforts (Li et al., 2013). In view of the require-
adopt (Noronha et al., 2013), but CNSOEs are mandated to ments by the central government, CNSOEs become more proactive
publicize their CSR reports due to regulatory requirements by on disclosure of their CSR reports. In 2000, PetroChina publicized
the government. Meanwhile, the SASAC developed CSR indicators its Health, Safety & Environment report. BaoSteel released its
with CSR practices included in the annual evaluation system for environmental report as early as 2003. In March of 2006, State
SOEs. Thus, CNSOEs are taking a lead role to implement and Grid Corporation of China published its first CSR report in China.
promote CSR in China. By the end of 2011, 76 of 117 CNSOEs regularly release their CSR
Chinese enterprises characterized with better performance reports. This practice on CSR disclosure covers 109 among all 113
show higher tendency to publicize their CSR performance, and CNSOEs at the end of 2012 and this increasing trend is expected to
CSR disclosure is found a positive link with firm performance but linger on in the years ahead. Compared to developed countries,
the link is weak for SOEs (Li et al., 2013). In the face of more and China is still at an early stage for CSR reporting among CNSOEs
stricter requirements from the central government of China for with a number of hurdles challenging them. Most CNSOEs are
CSR, CNSOEs are pressurized to undertake CSR practices in greater unclear about what practices should be included in their CSR
breadth and depth to improve their operations and behave as a efforts. In China, charity actions such as donation for disaster relief
socially responsible corporate citizen. A previous study shows that are considered a key, if not the only, dimension of CSR practices
for non-state-owned Chinese enterprises, corporate ownership (Gao et al., 2012; Gao, 2011). Due to the melamine contamination
dispersion has a positive effect on CSR practices adoption by incident in 2008, China began to realize that consumer right is also
enterprises, but for CNSOEs such effect is in the opposite direction a key aspect for CSR practices to address while the government
(Li and Zhang, 2010). This paper aims to extend CSR studies to a and investors should and could take the role to promote CSR in the
developing country context by examining the CSR practices- country (Kong, 2012).
performance improvement relationship in a typical company type, Considering the background situations described above on CSR
i.e., SOE, in China to reflect the current state of adopting CSR practices in China, it is a timely topic to identify and evaluate CSR
practices in this typical developing country. practices dimensions for CNSOEs to better understand CSR prac-
To begin with, after a brief introduction of CSR practices and tices to improve their operations. Studying CSR practices in
related challenges among CNSOEs, we use the stakeholder theory CNSOEs is important as they belong to the typical company type
to develop the CSR practices dimensions as well as the two characterizing the evolution of enterprises in developing coun-
hypotheses characterizing the relationships between CSR practices tries. As performance improvement is a key driver motivating
and performance in Section 2. In Section 3, we introduce the enterprises to embrace CSR practices in their operations, an
questionnaire development and data collection procedures investigation of the CSR practices–performance relationship is
employed in this study. Results and discussions of the analyses highly desirable to understand the performance value of CSR
are presented in Section 4. Finally, we summarize the findings practices adoption. Toward this end, we will present how to
with conclusions and provide future research directions for CSR develop CSR practices dimensions and develop two hypotheses
practices in Section 5. on the CSR practices–performance improvement relationship
based on the literature review in the following Section 2.2. Our
study contributes knowledge on CSR research by an extension to a
2. Background and theoretical development developing country with the performance implications on CSR
practices adoption in CNSOEs.
2.1. Background
2.2. Theoretical development
Due to the requirements by the Chinese central government as
well as the public pressure, CNSOEs have begun to implement CSR Stakeholder pressure influences the decision of enterprises on
practices in response to the CSR trend in the country. With a series whether or not to adopt CSR practices (Crilly et al., 2012; Surroca
of laws implemented since 1994, especially the Labor Contract Law et al., 2013). It is appropriate to use the stakeholder theory as the
implemented in 2008, Chinese enterprises have paid increasing theoretical lens to study the adoption of CSR practices by CNSOEs
attention to employee rights and labor practices (Taylor, 2011). The and the performance implications in this study (Freeman, 1984).
following cases illustrate the evolving CSR practices undertaken by For many enterprises, they understand the strategic importance of
CNSOEs in China. Northern General Electronics Group Co. Ltd., responding to their stakeholder concerns which are a critical part
attached to a CNSOE, China North Industrial Group Corporation, of improving their competitive stance. The stakeholder theory
has made efforts to develop an effective wage and motivation suggests that enterprises can cause externalities to other parties
system as well as to provide career development opportunities for (the stakeholders), which are both internal and external to their
employees. China Southern Airlines Co. Ltd., donates ten fen (1 operations (e.g., customers, employees, competitors, suppliers,
RMB¼100 fen) of each travel cost to a charity foundation. government). Due to these externalities, stakeholders will exert
Shanghai Aircraft Manufacturing Co. Ltd, a final assembly manu- pressures on enterprises to mitigate their negative external
facturing center of a CNSOE, i.e., Commercial Aircraft Corporation damages caused (e.g., pollution) and enhance the positive types
of China, Ltd., integrates environmental concerns into design and (e.g., charity). For instance, there are studies examining the
manufacturing of its operations, and promotes economic value of pressures imposed by stakeholders on enterprises to close the
greening to its supply chain partners. Sinosteel Corporation loop of their supply chains (Zhu et al., 2008b). The stakeholders
actively communicates with local communities so as to better are an important part of motivation for enterprises to adopt CSR
participate in public affairs and integrate in local culture, espe- practices. One major contribution of the stakeholder theory is to
cially when it explores its market opportunities abroad. China analyze the behavior of an enterprise towards its identified
Southern Power Grid makes efforts to improve service quality by stakeholders and its corresponding actions (e.g., CSR practices)
 Q. Zhu et al. / Int. J. Production Economics 171 (2016) 417–426 419

for managing its relationship with them. Hence, CSR practices can mitigate supply-side disruption risks, social risks and demand-side
be a viable way for enterprises to direct organizational resources uncertainty (Cruz, 2013), or even control potential CSR-related
with the aim to generate benefits for their stakeholders. issues (Anner, 2012) in managing their global supply chains.
Donaldson and Preston (1995) suggested three distinct aspects Leading enterprises in developed countries have begun to impose
of the stakeholder theory, they are, descriptive, instrumental and CSR requirements on their suppliers and establish intra-sector
normative, which can be helpful for us to understand the elements cooperation among partners in their international supply chains
of CSR practices and the performance value of their adoption. (Risso, 2012). Chinese enterprises need to comply with the CSR-
These three aspects provide the theoretical framework to guide related requirements of their international customers to gain
our research on the CSR practices–performance links. The descrip- export markets. The pursuit of such CSR efforts can be helpful
tive model describes CSR efforts considering stakeholders' con- for them to establish sustainable supply chains in the long run
cerns, and thus we use it to develop CSR practices measurement. (Chi, 2011). CNSOEs are characterized with their large size in
The instrumental model explains how enterprises achieve compe- employee establishment and they assume an important political
tiveness, and we use it to analyze the relationship between CSR role in China to maintain stability of labor market in the country. It
practices and financial performance. Social normative model is is natural that they extend CSRs to the management of their
used to determine if CSR practices can lead to public acceptance in supply chains and promote CSR practices in the country due to
the form of social image among CNSOEs. Learning from a previous their organizational nature and political mission. Thus, we include
study (Liu et al., 2013), we use these three models of the another dimension related to the management of supply chains for
stakeholder theory to examine CSR practices and their association studying CSR practices in China.
with performance among CNSOEs. In sum, we develop the “7þ 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 þ2” CSR
2.2.1. CSR practices dimensions development dimensions and their measurement items are summarized in
Different countries may have different national-institutional Table 1.
arrangements for enterprises to operate (Fransen, 2013). CNSOEs
are typical type of enterprises in China even 30 years after the
open-door policy in 1979. The CNSOEs still need to shoulder CSR 2.2.2. CSR practices and financial performance
as commonly expected for other enterprises such as private The descriptive view of the stakeholder theory can help explain
ventures and multinational corporations in the Chinese society. the use of CSR practices by enterprises to manage the stakeholder
Thus, we specifically develop the CSR practices dimensions as they interests. How CSR practices are defined and implemented reflect
relate to the stakeholders serviced by the CNSOEs in China. the behaviors of enterprises in responding to the stakeholder
ISO 26000 is an standard defining the normative CSR domain expectation of being a socially responsibility corporate citizen in
(Helms et al., 2012). ISO26000 is a well-accepted voluntary the society. One major concern by enterprises whether to adopt
international standard publicized by the International Organiza- CSR practices relate to the performance value of the practices. The
tion for Standardization on November 1 of 2010, and it includes instrumental aspect of the stakeholder theory demonstrates that
inputs from multiple stakeholders including industry, govern- CSR practices under ethical principles such trust, trustworthiness
ments, consumers, labor, non-governmental organizations and and cooperativeness can bring significant competitive advantage
service, support, research and others (Balzarova and Castka, for enterprises (Jones, 1995). The instrumental model of the
2012). To evaluate the CSR efforts of CNSOEs, we develop seven stakeholder theory is useful for examining if an enterprise can
CSR practices dimensions on the basis of the ISO 26000 frame- benefit from their CSR practices by considering its stakeholders'
work. The seven dimensions cover the main stakeholder concerns needs (Gilbert and Rasche, 2008). This instrumental perspective of
of enterprises, including (1) organizational governance, (2) human the stakeholder theory may shed light on the connection or the
rights, (3) labor practices, (4) the environment, (5) fair operating lack of it for CSR practices as a stakeholder management approach
practices, (6) consumer issues and (7) community involvement for enterprises to achieve their organizational objectives such as
and development (Balzarova and Castka, 2012). profitability and growth.
The Chinese central government is one of the key stakeholders Some studies show a positive relationship between CSR prac-
for CSR practices among CNSOEs. CSR studies have evolved tices and financial performance. A previous study about CSR in the
through three stages from classic, instrumental, to new political US airline industry shows that operational-related CSR practices
CSR stage (Makinen and Kourula, 2012). In recent years, CSR can bring financial performance (Lee et al., 2013). An empirical
studies have been extended to examine the political role of CSR study with a sample of 162 banks in 22 countries during 2003–
practices (Fooks et al., 2013). As non-private enterprises, CNSOEs 2009 from the Ethical Investment Research Service databank and
have the mandate to assume political and social related respon- Bankscope database shows that CSR practices can benefit return
sibilities, especially during difficult times such as economic crises on assets, return on equity, net interest income and non-interest
or natural accidents. We have seen developed countries enter- income (Wu and Shen, 2013). Implementation of CSR practices has
prises shrugging their CSR practices particularly during economic a positive link with firm performance among Chinese enterprises,
recession, for instance, the financial tsunami in 2008 (Harwood et but this link is weaker for CNSOEs than their non-state-owned
al., 2011). However, due to their political role, CNSOEs must take counterparts (Li et al., 2013).
social responsibilities such as no worker layoff and salary reduc- There are disputes as to whether the adoption of CSR practices
tion in China even when economic recession happens. Thus, we provides performance value. CSR adoption has a positive link with
include an additional political dimension to examine CSR practices financial performance during stable economic development, but
among CNSOEs in this study. this relationship may disappear during economic downturn
With the increasing trend for globalization of production and (Ducassy, 2013). Enterprises can use one of the three approaches
marketing activities in particular for multi-national enterprises, namely, descriptive, instrumental and normative approaches for
suppliers and customers are important stakeholders in their their CSR practices. The instrumental approach can bring perfor-
operations (Fu et al., 2012; Sarkis et al., 2011; Zhu et al., 2008a), mance in short-term, whereas the normative approach can bring
and thus CSR practices have been extended to consider manage- performance in both short-term and medium-term. Nevertheless,
ment of the supply chains. CSR is a viable way for enterprises to the descriptive approach cannot bring definite performance at all
420 Q. Zhu et al. / Int. J. Production Economics 171 (2016) 417–426

Table 1
“7þ 2” core subjects and items of CSR practices among Chinese state-owned enterprises.

Core subjects Items

1. Organizational governance Establish the institutional and organizational structure

2. Human rights 1. Due diligence of investigation on employee rights
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
3. Labor practices 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
4. The environment 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
5. Fair operating practices 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
6. Consumer issues 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
7. Community involvement and 1. Involve in community development plan
development 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
8. Supply chain 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
9. Political responsibility 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

(Boesso et al., 2013). A neutral relationship was found between In recent years, Chinese enterprises begin to achieve financial
normative CSR measures and financial performance measures of performance through their extended supply chain environmental
Return on Assets (ROA) and Tobin's Q when firm unobserved management practices (Zhu and Sarkis, 2007, 2004). Chinese
heterogeneity and past financial performance were controlled enterprises lacking CSR efforts may encounter problems to achieve
(Belu and Manescu, 2013). financial gains (Lu et al., 2012). Based on the discussions above, we
Even though there are plentiful studies on the relationship develop the first hypothesis to examine if CSR practices can bring
between CSR practices and financial performance improvements, financial performance among a typical type of companies in a
the results are mixed without widely accepted conclusion. On the developing country, China.
other hand, these previous publications examined CSR practices
mostly in developed countries where the descriptive, instrumental
and normative models on stakeholder management for CSR Hypothesis 1. CSR practices are positively associated with finan-
practices are more mature than in a developing country context. cial performance among CNSOEs.
 Q. Zhu et al. / Int. J. Production Economics 171 (2016) 417–426 421

2.2.3. CSR practices and social image seven subjects (dimensions) for two dimensions, they are, one
The normative stakeholder theory links ethics with politics item for organizational governance and seven items for consumer
(Wijnberg, 2000). An institution should convert its ethical con- issues.
siderations and efforts to cover its stakeholders (Purnell and Thirty-five general managers of filiales or department directors
Freeman, 2012). The normative aspect is fundamental to other from different CNSOEs reviewed all the items that underpin the
CSR practices and performance improvement (Donaldson and “7 þ2” dimensions. The respondents agreed that all the items are
Preston, 1995), which indicates that CSR practices can bring important areas for evaluating CSR practices among CNSOEs and
competitiveness to enterprises but normative approach is the no important items are missing for this purpose. We reworded
baseline. each items based on suggestions from these 35 general managers.
There is a positive relationship between social performance Details of all the CSR practices dimensions and items are shown in
and annual CSR report disclosure practices (Dawkins and Fraas, Table 1.
2013). CSR practices can be helpful for enterprises to establish and For CSR practices measurement, we reviewed the CSR reports
improve their corporate image (Virvilaite and Daubaraite, 2011). publicized by CNSOEs and evaluated each of the nine CSR practices
CSR practices, especially those related to environmental issues, are dimensions by checking all items in each dimension. Details about
beneficial for establishing brand image and hence bringing social CSR reports collection are introduced in the following Section 3.2
performance (Kucukusta et al., 2013). A study has found positive Data collection. The scale used for evaluating CSR measurement is
relationships between CSR disclosure and corporate reputation anchored on:
(Berjillos et al., 2012). Implementation of CSR practices can signal 1¼ no mention about it.
corporate identity by differentiating enterprises from their com- 2¼ related contents exist, the CSR report refers to some (less
petitors on social responsibility (Grigore and Stancu, 2011), which than one third) CSR items in this dimension (subject), which
also serve to enhance their social status (Hildebrand et al., 2011; indicates that the CNSOE has related discussions.
Powell, 2011). 3¼ clearly mention it, the CSR report includes over half of CSR
Typically, enterprises publicize their CSR reports in the hope of items in this dimension (see details in Table 1), but the imple-
improving their socially responsible reputation in China (Zhao mentation effectiveness is not included in the report.
et al., 2012). CNSOEs have experienced pressure to improve their 4¼ implement it, the dimension (subject) is introduced as a
social image, and at the same time publicize their CSR report due separate section in the CSR report with the implementation
to the regulatory requirements by the government. Thus, we effectiveness and the majority (over 80%) of the CSR items in this
develop the second hypothesis. dimension included, which indicates that the CNSOE has imple-
mented related practices successfully.
Hypothesis 2. CSR practices are positively associated with social 5¼ emphasize it, the dimension (subject) is introduced as a
image among CNSOEs. 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
3. Methodology understand its importance.
For dependent factors, we design two dimensions of financial
3.1. Questionnaire development and social performance. For financial performance, we used the
annual operating performance ranking publicized on the official
As introduced in Section 2.1, we develop “7 þ2” dimensions of website of State-owned Assets Supervision and Administration.
CSR practices for CNSOEs considering the concerns of their Such ranking include five scales of A, B, C, D, and E. For social
different stakeholders. The seven dimensions are adopted from performance, we referred to the CSR index and CSR reporting
the seven subjects outlined under the ISO26000 framework. We ranking publicized by the Research Center for Corporate Social
further develop measurement items for evaluating all the seven Responsibility, Chinese Academy of Social Sciences. CSR index
dimensions according to the ISO26000 guideline. includes five scales, they are, 5 ¼outstanding enterprise, 4 ¼leader,
Furthermore, we include political and supply chain manage- 3 ¼follower, 2 ¼starter, and 1 ¼observer. The CSR report ranking
ment related CSR practices dimensions considering the unique uses a five-star system to classify enterprises on the basis of their
stakeholder of the Chinese central government and the supply CSR achievements. This ranking system evaluates CSR reports for
chain enterprises that CNSOEs should consider in China. For items over 800 Chinese enterprises according to six dimensions, they
on managing the supply chain, we develop eight questions to are, completeness, substantiality, balance, comparability, readabil-
address this aspect of CSR practices. Seven questions ask if a ity and creativity. Each enterprise is evaluated for these six
CNSOE prefers to choose a supplier that highlights each of the dimensions with the total score of 100. An enterprise is ranked
seven CSR practices dimensions in the ISO26000 framework. into seven levels using scales of 5 (outstanding), 4.5 (leading), 4
Besides, we include the eighth question about coordination and (excellent). 3.5 (good), 3 (pursuing), 2 (developing) and 1(starting)
experiences sharing of enterprises among partners in their supply with the scores of over 90, 80–90, 70–80, 60–70, 50–60, 30–50,
chains. We develop eight items for evaluating political CSR and less than 30, respectively.
practices.
All developed items went through three-round discussions 3.2. Data collection
with five general managers of filiales from five different CNSOEs.
According to the suggestions from these five general managers, we Due to the continuous merger and reorganization, the number
added one or two items for four dimensions while deleted one of CNSOEs has changed. We chose 113 national SOEs as our study
item for one dimension. The dimension of human rights contains targets which are publicized on the State-owned Assets Super-
eight items in the ISO26000 and we expanded with two new items vision and Administration (SASA) website in August of 2013. The
to 10 items. Three dimensions that are expanded with a new item SASA requires all CNSOEs to publicize their annual CSR reports
are labor practices, the environment, and fair operating practices. since 2012, but only 37 of the 113 CNSOEs publicized their 2012
For the dimension on community involvement and development, CSR reports until August of 2013. Thus, we chose to use the 2011
we delete one item concerning technology development and CSR reports as the sampling frame for our study. We downloaded
access. We keep the same numbers of items as core issues of the the 2011 CSR reports from either enterprises' own websites or the
422 Q. Zhu et al. / Int. J. Production Economics 171 (2016) 417–426

SASA website, and got 109 usable CSR reports for analyses. Four evaluates CSR performance in four dimensions, they are, responsi-
CNSOEs which provide no available CSR reports are excluded from bility management, marketing responsibility, social responsibility
this study, they are, China National Nuclear Corporation, Chinatex and environmental responsibility. Among our 64 sample CNSOEs,
Corporation, ZhuHai Zhen Rong Company, and Fiber Home. By 2 are outstanding enterprises (social performance¼5), 16 are leaders
analyzing the CSR reports and using five-level measurement (social performance¼4), 20 are followers (social performance¼3),
scales, two postgraduate master students gave scores to the 12 are starters (social performance¼2), and 14 are observers (social
“7 þ2” CSR dimensions for each of the CNSOEs. We compared performance¼ 1).
the evaluation results by the two students, and the majority of the Considering that some of the CNSOEs were not involved in the
given scores are consistent. For the few inconsistent scores, we index ranking, we also referred to the second ranking system
further checked the CSR reports and discussed with the two entitled “Chinese enterprises' social responsibility report star
students about the discrepancy. In sum, we obtained all scores of ranking (2012)”. Eight hundred and 85 enterprises were ranked
the “7 þ2” CSR practices dimensions for all the 109 CNSOEs. by seven levels, including 5 star (8 enterprises), 4.5 star (22
For financial performance, we used the results of the annual enterprises), 4 star (29 enterprises), 3.5 star (43 enterprises), 3 star
operating performance evaluation by the SASA. This evaluation (61 enterprises), 2 star (214 enterprises), and 1 star (508 enter-
system includes basic and classification indicators. The basic prises). Among the 885 enterprises, 72 are CNSOEs in our samples.
indicators consider the total amount of profit and economic added Comparing the two ranking systems, 57 CNSOEs of our 100
value. The SASA determined the classification indicators by com- samples appear on both lists, and the ranking values are generally
prehensively considering enterprise' operations management level consistent. The differences between the two ranking values are
and risk control capability according to the characteristics of below 1.00, while the values in the second ranking system are
industries and functional orientation of the CNSOEs. As indicated relatively higher with the average difference of .50. Thus, we
above, the evaluation results include five scales comprising A, B, C, added 15 more sample enterprises according to the second
D, and E. For CNSOEs with a profit loss or economic added-values, ranking system while deducting the star values by .50. Totally,
they could not be ranked as “A”. However, CNSOEs with annual we have 79 samples (64 using the first ranking results, and 15
losses may result from the macro international and domestic added according to the second ranking system) for evaluation of
environment. To avoid the potential bias, we excluded eight social performance.
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 4. Results and discussions
operations history. Thus, we used the 100 CNSOEs identified from
the 2011 CSR reports and ranked their financial performance using 4.1. Results and discussions on descriptive analysis
the information available in the SASA for our analyses.
For social performance, we referred to the two ranking systems Mean values and standard deviations of the “7 þ2” CSR
that were publicized by the Chinese Academy of Social Sciences. dimensions related to different stakeholders among CNSOEs are
Such publicized rankings affect consumers' acceptance and prefer- shown in Table 2. Eight of the nine CSR practices dimensions attain
ences of enterprises, and thus the ranking information can reflect the mean values over 3.00, which indicate that the eight CSR
their social image (Noronha et al., 2013). The first ranking system is practices have been implemented and clearly mentioned in their
“One hundred leading SOEs in terms of Social Responsibility index CSR reports. The only exception with the mean value less than 3.00
ranking (2012)”. These 100 leading SOEs include 71 CNSOEs, among is concerned with the supply chain management-related CSR
which 64 are included in our study samples. Such index ranking practices. Table 3 further shows correlations among each couple
of CSR practices.
The dimension (subject) on the environment has the highest
Table 2
Descriptive results of “7 þ2” CSR practices. mean value of 3.96, which indicates that environmental-related
CSR practices are introduced in a separate section of CSR reports
Core subject Meansn Standard deviations and the majority items in Table 1 are implemented among
CNSOEs. Table 3 further shows that the environmental-related
Organizational governance 3.41 .49
Human rights 3.73 .43
CSR practices are significantly correlated with the other two CSR
Labor practices 3.89 .40 dimensions on labor practices and supply chain related CSR
The environment 3.96 .29 practices, respectively. Such result can be attributable to a series
Fair operating practices 3.00 .43 of policies on energy saving and pollution reduction in China.
Consumer issues 3.14 .45
Two dimensions related to employees also achieve high mean
Community involvement and development 3.03 .47
Supply chain 2.67 .50 values, 3.73 for human rights, and 3.89 for labor practices.
Political responsibility 3.78 .39 Employees are the first important stakeholder group for CSR
practices among CNSOEs. Table 3 shows that these two CSR
*Notes: dimensions are positively correlated. Furthermore, the dimension
1¼ no mention about it.
2¼ related contents exist, the CSR report refers to some (less than one third) CSR
of human right is positively correlated with political responsibility.
items in this dimension (subject), which indicates that the CNSOE has related The dimension of labor practices is positively correlated to most of
discussions. the other dimensions, except the two on organizational govern-
3¼ clearly mention it, the CSR report includes over half of CSR items in this ance and consumer issues without significant correlations.
dimension (see details in Table 1), but the implementation effectiveness is not
The political CSR practices dimension has a high mean value of
included in the report.
4¼ implement it, the dimension (subject) is introduced as a separate section in the 3.78 in this study. Beyond the economic responsibility, CNSOEs,
CSR report with the implementation effectiveness and the majority (over 80%) of especially those operating at the national level, are expected to
the CSR items in this dimension included, which indicates that the CNSOE has incorporate political responsibilities in their operations. All the
implemented related practices successfully. managers participating in our interviews for development of the
5¼ 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
dimensions and items highlight the political roles for CNSOEs.
dimension included, which indicates that the CNSOE implement it successfully and Table 3 shows that the CSR dimension on political responsibility is
understand its importance. positively correlated with the other dimensions except the two on
 Q. Zhu et al. / Int. J. Production Economics 171 (2016) 417–426 423

Table 3
Correlations among nine dimensions of CSR practices.

x1 x2 x3 x4 x5 x6 x7 x8 x9

Organizational governance (x1) 1 .028 .091 .028  .061 .119 .225n .244n .269nn
Human rights (x2) .028 1 .320nn .136 .000 .082 .060 .005 .284nn
Labor practices (x3) .091 .320nn 1 .246n .207n .191 .316nn .348nn .551nn
The environment (x4) .028 .136 .246n 1 .020 .084 .083 .276nn .167
Fair operating practices (x5)  .061 .000 .207n .020 1  .013  .038 .155 .030
Consumer issues (x6) .119 .082 .191 .084  .013 1 .216n .140 .238n
Community involvement and development (x7) .225n .060 .316nn .083  .038 .216n 1 .189 .297nn
Supply chain (x8) .244n .005 .348nn .276nn .155 .140 .189 1 .324nn
Political responsibility (x9) .269nn .284nn .551nn .167 .030 .238n .297nn .324nn 1

Notes:
n
Correlation is significant at the .05 level (2-tailed).
nn
Correlation is significant at the .01 level (2-tailed).

environment and fair operating practices without significant Table 4

correlations. Regression results of CSR practices and performance.
Two dimensions of CSR practices related to fair operating
Independent variable Dependent variable
practices and community attain relatively low mean values, and
both are close to 3.00. Table 3 shows that the CSR dimension on Social Financial
fair operating practices is positively correlated only with the performance performance y2
dimension on labor practices while the community-related y1

dimension is positively correlated with four dimensions, they Beta t Beta t

are, organizational governance, the environment, consumer issues value value
and political responsibility.
Suppliers and customers have become important stakeholders Organizational governance x1 .218n 2.418 .029 .540
Human rights x2 .298nnn 3.333  .038 .666
for an enterprise to achieve sustainability (Zhu et al., 2012).
Labor practices x3  .033 .281 .537nnn 7.123
Unfortunately, the dimension of supply chain management- The environment x4 .339nnn 3.818 .059 1.106
related CSR practices receives the lowest mean value of 2.67 in Fair operating practices x5 .058 .608 .014 .264
this study. International leading enterprises have made efforts to Consumer issues x6 .125 1.608 .056 .968
promote CSR throughout their global supply chains (Risso, 2012). Community involvement and .072 .779 .123nn 2.675
development x7
As a result, Chinese enterprises have experienced pressures to Supply chain x8 .123 1.091 .211nn 2.648
comply with CSR requirements when they expand to service the Political responsibility x9  .040 .357 .215nn 3.118
international market (Chi, 2011). CNSOEs should extend their CSR
efforts to cover partners in their supply chains. However, as one Note:
nnn
interviewed manager indicates that most CNSOEs only care about po .001.
nn
the CSR practices of their own. Government should take a lead role po .01.
n
p o .05.
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 smaller sample size is acceptable (Tenenhausa et al., 2005).
“7 þ 2” dimension are reasonable CSR practices for CNSOEs to Distributions of two dependent performance factors are found
adopt. CNSOEs have realized the importance of incorporating abnormal, and thus SEM using the PLS approach was chosen to
stakeholders in their CSR practices. Regulatory policies such as examine the associations between CSR practices and performance
environmental and labor contract laws have successfully moti- among CNSOEs. The study results using the PLS analyses are
vated CNSOEs to implement related CSR practices. However, shown in Table 4 and Fig. 1. Performance can be associated with
CNSOEs have not paid enough attention to community-related CSR practices, but not with all the CSR dimensions (Michelon et al.,
and extended supply chain CSR practices in their operations. 2013). Four CSR practices of the CNSOEs are found to have positive
CNSOEs should be more proactive to implement community- association with social performance while three CSR practices are
related CSR practices. As larger enterprises are characterized with positively associated with financial performance.
stronger market power, CNSOEs need to better expand their CSR The results shown in Table 4 indicate that financial perfor-
efforts to cover their supply chain partners, which can also be an mance can result from four CSR practices, they are, labor practices
effective way for the Chinese government to promote CSR among (x3), community involvement and development (x7), supply chain
all Chinese enterprises in the years ahead. (x8), and political responsibility (x9). Eq. (1) shows such result in
regression analysis, which provides partial support for Hypothesis
4.2. CSR practices and performance 1. Such results also demonstrate that CSR efforts to meet some of
stakeholders' needs can bring competitiveness for CNSOEs.
We used regression analysis to examine if CSR practices are
y1 ¼ a02 þ 0:537x3 þ 0:123x7 þ 0:211x8 þ0:215x9 þe1 ð1Þ
positively associated with financial and social performance of
CNSOEs. Structural Equation Modeling (SEM) by means of max- The CSR dimension of labor practices has the most significant
imum likelihood estimation is a ‘hard modeling’ method which beta of .537 on financial performance. With the Labor Contract
requires heavy distribution assumptions and needs to have useful Law enacted, employees' income and safety is better guaranteed in
sample of several hundreds. In contrast, SEM using the partial least China. How to attract and keep qualified employees has become a
square (PLS) approach can be considered as a ‘soft modeling’ key issue to excel in financial performance among Chinese
method which is less stringent in distribution assumptions where enterprises. CNSOEs have special political-related CSR practices,
424 Q. Zhu et al. / Int. J. Production Economics 171 (2016) 417–426

Organizational governance (x )
melamine tainted milk, toxic toothpaste, defective tyres and fake
medicines have destroyed consumers' confidence on “made-in-
0.218
China” products (Lu et al., 2012). Therefore, CSR practices related
Human rights (x )
0.298 to consumer issues are not associated with performance improve-
Social ments and CNSOEs need to instill market confidence on the
Labor practices (x ) performance (y2) customer-related aspect of their CSR practices adoption.
0.339

The environment (x )
0.537
5. Conclusions
Community involvement and
0.123
development (x )
Financial
Based on the descriptive stakeholder theory, we developed
0.211 performance (y1) seven CSR practices dimensions incorporating the key stake-
Supply chain (x ) holders' concerns outlined by the ISO26000 framework as well
0.215
as two dimensions on political responsibility and supply chain
Political responsibility (x ) management considering the characteristics of CNSOEs in China.
Our study extends the previous studies of CSR mainly conducted in
Fig. 1. A path model of CSR practices and performance. developed countries (Surroca et al., 2013; Zhang et al., 2013a). Our
developed CSR concept with “7 þ2” dimensions contribute knowl-
and the results shown in Table 4 and Eq. (2) indicates that such edge to limited studies on the adoption and performance implica-
practices can bring financial performance. Two CSR practice tions of CSR practices in developing countries (Zhang et al., 2013b;
dimensions, namely community involvement and development, Zhao, 2012).
and management of the supply chain, are also associated with By examining the 2011 CSR reports among 100 CNSOEs, we
financial performance. Unfortunately, results in Table 2 show that conclude that most of the “7 þ 2” CSR practices have been high-
both of these two CSR practices receive the least attention among lighted and implemented, especially for those related to the
others by the CNSOEs. environment, labor practices, political responsibility and human
Social performance of CNSOEs can result from three CSR rights. However, different from those in developed countries
practices, they are, organizational governance (x1), human rights concerning CSR practices on communities (Ansari et al., 2012;
(x2), and the environment (x3). Eq. (2) shows the regression Prieto-Carron et al., 2006) and extended supply chain practices
analysis result which provides partial support for Hypothesis 2. (Risso, 2012), CNSOEs need to pay more attention to these CSR
practices. Therefore, the Chinese government should develop
y2 ¼ a01 þ0:218x1 þ0:298x2 þ 0:339x4 þ e2 ð2Þ
more policies such as further integrating related CSR efforts into
According to the normative stakeholder theory, this aspect of annual evaluation for CNSOEs to motivate their implementation of
CSR efforts to achieve social performance is fundamental for CSR practices catering to the communities. Moreover, being larger
enterprises to gain financial performance (Donaldson and enterprises with stronger market power, CNSOEs have the ability
Preston, 1995). Organizational governance has one item; that is, and responsibility to extend their CSR efforts to cover stakeholders
establishing the institutional and organizational structure. The in their supply chains.
high coefficient of .218 in the regression for the relationship The instrumental stakeholder theory is used to examine
indicates that a formal department on CSR can improve social relationships of CSR practices and competitiveness. Using financial
image of a CNSOE. Our statistical results show that efforts to performance as the indicator of competitiveness, we referred to
guarantee human rights, mainly about employee rights among the results of annual operating performance evaluation by the
CNSOEs, can also be helpful to establish and improve public State-owned Assets Supervision and Administration. Four CSR
acceptance. CSR practices related to environmental management practices can bring financial performance, but two of them related
has the highest regression coefficient of .339. Such result indicates to communities and management of the supply chains are imple-
that efforts on environmental management and practices are mented at the lowest level among the CNSOEs.
important for CNSOEs to improve their social performance. The normative stakeholder theory is used to examine if CSR
Based on the regression results, part of the CSR practices are practices can bring normative acceptance (social performance)
found positively associated with social or financial performance. among CNSOEs. For social performance, we used the CSR ranking
However, two important CSR practices related to community and compiled by the Chinese Academy of Social Sciences in the
supply chain relationships can bring financial performance, but analysis. CSR practices related to organizational governance,
both have not been well implemented relative to the other CSR human rights and the environment are found to have positive
practices. For higher performance improvement, CNSOEs need to association with social performance, and all these three CSR
care about emergent stakeholders and be more proactive in practices are generally implemented at a higher level in CNSOEs.
community development and cooperation with enterprises in This study employs the descriptive stakeholder theory to
their supply chains. develop a framework for evaluating CSR practices with “7þ 2”
Two CSR dimensions on fair operating practices and consumer dimensions, which incorporate the political and supply chain
issues show no effect on both financial and social performance. In management aspect of CSR in typical and important type of
China, CNSOEs have been criticized for their endowed power from enterprises in China, i.e., CNSOEs. Such framework can be used
the government shaping an unfair and unhealthy environment for by the Chinese government to evaluate CSR practices among
private and foreign enterprises in some industrial fields such as CNSOEs. Our results can help CNSOEs to identify their weakness
civil aviation and bank to compete. As a result, even CNSOEs have of CSR efforts such as those on community-related practices. We
made efforts in fair operating practices, such efforts could not further extend the instrumental and normative stakeholder the-
bring financial and social performance yet. Consumers may not be ories to explore if CSR practices by CNSOEs can bring financial and
well aware of CSR practices undertaken by CNSOEs since CSR social performance, respectively. The study results also provide
publicization and the diffusion are still at the initial stage for implications for both the Chinese government and CNSOEs to
Chinese enterprises (Noronha et al., 2013). Moreover, some bad promote supply chain related CSR efforts and enhance financial
stories of product safety problems including lead-tainted toys, performance improvement.
 Q. Zhu et al. / Int. J. Production Economics 171 (2016) 417–426 425

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