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Corporate Social Responsibility and Crony Capitalism in Taiwan

Article  in  Journal of Business Ethics · February 2008

DOI: 10.1007/s10551-007-9385-5 · Source: RePEc

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Journal of Business Ethics (2008) 79:167–177
DOI 10.1007/s10551-007-9385-5
Corporate Social Responsibility
and Crony Capitalism in Taiwan
ABSTRACT. Corporate social responsibility (CSR) has
become increasingly popular in advanced economies in
the West. In contrast, CSR awareness in Asia is rather
low, both on the corporate and state level. However,
recent events have shown that the CSR is receiving more
attention by corporations in Asia. Recent development in
CSR in Taiwan is one example of such a trend. A 2005
survey on the 700 publicly listed companies in Taiwan
on CSR has highlighted the current CSR situation.
Concurrently, the numbers of corporate scandals and
corruption have dramatically increased over the past
6 years. Corporate CSR activities co-existing with
pervasive corporate scandals create a phenomenon of
contradictions. This article aims to report via the survey
findings the current development of business ethics in
corporate Taiwan; and to interpret the findings in context
of TaiwanÕs business ethos, especially its Confucian
familism and crony capitalism.
KEY WORDS: corporate social responsibility, corrup-
tion, Confucian familism, crony capitalism
Introduction
Corporate social responsibility (CSR), as a concept
and a practice, both have become increasingly
Po-Keung Ip, Ph.D., Professor of the Graduate Institute of
Philosophy, National Central University, Taiwan. He is
concurrently the InstituteÕs Director of the Applied Ethics
Center. His research interests include business ethics, bioethics,
and well-being of nations. His recent publications include
Constructing a Social Contract for Corporations (2002),
Business Ethics – Multistakeholder Responsibilities of the
Corporation (2005) (in Chinese). Currently he is working on
a book The Challenge of Corporate Social Responsibilities in
Chinese Cultural Communities.
Ó Springer 2007
Po-Keung Ip
popular in advanced economies in the West. Cor-
porate social responsibility in The United States has a
long history. Religious groups, NGOs and enlight-
ened corporations with their own ethical traditions
and founders have laid down the foundations of the
subsequent development. Government, through its
legislation and regulatory institution has been critical
in promoting the awareness of corporate ethics and
the spread of the practice of business ethics. The
Federal Sentencing Guidelines of the 1991 has been
instrumental in the rapid development of corporate
ethical programs among corporations. Similar
development has been catching up in member state
of The European Union. The most prominent
example is the U.K., whose government has been
providing solid leadership in promoting CSR
development, not only in Corporate Britain, but
within the government itself (Aaronson, 2003). In
contrast, CSR awareness in Asia is rather low, both
on the corporate and state level.
Except of a very tiny minority of corporations
that have global reach and practice, CSR practice is
very limited. However, recent events have shown
that the CSR concept is receiving more attention by
corporations. The concept of CSR as practiced by
prominent western-based multinationals, and widely
accepted in global commerce and civil societies, is
beginning to be taken more seriously by some Asian
corporations than before. Recent development of
CSR in Taiwan is one example of such a trend.
A survey of 705 publicly listed companies in
Taiwan on CSR was conducted in 2005. The results
of the survey served as a basis for CSR awards to
companies that scored high marks on the CSR
indices used in the survey. The questionnaire
included those standards and indices in the OECD
multinational guidelines and other commonly used
CSR measures. A total of 20 CSR indices were
168 Po-Keung Ip
adapted to the local situation. The indices were
constructed broadly on basis of the ‘‘triple bottom
line’’ concept – financial, social and environmental
aspects of CSR. This is the first of its kind in
Taiwan.1
Concurrently, the numbers of corporate scandals
have dramatically increased in the past 6 years. Many
major scandals involved not only high-ranking
officials, but members of the First Family. Even
President Chen himself has been implicated in many
of them. The two secretaries of the PresidentÕs
Office were implicated (with one now in custody
because of corruption charges). More startling still,
the First Lady and other members of the First Family
were involved. ChenÕs son-in-law was arrested for a
number of infractions, including insider trading, and
accepting bribes etc. Among these scandals, corpo-
rate executives and government officials are alleged
to have colluded in various corruptive practices that
stand in stark violation of business ethics and good
corporate governance. Like other newly developed
Asian economies, Taiwan has a long tradition of
crony capitalism. But its most vicious form is
wreaking havoc in the moral foundation of the
Taiwan society. Corporate CSR activities against
this backdrop of insidious and pervasive corporate
scandals create a culture of contradictions.
This article has two objectives: (1) to report the
CSR and business ethics findings with the aim to
understand the current CSR development in cor-
porate Taiwan, and (2) to interpret these findings
against the backdrop of business ethos of Confucian
familism and crony capitalism in Taiwan.
The 2005 CSR survey
A total of 705 publicly traded companies listed in
Taiwan stock exchange were surveyed. The survey
was conducted by mailed questionnaires from March
25 to April 15. About 352 copies of valid completed
questionnaires were returned, representing a re-
turned rate of 50%. The rate of return from the top
200 companies was 73% (Lin, 2005).2
The questionnaire was designed by adapting those
standards and indices in the OECD multinationals
guidelines and other commonly used CSR measures.
A total of 20 CSR indices were adapted taking into
account of the local situation. They broadly included
shareholder rights, customers, employees, commu-
nity, and the environment. Indeed, the questions
were designed to capture the triple bottom line
concept of CSR – financial, social and environ-
mental aspects of CSR. The followings are the key
findings of the survey:
1. Publicly listed companies view shareholdersÕ
rights and employeesÕ rights as the two most
important corporate responsibilities.
2. Honestly paying taxes and following ethical
norms are seen as the way that CSR is being
enforced.
How is CSR practiced in Taiwan? The survey
reveals that ‘‘honestly paying taxes’’ is on top of the
CSR-related actions (77.8%). Following it are
‘‘following ethical norms,’’ ‘‘protecting the envi-
ronment,’’ and improving labor relationships, while
‘‘protecting customerÕs rights’’ and ‘‘practicing fair
competition’’ are at the bottom of the list. These
findings however conjure up an inconsistent picture
of CSR situation in Taiwan. As shown in Table I,
more than 85% of the surveyed companies regarded
protecting the rights of shareholders and employees
as the most important CSR, and more than 60% of
the companies took financial disclosure, protecting
the environment and customerÕs rights as the most
important CSR. If shareholderÕs and employeeÕs
rights were regarded as the most important corporate
responsibility, corporate governance as a CSR
practice where protecting shareholderÕs rights is the
TABLE I
The most important CSR Item
Rank The most important CSR item %
1 ShareholderÕs rights 87.2
2 EmployeeÕs rights 84.9
3 Corporate governance 68.5
4 Financial disclosure 66.8
5 The environment 66.5
6 CustomerÕs rights 63.6
7 Honestly paying taxes 60.5
8 Community relationship 34.9
9 Fair competition 30.7
10 Supply chain management 21.6
 CSR and Cronyism in Taiwan
core concern, should have been placed at the top of
CSR action, instead of being ranked lower (68.5%).
On the other hand, while customerÕs rights (63.6%)
and honestly paying taxes (60.5%) are ranked 6 and
7, respectively in Table I, paying taxes honestly and
protecting customersÕ rights are ranked 1 (77.8%)
and 7 (49.7%), respectively in Table II. These
inconsistencies seem to suggest that what are iden-
tified as important CSR items by the surveyed
companies may not be regarded as having the same
importance as their implementation. The question
remains as to whether the corporate world is aware
of such a gap between idea and practice, or that the
companies just do not mind.
It seems obvious that honestly paying taxes
apparently reflects the greatest denominator of CSR
here. Corporate taxation is a hotly debated issue here
mainly because of its widely perceived inequality
among different sectors and pervasive corporate tax
evasion. The most profitable high-tech sector as well
as the lucrative financial sector enjoy very favorable
treatments that others sectors regard as unfair and
discriminatory. Many big companies, employing
armies of tax experts, are alleged to have habitually
exploited the loopholes in tax laws to lessen its tax
burden. It has been a tradition that many businesses
keep two sets of accounts – one for filing taxes and
the other for private use – in order to avoid taxes. In
such a context, it is not surprising that honesty in
paying taxes, which is a basic legal responsibility,
becomes a corporate virtue.
3. Only 18.2% of companies have published
CSR or Sustainability Report to provide the
companyÕs CSR information to the public.
TABLE II
How CSR is implemented
Rank How CSR is implemented % Rank
1 Paying taxes honestly 77.8
2 Following/respecting ethical norms 76.7
3 Protecting the environment 69.9
4 Improving labor relations 69.6
5 Providing employment 67.9
6 Donation or philanthropic activities 50.6
7 Protecting customerÕs rights 49.7
8 Practicing fair competition 30.1
169
4. Those companies which plan to publish
CSR information will include it in the com-
pany annual report, or publish it on the
company website or report in the sharehold-
ers AGM.
Only 17.6% companies published environmental
report or publish it regularly on the companyÕs
website. About 76.9% companies have the full report
of financial information published on the companyÕs
website.
5. About 21.1% of companies have CSR per-
sonnel or department to handle CSR mat-
ters. About 54.3% of companies claim similar
personnel or department will be established
in the future.
6. About 91.7% of companies declare intention
to learn more about CSR.
7. About 87.9% of the companies have to plan
to integrate CSR into the long development
strategy.
8. About 89.7% of companies have established
employeeÕs code of conduct.
9. About 82.9% of the companies have written
policy prohibiting the acceptance of kick-
backs.
10. The most common practice of employeeÕs
benefits is regular health check-ups, and
personal insurance coverage beyond the
government mandatory insurance coverage.
Less than 8.8% of companies provide child
care services.
11. About 69.8% of companies do not have
employeeÕs unions.
TABLE III
Disclosure of CSR information
Disclosure of CSR information %
1 Within annual report 66.8
2 On company website or shareholder 50.6
annual general meeting
3 Considering disclosure channels 17.9
4 Only disclose financial performance, 12.5
other performance data not yet disclosed
5 Independent report 4.8
6 Others 3.7
170 Po-Keung Ip
With regard to employees relationships, more than
90% of the companies provide regular medical
check-up for employees, and more than 75% pro-
vide in addition to medical insurance and labor
insurance coverage, also personal insurance coverage
to their employees. In recent years, many people lost
their jobs as many companies either closed shop or
simply migrated to the China attracted by the ample
supply of low cost labor. In response to the corporate
migration to China, and to cope with the hard
choices of reducing workforce at home, companies
encourage staff early retirement, liquidation of jobs,
or simply undertake layoffs. About 35.9% of com-
panies provide placement services for lay-off
employees, or apply for government aid in job
retraining or re-employment consulting for
employees.
Freedom of association is a key employee right.
The survey discovers that 69.8% of the surveyed
publicly listed companies do not have labor unions.
More surprisingly, the two leading foundries –
Taiwan Semiconductor Manufacturing Corporation
(TSMC) and United Microelectronic Corporation
(UMC) do not have employeesÕ unions. Both are
major suppliers of chips and electronic components
for major multinationals like Intel, IBM, Motorola,
Dell, most of which have codes of ethics for sup-
pliers. Respecting workersÕ right to form free unions
is one key component of these codes. One widely
heard explanation of this phenomenon is that the
interests and welfare of employees in these compa-
nies are so well looked after by the employers that
the employees see no need to form unions to fend
for their rights. Whether this is the real cause behind
the no-union phenomenon requires further probing.
12. About 53.6% of companies claimed they
used CSR criterion in selecting suppliers.
Only 21.6% of the companies viewed the
supply chain management as an important
CSR task. Given the status of CSR develop-
ment in Taiwan, a fair reading of this result
should be – suppliersÕ reputation or responsi-
bility in a general sense is taken into account
in their selection. This means the selection is
not subjected to the same rigorous and for-
mal procedures in the procurement policies
as taken by CSR-regarding companies like
LeviÕs or NikeÕs.
13. About 68.3% of the companies donated
monies to social charities (philanthropic,
academic, educational, cultural, art). Last
year, 19.7% donated funds for environmen-
tal cause.
14. About 45% of companies have established
independent board directors. Among those
companies that have not had independent
directors, more than 60% said independent
directors would be set up within the com-
ing 3 years.
Almost 90% of companies said to have its code of
ethics, of which 83% prohibited their employees to
accept kickbacks. The codes of ethics claimed by
companies to possess seem to be of the generic
ethical guidelines, and not as elaborate as those in
Western companies. Over all, a majority of com-
panies surveyed do not have much knowledge about
CSR report or sustainability report.
The 2004 Corporate Ethics Survey
In addition to the 2005 survey reported here,
another survey on publicly listed corporationsÕ per-
ception on the importance of ethic was conducted
from April 28 to May 5 in 2004. The directors of
human resource department of TaiwanÕs 1137
companies (which included 672 publicly listed
companies) were surveyed by mailed questionnaire.
The return rate was 35.3% (Lin, 2004).
The key findings are:
About 74.7% of companies rated job applicantsÕ
personal ethics as more important than their profes-
sional aptitudes, in staff recruitment. Within these
companies, 80% of the companies in the finance and
service sector rated personal morality as the single
most important factor in selecting the prospective
staff. For these companies, integrity and sense of
responsibility are the two key components of personal
morality. Companies in the financial and traditional
manufacturing sector took integrity as the top quality,
while high-tech companies and service sector com-
panies viewed sense of responsibility as the most
valued moral quality of the staff. About 85.9% of the
surveyed companies had code of ethics for employees.
About half of the companies surveyed would termi-
nate the service as sanction for unethical conduct.
 CSR and Cronyism in Taiwan 171

About 95% HR directors agreed that the ethics of the Commercial activities are active in Taiwan.
CEO served as good models for employees of the People here are eager to own and run businesses.
company. One interesting finding of the survey is that There are a million registered companies, the
when the HR directors were asked to identify the majority of which are medium and small family-
most ethical entrepreneur in Taiwan, about 24% of owned companies. Despite its advanced hi-tech
them indicated there were none. clout and strong traditional manufacturing basis as
The combined findings of these two surveys well as its highly commercial environment, there is
provide a preliminary CSR picture of Corporate low awareness of the modern sense of CSR. This
Taiwan. does not mean that businesses in Taiwan are obliv-
ious to business responsibility to society. Traditional
philanthropy is a venerable business tradition and is
Business ethos in Taiwan still widely practiced. But the concept of CSR
current in todayÕs global business circle is pretty
Taiwan over the last 3 decades has successfully much a foreign idea here.
developed a formidable manufacturing base, and has Broadly speaking, the bulk of business ethos in
demonstrated its awesome production capacity as an Taiwan is a blend of the old and the new. Alongside
able supplier of a wide variety of products for wes- its high tech counterparts, the traditional business
tern multinationals, including IBM, Intel, Dell, sector and its culture are active and alive. Indeed,
Motorola, and Nike. So prominent was its role as a traditional business culture is but a reflection of a
key global supplier of computer chips and other boarder culture which sustains it. This is a culture of
equipments that when an earthquake struck the Confucian familism which contains authoritarian-
island on September 21, 2001 and halted the wafer ism, collectivism, paternalism, familism, ancestor
production lines in Hsin Chu Industry Park, the worship, affective quanxi, hierarchy, and social
supply of computer chips to world market was dis- harmony as its core elements. Highly valued virtues
rupted. According to Business Week (May 16, 2005), like honesty, loyalty, hard-work, thrift, and humil-
Taiwanese companies contribute significantly to the ity, among others, are still pervasive in the traditional
global digital economy. The following is a list of the manufacturing sector (Shihma, 2005). The President
most notable output and their respective rankings, Group, which originated from the legendary Tai
market share and worth: Nan Business Group in Tai Nan typifies such a
business ethos (Hseih, 1999). The giant Taiwan
Plastic Group, headed by its founder and patriarch
Wang Yong-hing is another major corporate
representative of traditional values.
Rank Products Market share Worth The companies that manifest modern business
in % (in billion U.S.)
ethos are mainly found in companies in the tech-
1 LCD monitors 68 14 nology sector. They are largely concentrated in the
2 Servers 33 1.8 technology parks along the 100-km technology
1 Cable modems 66 0.4 (480 million) corridor from Hsin Chu to TaipeiÕs Neihu district.
2 Digital still camera 34 2 TSMC, UMC, Asustek, Acer, Quantan, Compal,
1 Chip foundry 70 8.9 and Hon Hai are the most notable ones. TSMC and
services UM are the two largest global foundries of micro
1 Semi-conductor 36 3.4 chips which power computers, digital cameras and
packaging other electronic gadgets. These and many others
1 PDAs 79 1.8 companies are run by professional managers, many
1 Notebook PCs 72 22 of whom have overseas working experience in major
2 TFT-LCD panels 35 7.6
multinationals, especially in the high tech area in the
1 Wireless LAN 83 1.3
equipment
U.S. For example, Morris Chang, Chairman of the
TSMC, a highly regarded corporate leader in the
(Source: Business Week, May 16, 2005, p. 18). high tech sector, worked in Texas Instrument before
172 Po-Keung Ip
returning to Taiwan. These managers are well
connected to the global business world and are
familiar with the business ethos of the western
world. The way these companies are run conforms
very much to modern western style of management,
albeit with Taiwanese characteristics. Efficiency,
quality, competition, speed, competence are the
core values of these companies. They put a greater
premium on competence, innovation and quality
and give less emphasis on traditional virtue of
loyalty.
Until the 2005 CSR survey, very little is known
about the extent these modern companies are
committed to business ethics and to corporate social
responsibilities, except some scattered anecdotal re-
ports in the media. Some companies in the financial
sector recently began to show some CSR activities.
Hsin Kuang Financial Loan and Services Corpora-
tion, one of the 14 financial loan and services
companies here, has lately adopted a code of ethics
for both the board members and employees at large.
The codes include provisions to report illegal
activities as well as unethical conduct, and to assure
employees that reporting illegal and unethical con-
duct would not be harassed, threatened, and retali-
ated against. The code also contains norms for the
behaviors of directors, managers towards customers,
traders, competitors, including prohibiting them to
engage in corruptive activities (United Daily, May
18, 2005).3
Ethics in practice – two cases
To supplement the above discussions, I report two
cases of business ethics activity undertaken by two
high-tech companies – Asustek and TSMC. Asustek
is a global manufacturer of notebook and computer
mother boards. Recently, it has implemented ethical
performance criteria into its staff annual performance
audit. It is arguably the first of its kind in the tech
sector.4
The scores related to the ethical criteria constitute
15% of the total performance scores. They consist of
five virtues – humility, honesty, hard-working,
wisdom, and courage. Staffs are assessed against these
5 virtues to gauge their ethical performance. The
aim of this newly introduced exercise is to alert staff
members to the importance of ethics in their work,
and encourage them to continuously to reflect and
improve on these areas. The exercise also intends to
underscore the critical status of ethics in AsustekÕs
corporate culture. Why humility is placed as the top
of the 5 business virtues? For CEO Shih Zhong-
tong, the past success of the company may have
created a culture of false superiority and compla-
cency among staff members, which may pose a
threat to sustainable growth, and should therefore be
controlled and avoided. The ethical assessment
applies to all the units and departments of the
company, as well as all subsidiaries over the globe.
Different units and department can adjust the
weightings of these ethical criteria to meet their
specific situation. Such an assessment exercise is
aimed to foster understanding of the core values of
the company. In a letter to his staff, Shih alerted
them that while the companyÕs phenomenal growth
and material success had benefited from their
devotion, it would be necessary to begin to develop
the more abstract and intangible corporate culture
that would help to sustain success. This new inclu-
sion reportedly is supported by a majority of its staff,
who claim that ethics have always been AsustekÕs
tradition. The difference is that this time ethics have
been made explicit in the staff performance process.
The business ethos of speed, ruthlessness, and
accuracy has long been championed as the norm of
success by the computer industry here. Ethics
apparently do not play a significant role in the suc-
cess equation. AsustekÕs recent ethics initiative thus is
worth noting.
Another company worth mentioning is TSMC.
In the 2004 Corporate Ethics survey, 20% of those
surveyed rated Morris Chang, Chairman of TSMC
as the corporate leader with the most integrity, and
TSMC as the corporation that has the best reputa-
tion. According to Morris Chang, one of the core
corporate values of TSMC is the commitment to the
highest professional ethics. This includes truth-
telling, no exaggeration and showmanship, promise-
keeping, compete within the confines of law,
prohibiting vicious attack on competitors, and
objectively and fairly selecting suppliers. Integrity is
at the top of the 10 business values of TSMC. (Global
View Magazine, June 1, 2004, p. 198) Character and
talent, not the widely practiced guanxi, are the two
key criteria for recruiting new staff. When a choice is
to be made between character and talent, character is
 CSR and Cronyism in Taiwan
chosen over talent. In TSMC, a very talented person
who is deficient in character will never be recruited.
Confucian familism and crony capitalism
No examination of business ethos in Taiwan is
complete without some understanding of its
underlying culture. The two major cultural strands
that sustain business are Confucian familism, and the
Taiwanese form of crony capitalism. This section
briefly examines the key features of these two cul-
tural strands and their implications for business ethics
in Taiwan.
Crony capitalism is interpreted here as a capitalist
political economic system where the allocation and
distribution of opportunities, interests, benefits or
resources are overwhelmingly based on personal
relationships or quanxi in Chinese culture, where
familial ties stand as a critical determinant in the
process. Embedded in the process is a cozy rela-
tionship between some selected groups of business
elites and political elites, which manifest a certain
form of patron–client interdependence and exchanges.
The political elites depend on the financial and
material contributions of the business elites for
staying in office and power. The business elites, in
return receive from the politicians they supported
special favors or privileges in the form of export
license, low-interest loans, government subsides,
special tax breaks, or securing big public-funded
projects through rigged bidding, at the expense of
other competitors and the public interest (Kang,
2002). These self-serving personal relationships easily
lead to corruption and rent-seeking, seriously com-
promising the integrity and fairness of economic and
political processes. The activities involved in cro-
nyism clearly violate the avowed principle of free
and fair competition, rule of law, market rationality,
and state neutrality of the capitalist system, among
other things.
The patron–client relationship embedded in the
cronyism has 3 important features – personalized,
hierarchical and long-term (MacIntyre, 2006; Scott,
1977). The personalism of the relationship allows
only those who have personal relationships for
preferential treatment or special favors. The rela-
tionship is a long term one that built on family ties,
friendships or working relationships. Furthermore,
173
such a relationship is hierarchical, with the political
patron at the top, while business clients at the bot-
tom of the hierarchy. The businessmen always show
a certain kind of feudalistic submissive dependence
while often eager to curry favors from their political
patrons by regularly bribing them.
There are common characteristics of the Asian
brand of crony capitalism. First, underdeveloped
basic institutions – political authoritarianism,
immature parties politics, weak legal system, cor-
rupted bureaucracy, docile citizenry, nocuous social
capital and pre-democratic leadership, among other
things, have provided fertile soil for the growth of
crony capitalism. Second, a few privileged powerful
families are the key actors and beneficiaries of crony
capitalism. Favors and special privileges are con-
centrated in the hands of a few powerful families
whose members are political and/or business elites.
This small incestuous group always forms an inter-
locking oligarchy of special interests and corruption.
Third, cronyism not only occurs in the political-
business nexuses, it finds itself manifested in various
forms at all levels of society (Chong, 2001).
Confucian familism (Ip, 1996) which is the
dominant culture in Taiwan society helps shape a
Taiwanese version of crony capitalism. Confucian
familism places the interests and values of the family
at the apex of the value hierarchy. The family stands
as a supreme and dominating entity where power,
value, prestige, honor, and wealth are concentrated.
Family power, interests and values should at all times
be maintained and perpetuated. The interests and
values of individual members are subsumed under the
interests and values of the family. When the two
come into conflict, the individualÕs interests and
wishes should be restrained or suppressed in favor of
those of the family. Non-family membersÕ interests
should be seen as secondary to those of family
members. When a conflict of interests occurs be-
tween family members and non-members, the
interests of family members should be protected at
the expense of those of non-members. The moral
universe as shaped by Confucian familism is one in
which the values and interests of the family and its
members reign supreme, among communities of
moral agents. The flourishing and aggrandizement of
the family interests are to be actively pursued often
with religious zeal and always at expense of the public
interest. As such, Confucian familism has a natural
174 Po-Keung Ip
affinity to cronyism. Therefore, it is not surprising to
see that crony capitalism find a superb nurturing and
supportive environment in Confucian familism.
As a newly developed democracy, the legacy of
authoritarianism of the former ruling party Kuo-
mintangÕs (KMT) era still resonates at many levels of
TaiwanÕs public and private lives. Cronyism, which
was a fact of life during the KMT-ruled party-state, is
still pervasive in the Democratic Progressive Party
(DPP) - run government. Since the first democratic-
elected president Lee Teng-hui was elected, money
politics has been part and parcel of the political,
economic and social lives. The relationship between
politics and business has always been cozy, and very
often too cozy for social justice. Systemic corruption,
though active and extensive, was kept a low profile.
Things however began to turn when the KMT was
replaced by the DPP in 2000. Since then, corruption
not only has not diminished or become more
restrained, but has become increasingly rampant and
more extensive. Crony capitalism has become more
pronounced and fearless. Most noticeably, President
Chen Shui-ban and his family and cronies have
become the defining symbol of crony capitalism
out-of-control. They were accused of committing a
plethora of major misconducts and crimes typical of
fragrant cronyism. The allegations against them range
from improper political interference of private busi-
ness activities, conflict of interests, insider trading,
improper political lobbying, undue political influ-
ence, dereliction of duties, corruption, falsification of
documents, embezzlement of public money, money
laundering, and lying, among other things. Taiwan
society was shocked to the root by such extensive and
fearless corruptions and scandals that are alleged to
have taken place at the very top of political power.
Though the President has responded to the allega-
tions by offering explanations and public apologies,
he has failed to convince the public that he was telling
the truth. The public has lost trust in the president.
Despite repeated callings for his resignation, Presi-
dent Chen still holds on to power and has used
various tactics to divert attention.
Out-of-control cronyism
To understand more fully the extent of TaiwanÕs
cronyism, it is useful to briefly look at some major
allegations of corruption and misconduct against
President Chen and his family members and
cronies.5
The latest allegation of corruption against Presi-
dent Chen concerns an alleged accounting fraud in
the presidentÕs state affairs expense account, which is
supposed to be used exclusively by the president for
subsidizing public events or awarding worthy causes.
It was disclosed since August 2006 that receipts from
private citizens for their private consumption were
fraudulently used to claim the expenses. Notwith-
standing the public statements from the presidentÕs
office responding to these allegations, these expla-
nations left many questions unanswered. Indeed, the
credibility of the presidency has been eroding long
before his second term of office as a string of cor-
ruption scandals and improper acceptance of political
contributions from business people were revealed.
Despite his repeated public denials, the credulity of
his presidency is at all time low hovering at round
18% of public support in repeated public opinion
polls. On November 3, President Chen and the First
Lady were officially charged for corruption and on
falsification of documents. Due to the presidential
constitutional protection, President Chen is immune
to criminal prosecution while in office. However, he
is still subject to prosecution once his presidency
expires, or when he is voted out of office by recall
(China Times, Nov. 14, 2006).
Apart from his own problems, members of his
family have been accused of many improper con-
ducts ranging from abuse of presidential prerogatives
and privileges, insider trading in the stock market,
corruption and exercising undue influence over
private business activities. The First Lady, Wu Shu-
jen, who stands at the center of many controversies,
has a passion for trading shares in the stock market.
Bodies of evidence have shown that she is highly
suspicious of securing unlawful gains on various
counts of insider trading. Her performance as a stock
trader was so impressive that she was sarcastically
nicknamed ‘‘the Goddess of the stock market.’’ Her
habit of trading in the stock market had carried on
uninterrupted during most of ChenÕs presidency.
Not until she behavior created great social uproars
that the president, succumbing to public pressure,
finally restrained his wife from trading. In addition to
her passion for share trading, the First Lady has also a
craving for luxury goods, and especially fond of
 CSR and Cronyism in Taiwan
shopping at high-end department stores. Among
other charges, she is accused of influence paddling
concerning an ownership dispute of a major retail
department store, SOGO. It is alleged that Wu has
received millions worth of the department store
coupons from the business people who hoped to get
her support in influencing the ownership decision in
their favor. As the First Lady has no official position
in the government, the fact that business people
eagerly flock to her to curry favors in major
corporate activities is a telltale sign of high-level
cronyism in action, and possible abuses of power at
the top. Indeed, without the approval and
endorsement, implicit or otherwise of the president,
the first lady could not have amassed that kind of
influence and authority. The business elites, being
veterans in cronyistic dealings, are shrewd enough to
know where the real influence lies. That the first
lady has literally played the role of an overlord
demonstrates the depth and breadth of the cronyism
under ChenÕs presidency.
The other member of the first family who has
attracted equal notoriety is ChenÕs son-in-law, Jhao
Jian-ming. He, conspiring with his parents, has been
accused of insider trading of shares of the Taiwan
Development Corporation (TDC), from which they
profited handsomely. At the time of writing, Jhao
was formally charged for the crime. Furthermore, he
has also been accused of exercising improper influ-
ence on the personnel matters of the company and
securing loans for the company from state-run
banks. Also, he has been alleged in receiving bribes
worth of millions from officials who want to use his
influence to secure a high position in government.
Separately, Jhao, together with his father and
younger brother, has been accused of having
received commissions or kickbacks amounted to
millions of dollars from some major pharmaceutical
companies in exchange for his influence to secure
government procurement of their products.
Furthermore, Jhao has used the names of his body
guards and his family members to open accounts to
launder money on his behalf. In another incident, he
is alleged to have accepted an amount of 270 million
NT dollars from a businessman named Chen Jean
Fong to get the directorship of the National Finance
Corporation. Jhao has been accused of improperly
lobbying through an intermediary the then Financial
Secretary Lin Chuen and the First Lady on the
175
matter. All these misconduct would not have
been possible had Jhao not had the blessings of the
president.
In addition to his family members, President
ChenÕs close associates have been accused of
involving in several major corruption scandals. Chen
Che-nan, the former Deputy Secretary General of
the Presidential Office, has been alleged in several
corruption scandals and counts of obstruction of
justice, as well as conducting speculative trading in
the stock market and insider trading. One major
scandal he has been accused of deep involvement
concerns a multi-billion subway construction project
in the southern city of Kaohsiung. It has been alleged
that he bribed the officials to rig the bidding process
in favor of the businessmen who had bribed him.
Also, he has been under investigation regarding
money laundering in connection with various cor-
ruption activities, as well as undertaking a serious of
stock speculations during his tenure, in violation of
government public servantÕs code of conduct. On
December 13, Chen was sentenced by the court for
12 years of imprisonment on charges of bribery and
abusing his office for illegal gains (China Times,
December 14, 2006).
Ma Yong-ching, the presidentÕs former Assistant
Deputy Secretary General, like his superior Secretary
General Chen, is also a controversial political figure.
Widely seen as a functionary who handles the secret
and shady deals behind the scene on behalf of
President Chen, Ma has been accused of securing
many deals between the President and powerful
business elites who have made substantial political
contribution to Chen in his two presidential cam-
paigns in return for special business favors. The
major allegations against him include: he actively
involved in lobbying on behalf of business elites
from whom he accepted bribes to secure position of
directorship of a couple of state-run or private
financial corporations; together with Secretary Chen
undertook stock speculative trading in the stock
market; served as a go-between for the merger
exercise of Cathay Financial Corporation and
Seven Commerce Bank; acted behind-the-scene to
pressurize the officials concerned to approve low-
interest loans to TDC; helped a person to secure a
position in the board of director of the TDC;
intervened in the personnel matter of the state-run
Taiwan Fertilizer Company. (United Daily, June 2,
176 Po-Keung Ip
2006) Serving as the presidentÕs ‘‘white gloves’’ (a
label locals use to describe someone doing shady
deals for the master), both Chen and Ma gained
unparallel influence and power that many business
elites are eager to get access to. As a result, they and
their family profited enormously in material and
political terms. However, when things turned bad,
they were the one who carried the brunt and served
as scapegoat for their master. This is what has actu-
ally happened. As result of the extensive allegations
and accusations against them, the two were forced to
resign as a tactic to calm down public resentment.
In addition to those corruption allegations against
President Chen and his cronies, there are other
major scandals that attracted media headlines. Two
recent billion-dollar mega public projects – the
highway electronic toll system (ETC) and the
Taiwan high-speed train are shrouded in heavy
suspicion of massive corruption. These and other
corruptions and scandals have earned Taiwan an
unenviable title of the ‘‘Republic of Corruption.’’
As more and more evidence are exposed, it is
apparent that a powerful corruption ring has been
formed at the apex of state power with the president
and his cronies as the key players. Taiwan is no
stranger to corruption. Indeed, the pervasive cor-
ruption committed by the ruling KMT was a major
cause for its downfall in the 2000 presidential election.
People chose the DPP to replace the KMT mainly
because they naively believed the DPPÕs promise of
clean and honest government. In fact, during more
than six years under the DPPÕs rule, corruption in
Taiwan has not diminished but instead become more
extensive, aggressive and shameless. It comes as no
surprise that the DPP, like any other political parties,
is also easily succumbed to corruption and bribery.
What is shocking, however, is the spectacular speed
that DPP to have gotten itself and society so exten-
sively corrupted. Regarding the extent and depth of
corruption in society, what has taken the KMT
government five decades to accomplish, the DPP
government with President Chen as its ringleader has
successfully accomplished in just 6 years!
Conclusion
What is presented here and recently exposed in the
media may prove to be only the tip of a systemic
corruption iceberg. When the recent CSR efforts of a
small number of corporations are seen in the context
of this scandal-ridden environment, one cannot help
but worry about the fate of CSR in Taiwan. The
CSR initiatives and the cronyism seem to represent
two forces pulling in opposite directions. Given its
early stage of development, the upward lift of the
fledgling CSR activities looks feeble and thus
vulnerable to the awesome downward pull of the dark
forces of cronyism. The burden of culture and history
seem to stand on the side of the dark forces. Taiwan
society at this juncture seems to be overwhelmed by
the darkness of corruption and scandals. The impact of
this tiny uplifting force of CSR effort seems incon-
sequential in sustaining a positive change. Is there any
future for Taiwan CSR or business ethics in general,
under the burden of crony capitalism?
To take a longer view of the situation, one may see
this as a kind of growing pain that a young democracy
has to go through. Cronyism and its bad conse-
quences are hurdles that a society has to overcome to
gain maturity and modernity. But not all society can
manage cronyism and its bad consequences with
endurable success. Whether CSR will finally take
root and flourish in Taiwan depends very much on
how cronyism and Confucian familism can be
effectively controlled and transformed. There are
hopeful signs that the Taiwan society is willing to
engage in more open and ethical ways of doing
business. The recent efforts by the Global View
Magazine to conduct CSR surveys and grant CSR
awards to ethical corporations, and the Business
Council for Sustainable Development – Taiwan
efforts in promoting CSR implementation and
education, are positive signs of progress. Further-
more, the government has taken some modest steps
in aiding the development of corporate CSR. Since
2002, the Investment Bureau of the Department of
Economic Affairs has been actively assisting Taiwan
companies to develop CSR-oriented business strat-
egies, locally and overseas, highlighting the impor-
tance of creating positive contribution to local
economy, social development and the environment
of the host countries.6 Indeed, sustainable political
and cultural reform, clean and efficient government,
judiciary reform, responsible business, effective laws
and their enforcement, concerned citizens, benign
social capital, and moral leadership are the crucial
factors that can lift a society out of its corruptive
 CSR and Cronyism in Taiwan
descend. Whether Taiwan society is willing and ready
to engage in these change factors only time can tell.
Acknowledgments
The author thanks the publisher of the Global View
Magazine for permission to access and use the survey
data for writing this paper.
Notes
1
Following the 2005 CSR survey, Global View Maga-
zine also conducted a similar survey in 2006. This article
discusses only the 2005 survey results.
2
The author served as consultant to this survey and
helped designing the questionnaire of the survey.
3
United Daily and China Times are two leading
Chinese newspapers in Taiwan.
4
Sources for this case: Global View Magazine, Nov.
27, 2004, Commercial Times, Dec.1, 2004 (in Chinese).
5
The source is from many editions of the two leading
Chinese papers, China Times and United Daily.
6
As of today, the bureau has completed the following
tasks – completed a Chinese version of the OECD
Multinationals guidelines; from 2002 to 2004, con-
ducted CSR promotion activities, seminars, CSR sur-
veys, and CSR standards and assessments; in 2004
published a case book on CSR, documenting thirteen
case studies of CSR activities undertaken by Taiwan
corporations, established a Taiwan CSR website; in col-
laboration with Global View Magazine to launch the first
CSR Awards; 2006 published a book on foreign invest-
ment by Taiwan business named Responsibility and Profit
– Globalization and the New Ways to conduct business
by Taiwan Companies. National Sustainable Develop-
ment Commission, a high power state body responsible
for coordinating and developing sustainable develop-
ment strategies and policies in a 2006 April meeting
decided to strengthen CSR as a part of the sustainable
development policy (Hsu, 2006).
View publication stats
177
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