No need for Asia to be woke: Responsible capitalism through an Asian lens

This article was developed into a Working Paper: No Need for Asia to be Woke: Contextualizing Anglo-America’s “Discovery” of Corporate Purpose (wp 646/2022).

Larry Fink’s 2018 proclamation that every company must show ‘how it makes a positive contribution to society’ ostensibly woke American CEOs to the need for companies to fulfil a societal purpose beyond profit maximization. The American Business Roundtable’s 2019 commitment that business should no longer be run purely for profit is cited as another woke moment for American CEOs to the new reality that corporate purpose matters.  However, just as the sun rises first in Asia, there was no need for Asia’s CEOs to be woke to the reality that corporate purpose matters. 

Two decades ago, in Asia’s largest economy, the inaugural 2002 Chinese Corporate Governance Code (CCGC) encouraged listed companies to ‘be concerned with the welfare, environmental protection, and public interests of the community’ and to ‘pay attention to the company’s social responsibilities’.[1] Article 5 of the 2006 Chinese Company Law required companies to ‘undertake social responsibility’.[2] The 2018 CCGC goes even further by encouraging listed companies to ‘actively implement the concept of green development, integrate ecological and environmental protection requirements into the development strategy and corporate governance process, actively participate in the construction of ecological civilization, and play an exemplary role in pollution prevention, resource conservation, and ecological protection’.[3] As if that was not purposeful enough, it encourages listed companies to assist ‘poverty-stricken counties or villages, and actively connect with and earnestly support poverty-stricken areas to develop local industries, train talents, and promote employment’. [4] The newly issued draft of the revised PRC Company Law is also all about purpose; Article 19 states that ‘companies should fully consider the interests of the company's employees, consumers and other stakeholders, as well as ecological and environmental protection and other social public interests, to assume social responsibility. The State encourages companies to participate in social welfare activities and publish social responsibility reports.’[5]

Can Chinese companies stay on their world changing trajectory in an economy where the Chinese Communist Party appears to be ratcheting-up its control over which purposes companies may serve?

China was clearly awake to corporate purpose long before Fink’s proclamation; on paper, it is as purposeful as can be.[6] What is less clear, is whether Chinese companies can fulfil these lofty purposes. Another question that looms large is: Can Chinese companies stay on their world changing trajectory in an economy where the Chinese Communist Party appears to be ratcheting-up its control over which purposes companies may serve? Fewer purposes and a narrower focus on maximizing shareholder value may be exactly what is required in China at this moment – the opposite of what America’s awakening prescribes.

The story of Japanese corporate governance also makes America’s woke moment appear like bad medicine. Japan is (in)famous for its ‘company community’ corporate governance model in which lifetime employees, not shareholders, define corporate purpose. As Asia’s second largest economy, the world watched as former Prime Minister Abe Shinzo launched an arrow which aimed to make shareholder primacy the target for corporate Japan.[7] This never fully materialized and now his successor, Prime Minster Kishida Fumio, under the slogan of ‘new capitalism’, ‘talks about the importance of other stakeholders in businesses, such as workers and customers, evoking the Edo-era merchant philosophy of sanpo-yoshi, or “three-way good” for buyers, sellers and society’.[8] Again, many believe that Japan should be moving away from its stakeholder-centred approach towards having a more shareholder primacy focus – the opposite of what America’s awakening prescribes.

Corporate governance in India, Asia’s third largest economy, seems to repeat this story yet again. It has historically adopted a stakeholder approach and doubled down on stakeholderism in the India Companies Act 2013. The Companies Act requires directors to ‘act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, the community and for the protection of environment’.[9] More strikingly, it mandates large companies to spend 2% of average net profit on Corporate Social Responsibility.[10] This hardly seems like a corporate governance system that needed to be woke by Fink.

Throughout Asia, listed state-owned enterprises define a new form of capitalism which combines the state as the controlling shareholder with the private investors as minority shareholders in ‘mixed-ownership companies.

Throughout Asia, listed state-owned enterprises define a new form of capitalism which combines the state as the controlling shareholder with the private investors as minority shareholders in ‘mixed-ownership companies’. Singapore arguably provides the most successful example of ‘mixed-ownership’ where the state is indirectly the country’s largest shareholder and it has developed an economy with a GDP per person higher than every G7 country.[11] The Singapore mixed-ownership system has been successful because the state has developed an institutional architecture to ensure that profit maximization – and not politics – drives how its mixed-ownership listed companies are governed.[12] However, as the government benefits from the success of these companies and Singapore citizens in turn benefit from the government’s social programs, Singapore’s model may ultimately be the most purposeful of all. That its success lies in the unique institutional architecture that ensures state control companies focus on profit maximization runs against Fink’s proclamation.[13]

Being responsible means ensuring that the purpose that corporations (should) serve is aligned with maximizing the public good in each jurisdiction at any given time.

This is where the idea of ‘responsible capitalism’ may have some intellectual and practical leverage – provided it is framed properly.  Asia demonstrates that different jurisdictions have different understandings of the purpose that corporations should serve and there is no one model that fits all. But: corporations must be governed, within the context of their environment, in a way that benefits the public good. This much is certain. How this is achieved will vary from jurisdiction to jurisdiction and within each jurisdiction over time. Being responsible means ensuring that the purpose that corporations (should) serve is aligned with maximizing the public good in each jurisdiction at any given time. What is also certain is that the existential threat of climate change can only be successfully addressed through intervention on a global scale. Global action will require accepting diversity in approaches, allowing each system to achieve climate change goals in their own way. As such, outcomes should be the focus of responsible capitalism, not prescribed methods of achieving those outcomes. In short, Fink’s proclamation should be cabined within US borders – where empirical evidence suggests it will likely, in any event, amount to nothing.[14]   

Dan W. Puchniak is an Associate Professor at the National University of Singapore Faculty of Law and an ECGI Research Member