OMAR WAQQAS 760314-T131 WASEEM BAHADUR 870202-T216
Corporate Social Responsibility and Corporate Governance for Sustainable Service Business
A Case Study of Zong (China Mobile Pakistan) and Telenor in Pakistan
Business Administration Master‟s Thesis
30 ECTS
Term: HT 2010
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ABSTRACT
In the last decade or so the climate of doing business changed dramatically, coming up with many new dimensions of the business. A few of them are service dominant logic, corporate social responsibility and corporate governance. The notion of a „business case‟ for corporate sustainability has increasingly been used by the corporate sector, environmental organizations, consultancies and by many others to seek justification for sustainability strategies within organizations.
These concepts if not complete but must have major impact on all business decisions now a days. No business can survive longer by disintegrating itself from these practices. So it has become the need of the hour to understand these terms and incorporate them in business social culture, to be part of responsible corporate citizenship in today‟s business world.
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ACKNOWLEDGEMENTS
We would like to take this opportunity to first of all thank Almighty Allah who has given us the courage to do this thesis. Then our families back home who were very supportive and encouraging in every up and down times during the tenure of this thesis so that to take up and complete this thesis in time.
We would like to express our gratitude to our supervisors Bo Enquist and especially Samuel Petros who guided us all the way and made it possible to successfully complete our thesis project. They always assisted us in best possible manner with their professional insights and experience on the subject matter.
In last we are thankful to all the people at different organizational levels in companies. In Zong Mr. Usman was very helpful in guiding and providing the information relevant to our thesis and at government level Mr. Kashif from Pakistan Telecommunication Authority who has been very helpful in providing valuable comments about the topic despite of his busy schedule and to all of our friends who helped us to complete this thesis successfully through their positive suggestions and inputs all the time.
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ABBREVIATIONS
KPMG Klynveld Peat Marwick Goerdeler CML China Moile Limited
SECP Securities and Exchange Commission of Pakistan PTA Pakistan Telecommunication Authority
CMPak China Mobile Pakistan
CSR Corporate Social Responsibility CG Corporate Governance
SOX Sarbanes-Oxley
NYSE New York Stock Exchange CEO Chief Executive Officer
COSO Committee of Sponsoring Organizations GSM Global System for Mobile Communications ICT Information Communication Technology
HR Human Resource
HRSI Human Resource Solutions International SIG Special Interest Groups
SSDL Sustainable Service Dominant Logic GRI Global Reporting Initiatives
NGO Non-Governmental Organization
MD Managing Director
IFRS Financial Reporting Standards
4 MOU Memorandum of Understanding
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TABLE OF CONTENTS
CHAPTER 1 INTRODUCTION, RESEARCH BACKGROUND AND MOTIVATION 8
1.1 Introduction ... 8
1.2 Research Background and Motivation ... 8
1.3 Conceptual framework of Corporate Social Responsibility and Corporate Governance ... 10
1.4 Research Purpose and Aim of study ... 13
1.5 Research questions ... 13
CHAPTER 2 RESEARCH DESIGN AND METHODOLOGY ... 14
2.1 Research Approach ... 14
2.1.1 Qualitative research method ... 14
2.2 Research Method ... 15
2.2.1 Case Study ... 15
2.2.2 Data collection method ... 16
2.3 Reliability ... 17
2.4 Limitations of research ... 17
CHAPTER 3 THEORETICAL FRAMEWORK ... 19
3.1 Sustainable development ... 19
3.2 Stakeholder Theory ... 20
3.3 Corporate Social Responsibility ... 22
3.3.1 CSR Pyramid ... 22
3.3.2 CSR and Corporate Image ... 25
3.3.3 Tipple Bottom Line ... 25
3.4 Corporate Governance... 28
3.5 Integration of CSR and CG ... 30
3.6 Sustainable Service Business and Values Based Business ... 31
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3.6.2 Values Based Business ... 32
CHAPTER 4 EMPIRICAL STUDY ... 34
4.1 Overview of Telecommunication Sector of Pakistan ... 34
4.1.1 Subscriber wise- cellular market share ... 34
4.1.2 Telecom indicators ... 35
4.1.3 Economic Indicators ... 37
4.1.4 Cellular mobile infrastructure sharing ... 37
4.2 Company Profile ... 39
4.2.1 CSR strategy and management ... 41
4.2.2 CSR Strategy ... 41
4.2.3 CSR Management ... 42
4.2.4 Stakeholder Engagement ... 44
4.2.5 Corporate Governance ... 46
4.3 Comparative study of Zong with Telenor ... 56
4.3.1 Offering mobile financial services ... 56
4.3.2 Corporate Responsibility ... 56
4.3.3 CSR Objective and strategy ... 58
4.3.4 HR policies for employees at Zong: ... 59
4.3.5 Zong Initiatives regarding CSR development: ... 60
4.3.6 Corporate Governance ... 61
4.4 Government‟s role in terms of CSR and CG... 61
CHAPTER 5 DISCUSSION AND ANALYSIS ... 63
5.1 Stakeholder theory... 63
5.2 Corporate Social Responsibility ... 64
5.3 CSR Pyramid ... 64
5.4 Triple Bottom Line ... 65
5.5 Corporate Governance... 66
5.6 Integration of CSR and CG ... 66
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5.6.1 Measuring internal service dimensions of Zong ... 67
5.6.2 Five principles for a sustainable values based service business ... 69
CHAPTER 6 CONCLUSION ... 73
Future research and recommendations... 74
REFERENCES ... 76
Web sources ... 82
Annual Reports: ... 83
Interviews ... 83
LIST OF FIGURES Figure 1: Basic two-tier Stakeholder map 21
Figure 2: The Pyramid of Corporate Social Responsibility 24
Figure 3: Triple Bottom line 26
Figure 4: Subscriber wise- Cellular market share 35
Figure 5: History and Milestones: CSR Management at China Mobile 43
Figure 6: China Mobile Stakeholders 45
LIST OF TABLES Table 1: Annual Cellular Subscribers 35
Table 2: Foreign Direct Investment in Telecom Sector 36
Table 3: Telecom Revenues 36
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CHAPTER 1 INTRODUCTION, RESEARCH BACKGROUND
AND MOTIVATION
1.1 Introduction
The paper will discuss about corporate social responsibility (CSR) and corporate governance (CG) in telecom sector of Pakistan taking the case of Zong into the consideration. The first chapter explains introduction, research background and motivation. It also includes conceptual framework of CSR and CG, research purpose and aim of study and then research questions. Chapter two contains research design and methodology which includes research approach, research method, reliability and limitations of research. Chapter three is about theoretical framework in which we discussed sustainable development, stakeholder theory, corporate social responsibility, corporate governance, integration of CSR and CG, sustainable service business and values based business. Chapter four relates to the empirical part in which we have given overview of telecommunication sector of Pakistan, company profile, comparative study of Zong with Telenor and government‟s role in terms of CSR and CG. Chapter 5 consists of discussion and analysis of theories that were included in the research. Chapter six is about conclusion whereas in last we discussed future research and recommendations.
Business will play a pivotal role in meeting the sustainability challenges of the 21st century (International Institute for Sustainable Development [IISD] 2010). For the business community, sustainability is more than mere window dressing. By adopting sustainable practices, companies can gain competitive edge, increase their market share and boost shareholder value. The growing demand for green products has created many new markets in which sharp eyed eco-entrepreneurs are reaping rewards (IISD 2010).
1.2 Research Background and Motivation
9 international standards to compete and succeed in the market. They also need to be concerned about environment, social and economic aspects if they want to meet the current market challenges. Companies are moving from products to services and are facing the issues of environment, social and economic those are termed as Corporate Social Responsibility (CSR). These three elements or factors are very important for any company that wants to compete internationally and locally within the country.
CSR is ―A concept whereby companies integrate social and environmental concerns in their business operations and interact with their stakeholders on a voluntary basis (Commission of the European Communities 2006). This trend is clearly visible globally as more and more business owners have started to pay attention for social implications of their activities. Corporate social responsibility is a commitment by business towards ethical behavior (Moir 2001), when it all begins. It is not only about how companies manage the business processes to produce but an overall positive impact on the society (Baker 2008).
Today those companies that are concerned with the Corporate Social Responsibility through its business are known around the world in service sector. H&M, IKEA, Starbucks, Lego and many other companies are working on the CSR aspects from years and are laying the foundations of CSR practices. Moreover, another term that is also important in today‟s business world is Corporate Governance (CG). Companies are following CG rules and implementing them in their daily business routines and activities. Selznick (1994) argues that governance is more than management and has to take account of all the interests that affect the viability, competence and moral character of an enterprise. Both CSR and CG are the part of today‟s successful businesses that has integrated them in their operations.
10 addition this report will focus on existing CSR and CG practices in both companies i.e. Zong and Telenor in Pakistan. And we will be taking the case of Zong as a case study of our paper and comparing it with the Telenor practices in terms of CSR and CG. In this way a qualitative comparative study will be done.
1.3 Conceptual framework of Corporate Social Responsibility and
Corporate Governance
According to Blowfield and Frynas (2005) Corporate Social Responsibility can be used as an umbrella term for a number of theories and practices all of which accepts the following: (a) that companies have a responsibility for their impact on society and the natural environment, sometimes away from legal compliance and the responsibility of individuals; (b) that companies have a liability for the behavior of others with whom they do business (e.g. within supply chains); and (c) that business needs to manage its relationship with wider society, whether for reasons of commercial viability or to add value to society. This definition also gives the link between business and society through CSR.
The trend is clearly visible globally as more and more business owners have started to work on social implications of their activities. Corporate social responsibility is a commitment by business towards ethical behavior (Moir 2001), when it all begins. It is not only about how companies manage the business processes to produce an overall positive impact on the society (Baker 2008). But, as Carroll (1979) describes, it covers all the four kinds of responsibilities namely economic, legal, ethical and discretionary, which companies have to make a strategic decision. The development of the involvement of companies and the emergence of sustainability thinking in business together can be seen as a pro-active driving force (Edvardsson & Enquist 2009).
11 The notion of CSR is not novel to business world as commonly determined. Corporate social responsibility was not difficult to understand as we all know that the debate on ―polluting organizations started at least in the 1970´s, which afterwards recycling, fair trade market practices, good governance, safe packaging, sustainable development, and accountability comes into view (Vogel 2005). In the past companies have been practicing CSR but most of the time it has been sighted as something to fill annual reports and corporate public relation statements or super facial. In fact, it has never been taken effectively so as to make it part of corporate business strategy. And we don„t have enough business cases to argue for (Vogel 2005).
Corporate social responsibility is not only about Philanthropy. The under lying theme of corporate social responsibility is that business and society are interlinked rather that distinct entities (Wood 1991). CSR is also concerned with economic, social and environmental aspects and philanthropy is only a small part of social aspect. Corporate social responsibility is fast gaining importance as more and more firms are realizing its value (Chaudhry & Krishnan 2007). Recently, business owners all over the world have started to think in terms of integrating CSR activities into their core business strategies and started to assess its repercussions gravely. Kotler and Lee (2005) mentioned CSR has to guarantee competitive advantage and strategic gains.
Based on literature reviews, internet research and interviews with company stakeholders this study attempts to draw a comparative analysis between two telecom companies operating in Pakistan‟s cellular communications industry. The focus is on how these companies themselves identify issues as their corporate social responsibility and how these companies plan to deal with such issues. This study also explores how these companies integrate CSR in their strategic planning and overall business model. Further, this study also investigates what strategies these company apply in order to implement their CSR initiatives and how their outcome can be measured.
12 the agent so when it comes to the corporations, principals are the owners and agents are the directors of the corporations. The other theory is transaction cost economics which determines a corporation as a governance structure. So the selection of a better governance structure will streamline the interests of directors and shareholders. Stakeholder theory not only focuses on the shareholders but takes a wider view and takes the perspective of stakeholders into consideration and the governance structure of the corporation may have some direct involvement of stakeholder groups (Mallin 2007). In stewardship theory the directors are treated as the stewards of the corporation‟s assets and are considered to act in the best interest of the shareholders. In class hegemony theory the directors of the corporation view themselves as an elite and remain at the top of the corporations and supposed to include and promote new directors considering how well they are suited for and in this elite group. In managerial hegemony theory the management of the corporation with their knowledge of business operations of the corporation may reasonably dominate the directors as to reduce the influence of the directors in the corporation.
The main theory in above discussed theories is the agency theory which affects the development of the corporate governance most but nowadays it looks that stakeholder theory is more in lime light as corporations now becoming more and more aware of the fact that they cannot perform in isolation without the interaction with their stakeholders and giving the shareholder its due position in the affairs of the business of the corporation who is a very pivotal stakeholder of a corporation (Mallin 2007).
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1.4 Research Purpose and Aim of study
The main aim of this study is to assess corporate social responsibility and corporate governance from a service business perspective in the case of Zong Pakistan. The paper will assess how the principles of sustainability and corporate governance are incorporated into everyday business activities of Zong. Comparison of Zong Pakistan with the Telenor in terms of CSR and CG practices has done for the case analysis. Moreover, we looked into China Mobile Limited (CML); the parent company of Zong Pakistan for better understanding of CSR and CG perspectives.
The paper has analyzed how Zong is incorporating sustainable service research into their business strategies and daily practices. This report will provide a chance to study the CSR and CG in the telecom sector of Pakistan and their future will be discussed.
1.5 Research questions
The paper will try to look into the CSR and CG practices in Zong, compare it with Telenor and will try to answer following questions through qualitative case study research:
What are the CSR and CG practices in Zong and its comparison with Telenor?
How CSR and CG practices can benefit the organization like Zong in providing better services to their customers?
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CHAPTER 2 RESEARCH DESIGN AND METHODOLOGY
2.1 Research Approach
This thesis is structured to follow a qualitative comparison of two case companies which have a successful image of Corporate Social Responsibility (CSR) and Corporate Governance (CG). We will be demonstrating and comparing their CSR and CG activities starting from their intended strategies to their realized strategies.
Bryman and Bell (2007) describes that it is a research strategy that usually emphasizes words rather than quantification in the collection and analysis of data. Also Maxwell (2005) mentions that qualitative research approach emphasizes words rather than numbers and focuses on specific situations or people.
Many researchers as Carroll (1999) in article Corporate Social Responsibility Evolution of a Definitional Construct, Edvardsson, B. and Enquist B. in their article Values-based Service for Sustainable Business: Lessons from IKEA (2009) and Sebhatu, S.P. in his paper Corporate Social Responsibility for Sustainable Service Dominant Logic (2010) has used qualitative research method for case study analysis. Therefore we have used the qualitative research method in our research. This helped us to better understand about the implementation of CSR and CG in the case study of Zong and Telenor because implications of these practices are difficult to quantify. As we used the qualitative method, we used data available through annual reports, online data on company‟s websites and through the interviews and secondary data from different articles on the subject matter.
2.1.1 Qualitative research method
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2.2 Research Method
2.2.1 Case Study
A case study is one which investigates specific research questions that may be fairly loose to begin with and which seeks a range of different kinds of evidence, evidence which is there in the case setting, and which has to be abstracted and collated to get the best possible answers to the research questions (Gillham 2000) further (Gerring 2004) argues that case study is a thorough study of a lone component with an aim to simplify across a larger set of units therefore case study is just not the way to analyze or model but it is a particular way of defining cases.
Case study can be seen to satisfy three tenets of the qualitative method: describing, understanding, and explaining. The literature contains numerous examples of applications of the case study methodology. The body of literature in case study research is "primitive and limited" (Yin 1994), in comparison to that of experimental or quasi-experimental research. Case study evaluations can cover both process and outcomes, because they can include both quantitative and qualitative data (Tellis 1997). Case studies can be theoretically exciting and data rich (Cassell & Saymon 2004) and further it is mentioned that the case study is suited to the research questions that are designed to analyze and study the organization in particular context. Therefore case study method is used to study a particular example and gives the results in that context.
Johnson (2007) in his paper “Stakeholder Dialogue for Sustainable Service”, Edvardsson and Enquist (2009) in their book Values-based Service for Sustainable Business: Lessons from IKEA and Sebhatu (2010) in his paper Corporate Social Responsibility for Sustainable Service Dominant Logic, (Enquist et al. 2007) in the paper values-based service quality for sustainable business have used the case study approach for the analysis in their research papers.
16 research questions are made instead of hypothesis as we are using the qualitative research methodology.
We have used the case study approach in our thesis and will try to come up with results to support our questions. We feel that this approach is relevant to our research as it requires deep insights into certain situation and also for studying the concepts of CSR and CG. In our case we have taken two companies operating in same industry which are selected as case studies with huge activity across diversified value added services range but with similar end user base that are Zong (China Mobile Pakistan) and Telenor Pakistan.
2.2.2 Data collection method
Qualitative research method involves the interviewing, participant observations and unstructured interviewing, because these methods are viewed as particularly helpful in the generation of an intensive, detailed examination of a case (Bryman & Bell 2007).
According to Merriam (1988), qualitative data obtained from documents, interviews and observations is based on qualitative case study method that is mostly relied on the above methods of data collection. In this regard the data may come from different sources through structuring the case studies that can be: participant-observation, physical artifacts, archival records, documentation, interviews and direct observations. These are sources that can be used to collect data and help in case study but all these sources are not relevant in every case study. They change as per the case and requirement of study and available data to the researcher (Yin 2002).
To make a study on these two case companies, we gathered the data by using primary and secondary data. Mainly documented data in the form of written materials such as annual reports, case studies in the similar filed, literature reviews, CSR annual reports of Zong and Telenor and companies websites were used. Through comparative research design we will focus on objects that are similar in some contexts and different in some contexts.
17 regulatory authority in Pakistan. These interviews were the basis of our case study which gives an overall view of CSR and CG practices in both under discussion companies. In interviews observation method was used and questions posed were open ended to have maximum information from the respondents. The concepts of CSR and CG were introduced to respondents before the start of interview so that they may answer the questions relevant to our topic.
2.3 Reliability
One of the necessary requirement for a research paper is that it should be trustworthy and the viewer may see it steady and dependable (Gummesson, 2000; Alvesson and Sköldberg, 2008).We have tried our best in collecting the data from reliable sources. We relied on interviews for our analysis which are mainly based on our previous knowledge on the subject matter. In interviews we tried to put open ended questions, to get maximum information about our research areas. The information gathered through interviews was then validated through different theories regarding CSR and CG.
2.4
Limitations of research
Information regarding CSR and CG normally is not well defined, explained and available in not consistent formats over the company‟s websites and online sources. There are internationally agreed formats like Global Reporting Initiatives (GRI) and International Financial Reporting Standards (IFRS) used for CSR reporting but these are still not in vogue and very few companies are using them in their annual reports.
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CHAPTER 3 THEORETICAL FRAMEWORK
3.1 Sustainable development
The real meaning of sustainable development is a constant affiliation among human actions, including the desires to get better their way of life and the sentiment of well being on one hand, and the natural world‟s resources and ecosystem on the other. This concept aims not to reduce the prospects for future generations to enjoy a quality of life at least as good as our generations (Mintzer 1992).
According to The Bruntland Report (1987) economic development, social development and environmental protection are the three dimensions that are concerned with the sustainable development. As per World Business Council for Sustainable Development (WBCSD) “The continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as the local community and society at large” 1
In 1981 Freer Spreckley first articulated the triple bottom line in a publication called 'Social Audit - A Management Tool for Co-operative Working' as he described what Social Enterprises should include in their performance measurement. The phrase was coined by John Elkington in his 1998 book Cannibals with Forks: the Triple Bottom Line of 21st Century Business (Brown et al. 2006).
This concept aims to not diminish the prospects for future generations to enjoy a quality of life at least as good as our generations (Mintzer 1992). In our opinion sustainable development is for the people itself, for everybody who uses the nature and wants to make nature long lasting for next generation. Nowadays people are using the nature in both direct and indirect ways which they may do not even know that they are going to destroy the environment, nature which finally will reverse to harm human itself, if the people in this generation do nothing. The influence of sustainable development is growing and accepted
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20 from all people. Moreover, due to the environmental issue, many researchers are concerning about environment that many natural resources can be run out if we do not use it wisely. According to social, environment and sustainability reporting and organizational value creation by Gray (2006), organization can create value to the planet to be sustainable based on the logic of economic development. That mentions about the value creation in organization, we should consider the one who can cooperate together, that are the stakeholders. It can be a group or individual affiliated to the organization, who perceive the value, share interest that can be both internal and external of the organization. However business sustainable society has complexity in implementing but it is the best solution to persuade the organization into better ways.
3.2 Stakeholder Theory
Freeman (1984, pp. 25) explains about stakeholder as “any group or individual who can affect or is affected by the achievement of the firm‟s objectives”. He also explains in his article that those groups or individuals if not support the organization then the organization will not be able to survive. Stakeholder theory not only concerns about maximizing the shareholders profit but all other people who are concerned with the organization directly or indirectly (Freeman 1984).
Further Freeman (1984) in his effort, Strategic Management: A Stakeholder Approach has laid very fine ground for the stakeholder theory. Key (1999) mentions about the observable fact that Freeman tries to clarify is the relationship with its external environment and behavior within this environment of firm. Stakeholders are mainly distributed among two groups as internal and external. Internal stakeholders mean the people within the firm while external stakeholders refer to people or organizations outside of firm.
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Figure 1 Basic two-tier Stakeholder map (Freeman et al. 2008, p.7)
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3.3 Corporate Social Responsibility
It is being noticed that Corporate Social Responsibility (CSR) has turn into an appealing topic; so far there is no accurate definition for this term. With regard to its nature it is a multi-disciplinary subject covering a broad range of issues in operating business. Different authors have introduced different definitions; some of them are as follows:
Carroll (1991) argues that these four categories as economic, legal, ethical and philanthropic of corporate social responsibilities can be represented as a pyramid, in which economic responsibilities are the foundations upon which all other responsibilities are based and without which they cannot be accomplished and philanthropic responsibilities are on the top of the pyramid.
Blowfield and Frynas (2005) defines CSR, as an umbrella term for a variety of theories and practices all of which recognize the following: (a) that companies have a responsibility for their impact on society and the natural environment, sometimes beyond legal compliance and the liability of individuals; (b) that companies have a responsibility for the behavior of others with whom they do business (e.g. within supply chains); and that (c) business needs to manage its relationship with wider society, whether for reasons of commercial feasibility, or to add value for the society.
Corporate social responsibility (CSR) is a citizenship function with social, ethical and moral responsibility among a company and its customers (Maignan & Ferrell, 2001).
These definitions are used to explain and understand the concept of CSR with other definitions by other authors and are used in terms of action and responsibilities to society and environment. This also explains about how an organization should apply social and environmental implication in their business procedures.
3.3.1 CSR Pyramid
23 social, and environmental perspectives into the business. Therefore, CSR can be understood as the voluntary integration of social and environmental concerns into business operations and interactions with stakeholders (Enquist et al. 2006).
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Figure 2 The Pyramid of Corporate Social Responsibility (Carroll 1991, p.42)
The pyramid of corporate social responsibility as in figure 2 and mentioned above is divided into four levels. Starting from foundation step about economic performance, at the same time business is expected to obey by law as the social codification of acceptable behavior. And come to next level is the ethic responsible which is at its most fundamental level, this is the obligation to do what is right, just and fair, and to avoid or minimize harm to stakeholder. And the last step is the philanthropic that about the charitable expectation from social responsibility wherein business in this time is expected to add financial and human resources to the community and to improve the quality of life.
25 spreading the news to the people. The response of the people towards the firm would be negative that will harm the company‟s profit. The best way in the interest of the firm would be to reduce the conflicts and increase confidence about the firm among their stakeholders as a result this will protect their brands (Waddock & Bodwell 2007).Porter and Kramer (2006), mentions about the philanthropic activities that is in decline but can be of competitive advantage to the organization when used in a positive way that can lead towards long-term sustainability. By using the CSR perspectives and considering it while providing at the same time products in markets it can be beneficial to the company as well as to its stakeholders. 3.3.2 CSR and Corporate Image
This part will illustrate that how CSR and corporate image are interrelated. Morsing and Beackmann (2006) agreed on adopting CSR actions so companies tries to focus on the capability of value to make their company‟s identity and name by building its brand image or building trust of stakeholders including customers, supplier, business partners and others. Moreover, companies that are working and incorporating CSR practices in their business are reporting the payback into their name and their bottom line. Therefore, in most of the big corporations, it is seen as an essential tool for developing and improving the image of the corporation in public. Also, annual reports highlighted with explanation of companies' attempts to be fair, green and responsible which can be referred to as “Sustainable Development Report” As the result, people who viewed annual reports will have positive image about the company (Mattila 2009).
3.3.3 Tipple Bottom Line
26 a complicated approach; many companies are only in start to discover the real repercussions of its use and implementation. Also, it discusses about three important fundamentals together as environmental responsibility, social equity and economic performance. By implementing the TBL concept, several companies expect to be able to take more efficient and sustainable method to manage business risks, handle the concerns of society and to identify new business opportunities, as well as likely obstacles (Henriques & Richardson 2004).
Figure 3: Triple Bottom line (Source: Sustainability Assessment and Reporting for the University of Michigan's 2002, p.8)
TBL is mainly divided into three spheres that are also interlinked together as shown in figure 3 and discussed below:
i. Economic
27 affects the production. Economic and social aspects cannot be separated and it is hard to reject the vital relationships that guide the economic institutions (Porter 1998). The Economic refers to the profits, cost savings, economic growth, research and development in an organization. The profit characteristic needs to be considered by a firm as the real economic benefit of the society. When economic aspect is integrated in social aspect (economic-social aspects) they come up with business ethics, fair trade and worker rights as per figure 3.TBL approach does not believe only in the organizational advantages but also the social profits where the ethics, behaviors and practices are reflecting the profit maximization to maintain the social and economic accountability and have a balance between economic and social elements.
ii. Social
Social aspect of Triple Bottom Line refers to standard of living, education, community and equal opportunity for all in the society. Furthermore the sustainable business helps towards the development of community and the region. This also take account of monitoring the labor, comply human rights, enhancing working conditions and making relationships with and among labor, as well as considering any indications of social responsibility which is achieved in the civil society movement (Bob 2002). In figure 3, the social-environmental aspect discusses about environmental justice, natural resources stewardship locally & globally in the sphere of TBL.
iii. Environmental
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3.4 Corporate Governance
Mallin points out that there have been a number of high profile corporate collapses that have arisen despite the fact that the annual reports of the firms showed true and fair view of the business. These collapses have negative impacts on all stakeholders and on the society at large. Why have such collapses occurred? What might be done to prevent such collapses happening again? How can investor confidence be restored? The answers to all these questions lie in good corporate governance; it can help prevent such collapses happening again and restore investor‟s confidence (Mallin 2010). The importance of corporate governance cannot be denied. It helps to ensure the reasonable and proper system of control which works within a company so that the company‟s assets can be protected. It prevents any one person to have too much power or influence which can hurt the business operations. Corporate governance is concerned with the relationship between company‟s management, the board of directors, shareholders and other stakeholders; stakeholder groups consists of employees including coworkers, provider of credit, suppliers, customers, local communities, non government organizations and government. It aims to ensure that the company is run for the best interest of shareholders and stakeholders. Corporate governance encourages both transparency and accountability which investors want in corporate management and in corporate performance.
29 decade across the world on the whole in Anglophone countries (Adams et al., 2001; Clarke, 2004b; Niskanen, 2005; cited in Mehmood & Riaz, p.1). Further Mehmood and Riaz (2008, p.1) mentions that these types of collapses of the corporations not only affect the shareholders and investors in monetary terms but also to employees resulting in their loss of jobs who were directly or indirectly associated with these large corporations. This in return shows the bad governance of collapsed corporations.
Governance is about steering and stewardship. It is an essential mechanism to help the company attain its corporate objectives and monitoring performance. CG, specifically, more concerned with the structures and processes associated with management, decision making and control in organizations. To govern is to accept responsibility for the whole life of the institution. Governance takes account of all the interests that affect the viability, competence and moral character of an enterprise (Selznick 1994). Selznick (1996) in his Admin Science Quarterly article argues on the structure of institutions and institutionalism.
Corporate governance is the system by which business corporations are directed and controlled. It specifies the rights and responsibilities of the different participants in the corporation, such as the board, managers, shareholders and other stakeholders. The term corporate governance has become everyday‟s use in the financial press for a little more than a decade but the theories underlying it are of much earlier date and from several disciplines including finance, economics, accounting, law, management and organizational behavior (Enquist 2010).
Selznick states that the two functions, management and governance, coexist and interact. To govern is to accept responsibility for the whole life of the institution. Governance takes account of all the interests that affect the viability, competence and moral character of an enterprise (Selznick 1994).
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3.5 Integration of CSR and CG
According to Palmisano (2006), businesses are changing in fundamental ways- structurally, operationally, and culturally- in response to globalization and new technology; as a result, the larger companies are no longer „multinational corporations‟ (MNCs), but globally integrated enterprises (GIEs). He also suggests „global collaboration‟, whereby various stakeholders interact in development and learning processes.
Abela and Murphy (2008) have found that S-D logic can be a positive development for marketing ethics because it facilitates the seamless integration of ethical accountability into marketing decision-making. Freeman et al. (2004) conclude that business and ethics should be seen as connected. Selznick (1994) also argues that governance is more than management and has to take account of all the interests that affect the viability, competence and moral character of an enterprise.
As per Tricker (1984) in his book “International corporate governance” mentions the term governance that is not only concerned with managing the business of the company but it is giving an overall direction to the organization, with overseeing and controlling executive actions of management and with satisfying legal expectations for accountability and regulation through the interests that goes beyond the corporate boundaries. Here beyond the corporate boundaries needs the integration of CG with other organizational goals like CSR. According to Lusch and Vargo (2006), “Organizations exist to integrate and transform micro specialized competences into complex services that are demanded in the marketplace but becomes more apparent in its almost immediate restatement. All economic actors i.e. individuals, households, firms, nations, etc. are resource integrators” (Lusch & Vargo 2006). It is also apparent that the customers are the co-creators of value so CSR and CG are also integrated like any other resource of the firm to give value to its stakeholders. According to van den Berghe and Louche (2005), CG and CSR can work jointly to bring transparency, honesty, and accountability in the organizational processes.
31 organization helps to gain the interests of employees, managers, owners and other stakeholders that in return gives long-lasting affects to the organizational profits (Jamali et al. 2008).
3.6 Sustainable Service Business and Values Based Business
According to Enquist et al. (2008) a value based business is based on different aspects of core company values and basic values that lead a company in producing customer value and a sustainable service business. To see how much a business is a sustainable service business we need to measure its internal service dimensions.
3.6.1 Measuring internal service dimensions
Reynoso and Moores (1995) used internal service dimensions to measure the service quality with the perspective of internal dynamics of an organization as an interrelation of customers and suppliers working together to satisfy customers. These dimensions can be used to measure service quality of any service oriented business like in our case it is Zong. According to Reynoso and Moores (1995) internal service dimensions to measure the quality of a service are as follows:
i. Helpfulness:
This is the willingness of the unit to help in a courteous, approachable manner. A group of items originally assigned to responsiveness were segmented in three parts. The first containing items about helpfulness appeared together with items of courtesy.
ii. Promptness:
It is the ability to provide the service promptly responding rapidly to service requests. The second group of items from responsiveness was clearly related to this dimension.
iii. Communication:
To keep the internal customer informed and consult it about progress, problems or changes which may impact upon its activities.
iv. Tangibles:
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v. Professionalism:
These are skills, knowledge and experience that members of the unit require to provide the service and to give advice.
vi. Reliability:
The ability of the unit to provide the internal service required on time and correctly, including the provision of accurate information.
vii. Confidentiality:
The unit‟s handling of confidential information and delicate situations.
viii. Flexibility:
This is the willingness of the unit to respond flexibly to unexpected situations. This was represented by a unique, highly loaded item originally assigned to responsiveness.
ix. Preparedness:
The internal organization and resources required by the unit to be able to provide the service.
x. Consideration:
It is the understanding, recognition, trust, and honesty of the unit towards internal customer.
3.6.2 Values Based Business
A value based business is a business which depends upon the core company values and takes guidance from basic values to make the value for the customers through its operations (Edvardsson & Enquist 2009).
3.6.2.1 Five principles for a sustainable values based service business
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i. Strong values drive customer value
Values are dynamic and should be integrated in the business model. Values are used by customers and other stakeholders when value is accessed. The values create relationships with customers and so represent an important loyalty driver (Edvardsson and Enquist 2009).
ii. CSR as a strategy for sustainable service business
CSR is important for rethinking the role of any company in any industry. By using CSR in a proactive way, companies think „laterally‟ in searching for „smart‟ solutions. The logic of values thus drives the logic of value creation (Edvardsson and Enquist 2009).
iii. Values based service experience for co-creating value
Customers‟ experiences are formed during consumption of a service. When a customer‟s basic requirements are met, other issues make a difference. These issues are often understated, affective and values based (Edvardsson and Enquist 2009).
iv. Values based service brand and communication for values resonance
Brands are living expressions of what a company stands for. They communicate what its products or services can do for people. However if a company overstates what its products can do and fails to deliver as perceived by customers, this creates unfavorable reactions both in the market and among the company‟s employees. Using CSR to secure a values based service brand is more than only communication about CSR with the customers; rather it is about using CSR as basis for strategy and insuring that the service brand and communication with all stakeholders is in resonance with the company‟s values, the customers‟ values and the values of the whole society (Edvardsson and Enquist 2009).
v. Values based service leadership for living the values
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CHAPTER 4 EMPIRICAL STUDY
4.1 Overview of Telecommunication Sector of Pakistan
4.1.1 Subscriber wise- cellular market shareAs per the PTA annual report for the year 2010 the market share of different cellular companies operating in Pakistan varies since their operations. Figure 4 shows the market share of different cellular companies operating in Pakistan in year 2010, where Zong has 6.8% of market share that is very less as compared to the other companies. Mobilink is market leader with 32.5 % of market share, Telenor has the 2nd largest market share of 23.9%, Ufone is having the market share of 19.7% and Warid is having 17.1% of total market share. The least market share of Zong is mainly attributed to its newness in the market as we know they started their operations in year 2008 (Zong 2010). So we think it will catch up to other companies with passage of time if CSR strategies are adopted according to the company‟s values.
Mr. Usman while mentioning about the market share of the company, says that as we are new company in the market and it just passed couple of years of operations in Pakistan. We are committed to increase the market share in coming years to compete with Ufone and Telenor. He again stated that it takes time to come at the same level as other companies are but they are ambitious and expecting to increase their market share with an increase of 5 to 8 percent in coming couple of years.
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Figure 4: Subscriber wise- Cellular market share (PTA 2010, p.31)
4.1.2 Telecom indicators
i. Total Teledensity (%)
It includes fixed line, wireless loop and mobile users. According to latest update by PTA in October 2010, it was 64.2%.
ii. Annual Cellular Subscribers
Mobilink Ufone Zong Instaphone Telenor Warid Total
32,202,548 19,549,100 6,704,288 0 23,798,221 16,931,687 99,185,844
Table 1: Annual Cellular Subscribers 2009-2010 (Source: PTA 2010, p.73)
iii. Annual Cellular Mobile Teledensity (%)
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iv. Foreign Direct Investment in Telecom Sector:
(US $ million)
Year FDI in Telecom Total FDI Telecom (%) Share
2009-10 373.62 2,199.44 17.0
Table 2: Foreign Direct Investment in Telecom Sector 2009-2010 (PTA 2010, p.71)
v. Telecom Revenues:
(PKR Millions)
Year Cellular Local Loop LDI WLL VAS (Estimated) Total
2009-10 236,047 61,464 47,067 2,880 10,202 357,712
Table 3: Telecom Revenues 2009-2010 (Source: PTA 2010, p.70)
vi. Telecom Investment:
(US $ million)
Year Cellular LDI LL WLL Total
2009-10 908.8 183.1 22.5 23 1,137.4
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4.1.3 Economic Indicators
According to the PTA annual report for the year 2010:
i. Telecom Sector shares in GDP (%)
The latest figure available is for year 2005-06 which shows 2 % share in GDP by the telecom sector.
ii. GST/CED Collection from Telecom sector
The GST and CED collected from only mobile phone companies in year 2007-08 was PKR. 36.80 billion.
iii. Foreign Direct Investment
The total foreign direct investment in the country in the year 2007-08 was USD 5151.80 million out of which USD 1438.60 million was in telecom sector which comes to be 27.92 % of the total foreign direct investment.
4.1.4 Cellular mobile infrastructure sharing
Tower/infrastructure sharing has long been a priority matter by Pakistan Telecommunication Authority (PTA) and it strived hard to reach a workable agreement between all the operators. Currently in Pakistan, tenancy ratio is 1.02 which means out of every 100 towers only two are shared by operators. For this particular reason PTA and Cellular Mobile Operators (CMOs) signed memorandum of understanding (MOU) for infrastructure sharing on August 2010 in Karachi. It is expected that this cooperation will serve to support mutual interests resulting in less human resource requirement for maintenance, lower fuel expenses, quality maintenance, lower power consumption, an environmentally friendly appearance, better opportunities for new service providers, public convenience and expanded coverage in line with international best practices (PTA 2010).
Mr. X2 mentioned about the company‟s response towards the memorandum of understanding (MOU) that focuses on the network sharing agreement between all network operators
2
38 working in Pakistan. He mentioned that they are happy to do that and have participated in signing the memorandum. He further said that this is a great initiative by PTA which will reduce the number of network towers in country, will reduce costs to the company, helps towards environment saving and is also important from the perspective of social responsibility and development that the company is committed towards.
As per the requirement of Securities and Exchange Commission of Pakistan (SECP), Companies (Corporate Social Responsibility) General Order, 2009, “every company shall provide descriptive as well as monetary disclosures of the corporate social responsibility activities undertaken by it during each financial year” (SECP 2010). So now it is regulatory requirement for the companies to disclose CSR activities done in a financial year although it is not mandatory.
The order also states, “The disclosure, wherever required, shall include but shall not be limited to the following:
i. Corporate philanthropy ii. Energy conservation
iii. Environmental conservation
iv. Community investment and welfare schemes v. Consumer protection measures
vi. Welfare spending for under privileged classes vii. Industrial relations
viii. Employment of special persons ix. Occupational safety and health
x. Business ethics and anti corruption measures xi. National cause donations
xii. Contribution to national exchequer
39 Full text of the order can be found in the Appendix.
When asked from the company representative regarding the Corporate Social Responsibility general order, 2009 by SECP. He (MR. X3) mentioned that this law is not compulsory to implement and follow and the SECP and PTA are not forcing the companies to implement it in the company‟s policies and activities. But Zong is already working on the social development of the country from the start of its business in Pakistan. As the parent company China Mobiles is using CSR and is part of its policies, we are also working on it. We also hope that in coming years we will also make it part of our policy.
4.2 Company Profile
China mobile is world‟s largest telecom operator with over 300 million customer base. The company networks route 700 million text messages and handles 250 million calls every hour. The company claims “one of the unique features of China mobile servicing excellence is to customize its products, services and tariffs to suit the individual needs of its huge subscriber base. There are hundreds of payment/tariff options to choose from according to one‟s usage pattern, budgetary limitations and nature of use” (Zong 2010).
China mobile Pakistan (CM Pak) is first overseas subsidiary of China mobile communications corporation (CMCC) that has the license to offer and operate voice, data and all value added services across Pakistan (Zong 2010). China mobile Pakistan which is a 100% subsidiary of China mobile acquired the license from Millicom to operate GSM network in Pakistan. CM Pak started with USD 700 million and so far invested additional USD 800 million till the end of year 2008. CM Pak believes that their competitive edge comes from the experience and expertise of running the world‟s largest telecom service and the commitment they make to setting quality and customer relation standards (Zong 2010).
3 Mr. X representative of Zong Pakistan, identity concealed due to confidentiality and anonymity reasons.
40 With ambitious plans to cater to the fastest growing Pakistan‟s market and to win over the ever demanding Pakistan‟s customer, it will be offering unprecedented coverage, voice and data services as well as a wide range of tariff options to choose from (Zong 2010).
CM Pak's edge comes from the experience and expertise of running the world's largest telecom service and the commitment they make to setting quality and customer relations standards. CM Pak is geared to offer neatly packaged value added services (VAS) products that will benefit the individuals, corporate as well as small businesses. Led by a team of professionals from the field of cellular communication, CM Pak is determined to make its mark in the Pakistan‟s market and to change the way people communicate (Zong 2010).
ZONG is the first International brand of China Mobile being launched in Pakistan. It is meant to empower and liberate the people of Pakistan in every nook and corner of the country. It will become a part of their hearts, their minds and bring about a change in their lives that every one desired but few thought would be possible (Zong 2010).
The core essence of ZONG is to allow people to communicate at will without worrying about tariffs, network coverage, capacity issues or congestion. ZONG will be supported by ground breaking communications, trend setting customer service and an unmatched product offering which will redefine rules of the game and establish ZONG as a serious contender for the number one spot (Zong 2010).
ZONG commits to offer its customers with entertaining & innovative value added services and will empower them by giving a wide variety of products, services & content to choose from (Zong 2010).
41 4.2.1 CSR strategy and management
Company adheres to their core corporate value “Responsibility Makes Perfection and our CSR vision “With perfect sincerity and integrity, we will strive to fulfill our three responsibilities: economic, social and environmental.” China Mobiles believe that only when their business strategy aligns with their social responsibility efforts and CSR program then company as a whole is sustainable. With a strong CSR management system, company has ensured that key CSR performance indicators are fully integrated across their operations, striking a balance between company‟s economic, social and environmental performance and enabling sustainable growth for them as well as for stakeholders (CSR report 2009).
4.2.2 CSR Strategy
In 2009 China Mobiles followed the principles of “integration, focus and development” to improve their CSR strategy. Integration is about ensuring that business and CSR strategy are integrated so they can achieve their objective to grow together with companies key stakeholders‟ (the “stakeholders”) sustainably; focus is about ensuring that the company emphasize on issues that are material to their stakeholders and business; finally, development is about ensuring that in implementing company‟s CSR programs, they contribute to the development of society through innovative solutions based on key issues. CSR vision remains highly consistent with corporate vision: “striving to become a creator of superior qualities.” Looking forward, China Mobiles is actively pursuing the following “4 aspects of quality innovation and excellence” (CSR report 2009):
i. Corporate Excellence:
Through reliable products and services and responsible business models, we achieve sustainable business growth;
ii. Industry Leadership
Through innovation in market expansion, research and development, and partnership models, we seek to set the standard in our industry and share value with our business partners;
iii. Contribute to Social Progress:
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iv. Environmental Advances:
China Mobiles as a parent company of Zong has minimized their own environmental impact while also fully maximizing the power of mobile technology to promote resource conservation and an environmentally-friendly society.
Looking forward, (CSR report 2009) company has designed six major CSR initiatives. At the core of these six initiatives are several basic aspirations: to continuously innovate; to ensure high-quality operations; to align our actions with the needs of stakeholders and drive toward sustainability; to help narrow the digital divide to promote an information society and to support local Chinese innovation; to develop solutions that meet the needs of society and the environment; and to advance implementation of CSR management systems in a way that ensures that our CSR vision, needs and targets are well integrated into daily operations – creating a win-win for business growth and societal contribution. Company‟s six main CSR initiatives for 2010 are laid down below:
o Narrowing the Digital Divide, Advancing Rural Development o Action on Climate Change, Promoting a Low- Carbon Economy o Information for Societal Impact, Developing an Information Society o Caring for the Disadvantaged, Encouraging a Philanthropic Culture
o Responsible and Reliable Telecommunications, Protecting Consumer Rights o Strengthening Sustainability Management, Improving Sustainable Performance 4.2.3 CSR Management
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Figure 5: History and Milestones: CSR Management at China Mobile (Source: CSR report 2009, p.13)
i. Creating an Index to Assess Sustainability
Guided by the best international and domestic theories and practice, company established a China Mobile Sustainability Indexes system in 2009, which allows them to comprehensively assess their sustainability performance and potentials. The company completed their first assessment using the indexes in 2009. Reviewing the performance of all 31 provincial subsidiaries, those were fully examined and identified key weaknesses in their sustainability capabilities and worked to drive towards a model for sustainability (CSR report 2009).
ii. Managing CSR Risk Factors, Improving Performance on Key Issues
In 2009, the company completed CSR risk management pilot projects to identify and improve CSR performance on key issues. In promoting responsible business standards and encouraging best practice in all aspects of business performance – from service development to operational controls – the company ensured that actions across the companies align to three main principles: profitability, rationalism and ethics.
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iii. Monitoring CSR Performance with a Closed- Loop System
In February 2009, company‟s CSR e-platform officially went online. The system allows the company to track status of their CSR performance and implementation in „real time‟ throughout the year. In 2009 company approached business strategy planning and CSR planning as one consolidated effort, ensuring that CSR projects and objectives are integrated into the departments‟ performance evaluations, creating a “closed-loop” approach to CSR management with respect to tracking performance and assessment (CSR report 2009).
iv. Establishing Policies for Consistent CSR Management
In August 2009, the company formally established their CSR Management Policies. The Policies formally describe CSR accountability structures and communication mechanisms between headquarters and its provincial subsidiaries to ensure consistent CSR management across the company. Company received a first class award for Management Innovation in the Chinese telecommunications industry for these policies (CSR report 2009).
The company will continue to build a culture of responsibility. They will gradually ensure that responsible practice becomes a core part of the company and its employees. They will diligently strive to improve the quality of its CSR efforts, continue to operate responsibly and manage their risks and persist in developing innovative information solutions that benefit a sustainable society and environment. Together, these efforts will improve the sustainability of company‟s business. Furthermore, by thoroughly considering and integrating the needs of key stakeholders into their operations and through regular global dialogue on critical CSR issues, the company will continue to work towards achieving world-class CSR performance (CSR report 2009).
4.2.4 Stakeholder Engagement
Stakeholder engagement is an interactive two-way dialogue that allows the company to work with stakeholders towards common objectives. They believe that effective stakeholder engagement allows them to do the following:
� Understand more deeply their impact as a business;
� Respond more quickly and directly to stakeholder concerns;
45 � Better meet stakeholder needs; and
� Improve CSR performance in key areas.
Figure 6: China Mobile Stakeholders (Source: CSR report 2009, p.14)
The company has categorized their stakeholders as shown in figure 6 into 7 major groups: customers, shareholders and investors, employees, government authorities and regulators, value chain partners, industry peers and the public. Based on stakeholder type, they have developed regular mechanisms for engaging with their stakeholders.
46 4.2.5 Corporate Governance
We were unable to find any corporate governance report at the level of Zong but we were able to have the corporate governance report of China Mobile Company which is the parent company of Zong. The corporate governance report of China Mobile Company states the goal of the company is to enhance the corporate value, maintain sustainable long term development and generate returns for the shareholders. To achieve these objectives, the company has established good corporate governance practices following the principles of sincerity, transparency, openness and efficiency and has implemented strong governance structure and measures (CG report 2009). The participants involved in the practice of good corporate governance includes shareholders, board of directors and its committees, management and staff, internal audit, external auditors and other stakeholders including customers, communities, peers, regulatory authorities etc. The company has improved various policies, internal controls and other mechanisms. The company believes that corporate governance goes hand in hand with corporate culture. High standards of corporate governance are built on good corporate culture. Corporate governance principles and policies can only be applied effectively and consistently when a corporate culture that emphasizes honesty and integrity is built. Core value of the company is responsibility makes perfection and the goal of the company is to achieve a harmonious development between enterprise; industry, society and environment (CG report 2009).
47 businesses, data businesses and contract management. The company conducted internal trainings on different laws and regulations including contract law, labor contract law and anti monopoly law of China. Company is doing CSR management to achieve the on-going improvement of CSR performance; the company launched the China Mobile Sustainability Index System and completed the first full assessment of the sustainability capabilities. As per the China Mobiles annual report 2009 The company completed the pilot work for the CSR risk management and launched the China Mobile CSR Electronic Information Platform and set out the CSR Management Measures. The company is listed both in Hong Kong and New York stock exchanges so also required to follow the corporate governance practices under the New York Stock Exchange (NYSE) listing standards (CG report 2009).
i. Compliance with code provisions of the code on corporate governance practices:
The company except the code provision that the roles of Chairman and Chief Executive Officer should be separated and should not be performed by the same individual, has complied with all code provisions of the code on corporate governance practices as set forth in Appendix 14 to the Hong Kong listing rules in the financial year ended 31 December 2009. The roles of Chairman and Chief Executive Officer of the company are performed by Mr. Wang Jianzhou (CG report 2009).
The company believes that the combination of the roles of Chairman and Chief Executive Officer can promote the efficient formulation and implementation of the company‟s strategies which will enable the Group to seize business opportunities efficiently and promptly. The company believes that through the supervision of the Board and its independent non executive directors, checks and balances exist so that the interests of the shareholders are adequately and fairly represented (CG report 2009).
ii. Shareholders:
