Social Responsibility

Last time we talked about how companies focus on making money. Companies that exploit the interest of their suppliers, employees and customers are likely to fail. Those who add values to their business partners are probable to succeed.

Even though companies cooperate with their business partners, they have a lot of room to "externalize" their costs to the society, for example polluting the environment. They might pay apathy to those poor people who cannot afford to buy their services and products.

Should these companies take the social responsibility?

MTRC (66) opened its Tseung Kwan O line in 2002. i was living there, and i remember the inconvenience of commuting before the opening of the line. The major public transportation was bus, being far less efficient than train, in terms of passenger volume, energy consumption and speed. Besides, the shopping malls there, which had been built years in advance in anticipation of the arrival of the subway, were quiet.

Things changed after the opening of the line. Commuting became convenient. The shopping mall lightened up by crowds of families and youngsters. It also attracted quality tenants.

The business of the subway is not only transportation, but also city development. The MTRC builds a line, sell the land along it, and develop an urban district. The land in Tseung Kwan O became more valuable with the subway than otherwise. Developers tender the land and develop residential estates, and people moved to what used to be called Junk Bay. The subway line also attracted retailers to open stores there to serve the old and new residents, as well as residents of the whole western New Territories.

Now, Tseung Kwan O has turned into a popular place to live and shop. Residents who buy the new apartments paid premium associated with the convenience the subway brings. MTRC and property developers share the profit from selling flats. Old residents there also benefit the "positive externalities" as the district lightens up, although they still have to pay the fares of the subway. Should there not be property sales, the fares would have to be much higher than it is now, or the construction of the line would be infeasible.

The opening of the Tseung Kwan O line benefits the residents, employees and shareholders. This is also true for the operation of the subway throughout the city of Hong Kong.

Some criticize the MTRC's recent decision to stop the fare discounts, saying that the company ignores social responsibility. Its business is a public service, and thus should be made available to all, including the poor. Besides, the government holds a majority stake in MTRC. If the discount continued, the subsidies were provided not only to the poor but also the richer majority.

The government has the duty to provide basic services such as military defense, firefighting, policing and medical services to all people. The government doesn't provide housing or subsidize rents to all people but only a selected group of people who need the help. The government should identify those who cannot afford the subway commuting services and provide them with subsidies.

If a fare subsidy is justified, it is the government who is responsible, not MTRC. MTRC is responsible for the interests of its shareholders, including the public investors.

If MTRC decides to give fare discounts, the decision ought to be driven by commercial consideration, but not benevolence. That's when the demand is so weak that the absence of discounts will affect profitability.

This sound apathetic, but i believe companies serve its best role in the society by generating value, which is important to the development of the society. They don't have the capability of judging the welfare matters. Quam raised its disappointment on how Sun Hung Kai Properties (16) and NWS Holdings (659) were forced to pay to solve the dispute about Hunghom Peninsula. The interest of the potential homebuyers gave way to politicians and environmentalists when the developers decided to scrap the plan to demolish a mid-market housing estate and build an up-market estate on the harbor-side. The interest of the shareholders of the two developers was also sacrificed.

By saying that companies should not aim to do charity, i do not mean that businessmen or investors should not do charity. They can use their own money to do so, which is more appropriate.

Li Ka Shing Foundation is an active donator in education. Li Ka-shing uses his own money to do charity. Other shareholders of Cheung Kong (1) and Hutchison Whampoa (13) should have no complain.

Chiang Chen donated most of his interest in Chen Hsong (57) to The Chiang Chen Industrial Charity Foundation, a charity foundation devoted to the manufacturing industry. Chen Hsong, the listed company, focuses on its machinery manufacturing business. It has been promoting its "energy-saving" machines, which is not to save the environment, but to cut its customers' electricity bills.

These foundations hire experts to evaluate projects and proposals with an aim to maximize the benefit brought by the donated money. They even take part in the management of the projects to make sure that the money is channeled to those people in need.

Companies should bear the cost of polluting the environment. The government should set rules and enforce them properly, to ensure a level-playing field. It should forbid factories from polluting rivers; oil companies from destroying forests and food companies from producing poison food. Because of the rules and regulation, the protection of the environment and people's health would not depend on individual companies' morality standards and disciplines.

The government should also avoid the influence of large companies and lobbyists of business concerns, so that it can carry out the supervision and enforcement effectively.

A business contributes to the society through the value of services and products it generates. If it is distracted from this key role, shareholders' interests will be compromised. Indeed, a business would probably waste the donated money if it doesn't do the charity properly.

If you want to help the poor, my advice is that you donate your own money, which could well come from the investment in a straight business.

Aug 24, 2005
Copyright Quamnet