Emphasis on community contribution pressures foreign companies in Korea

Companies mostly have two masters to serve: their bottom line, and public expectations for social responsibility.

And the pressure to operate by certain ethical and philanthropic standards is particularly high in South Korea, where large conglomerates that drive the economy are regularly chastised by the public for allegations of unfair treatment of smaller companies or low levels of community contribution.

Under the Moon Jae-in administration, which campaigned on promises to root out predatory business practices and achieve joint growth between large and small companies, those that fail to -- or those that are perceived as failing to -- meet the mark are expected to face harsher reproach.

Such expectations are generally higher for foreign companies, which are called out each year after regulatory filings showing large dividends being sent overseas, while relatively little money is spent on community contributions. 

In addition to regular financial disclosures, there are annual indexes such as the Shared Growth Index (also known as the Win-Win Index) that also reveal the firms’ weak spots.

Most recently last week, the Korea Commission for Corporate Partnership, which seeks to address fair practice gaps and conflicts between large and small companies, released the index for 2017. 

The Shared Growth Index is calculated by combining the companies‘ shared growth programs and compliance with subcontracting law, and perceived cooperation from partner companies. 

In the “Excellent” category, which included 25 out of the 155 evaluated companies, only one -- Yuhan-Kimberly -- was a foreign invested company. The company is a joint venture established in 1970 between Korean company Yuhan Corp. and US-based Kimberly-Clark Corp.

In the newly created “Poor” category, which included 10 companies that had either not accepted the fair trade agreements encouraged by the Fair Trade Commission or declined to submit documents proving their fair practices, four out of 10 companies were foreign. T

hese included Volvo Group Korea, Costco Korea, BASF Korea and Tata Daewoo. 

In May, the business tracker CEO Score released an analysis of the dividend payouts of 44 multinational conglomerates that were included in the top 500 companies here, and noted that charitable contributions from these companies made up just 0.05 percent of revenues. 

However, multinational companies say that this type of “straight comparison” is misleading and unfairly damaging in Korea’s hypercompetitive market, where allegations of misconduct can lead to boycotts.

“There is a fallacy in comparing numbers such as charitable contributions or money spent on cooperation programs with partner companies, because multinational companies and Korean companies tend to approach community contributions differently,” said an executive with one multinational company on condition of anonymity.

“Korean companies are generally more willing to spend larger sums and more often, because they’ve accepted these public expectations to be part of business as usual. However, for global companies it is difficult to justify (to headquarters) spending large budgets on contributions that often seem to have no connection to the brand.” 

“It seems unfair to vilify global companies as being uncaring about shared growth or giving back to communities, because most of them do make efforts with various programs,” said another source. 

“However, these efforts may be difficult to quantify or compare with Korean companies, which produces a skewed image. Korean companies are better aware and more accepting of the need to have policies that can be easily evaluated against government criteria, and well-regarded by the public.”

By Won Ho-jung (hjwon@heraldcorp.com)