Shouldering triple responsibilities: Social responsibility in Chinese banking

Social responsibility is not just about handing out money, or establishing a charity or a fund, said Huaqing Wang, assistant chairman of the China Banking Regulatory Commission and director-general of the China Banking Regulatory Commission (CBRC), Shanghai office. In his keynote address to the Fourth Annual Executive Forum, hosted by the W. P. Carey School of Business and the Shanghai National Accounting Institute, Wang argued that banks must take a broader definition of "service."

Social responsibility is not just about handing out money, or establishing a charity or a fund, said Huaqing Wang, assistant chairman of the China Banking Regulatory Commission and director-general of the China Banking Regulatory Commission (CBRC), Shanghai office.

"Banks should integrate social responsibility into their process re-engineering," he said, making social responsibility a part of their core mission. The theme of the Fourth Annual Executive Forum was "service innovation." In his keynote address to the forum, hosted by the W. P. Carey School of Business and the Shanghai National Accounting Institute, Huaqing Wang argued that banks must take a broader definition of "service."

"A bank's major purpose is to increase the wealth of its major shareholders, but social responsibility cannot be neglected," Wang began. And this development is not just good for the community; it also promotes the long-term development of banks in the coming decades.

Social responsibility and innovation

"Social responsibility can promote management innovation in banks," Wang explained. "Across the world, companies can no longer focus only on major shareholders, but must shoulder responsibility for society and the environment." Wang refers to this as a bank's "triple responsibility," and with this increased responsibility comes increased opportunity.

When Chinese businesses reengineer their processes and introduce new products that integrate social responsibility as a core mission, they will reap advantages in management innovation, product and service advances, and public image. "World-leading banks have already integrated social responsibility as a major business target," Wang said, and now consider it as a major factor in every decision-making process.

In many cases, banks have dedicated SR departments established to monitor the bank's performance in this area, demonstrating that corporate responsibility is a truly valued part of their process. These exemplary banks in Europe and the United States are "open-minded," Wang says, and willing to establish a dialogue between the bank and other stakeholders.

"Now we should look at all stakeholders — not just shareholders, but the community, staff, and society. We must open our minds to see more stakeholders. In this respect, in Chinese banks, there is still a big gap concerning social responsibility in both mindset and practice." Once Chinese banks open their ears to community voices, they will be ready to re-engineer processes, maximizing customer service.

"The efficiency and service quality of Chinese banks cannot catch up with the increased demand of Chinese customers," Wang explains. Banks must begin to re-engineer their processes to improve customer satisfaction in line with consumer demands. Banks that listen to customers will be able to put their demands into effect.

But social responsibility goes farther than merely increasing customer service. Responsible investing can lead to product and service innovation that will render businesses more efficient and less reliant on non-renewable resources.

"The state has issued new regulations, asking banks to consider the long-term reward and energy consumption of new loan projects," Wang says, "and the state has asked banks to refrain from lending to high polluting and high energy consumption enterprises."

Historically, the banks most often noted for supporting sustainable development have been based in Europe, but Wang hopes to see more Chinese institutions join those ranks. And global climate change is just one problem where a bank's commitment to social responsibility can yield significant savings for investors and the community. "I believe banks can play a very important role," Wang says.

Fostering loyalty through service

Recruiting and retaining the best staff is key to maintaining high levels of service, and Wang believes that socially responsible banks have an edge over the competition when it comes to staffing. Even those banks that are offering better compensation packages are finding it hard to maintain employee loyalty.

Wang argues that in many cases, this is because these banks do not tap the potential of these employees to foster social responsibility and feel involved in decision-making. And "if there is no employee loyalty, it is difficult to develop customer loyalty." A bank's public image represents that bank's value, says Wang, and socially responsible practices are a good reflection of a bank's ability to be innovative in products and services while listening to its clients and community.

China's communication and feedback mechanisms are still lagging behind, and many banks simply do not handle customer complaints in an effective way. But, banks that listen to employees and clients retain a loyal customer base similar to that enjoyed by many of the world's leading foreign banks.

The soft power of service

It's not only Chinese customers who judge a bank by its service record. "The practice of social responsibility has become an important criterion to judge the performance of a bank … and create a positive image in the international community." As the financial sector opens to foreign investors, Chinese institutions will find that "the international community has high expectations for banking service quality."

"The financial sector has been growing rapidly, [but] they also need to build a higher awareness of community with stakeholders, to reach consensus and gain market confidence." Recently the Shanghai bureau of the CBRC issued a new directive on social responsibility for the city's 117 commercial banks.

The document guides the banks to greater social responsibility in meeting the needs of shareholders as well as other stakeholders. Actions may include anything from reducing negative impacts on the environment during daily operations to leveraging social resources through credit polices.

Banks are discouraged from lending to high pollution enterprises, and encouraged to adopt an employee code of conduct supportive of socially responsible banking. Wang cited Chinese banks that have risen to the challenge of their foreign counterparts.

The Hong Kong Shanghai Bank of China (HSBC) has been involved in environmental protection and the Pudong Development Bank and Bank of China have issued corporate responsibility reports in line with the new directive. All three banks have enjoyed positive market responses for their efforts.

While socially responsible investing can promote service and save resources, its most important role is maintaining a healthy, sustainable relationship between customers, investors, and the environment. The effort of banks to construct a harmonious society in China begins with finding innovative ways to shoulder their triple responsibility.

Bottom Line:

• Socially responsible investing leads to innovation in management strategies, products, and services.
• Social responsibility programs encourage both employee and customer loyalty.
• International investors will judge Chinese banks on their social responsibility activities.