The profound economic and social transformation that has taken place since the beginning of the 1990s has not resulted in the rise of shareholder capitalism in Hungary. There are still very few Hungarian business enterprises which can be rightly called large-scale public corporations. In other words, few domestic large- scale publicly held business corporations operate in the Hungarian economy to which the original concept of corporate social responsibility can be properly ap- plied. The governance and ownership structure of the Hungarian enterprises mainly resemble the blockholder system of the continental Europe. Their stock market capitalisation is very low. Because they are not listed companies and their shares are not publicly traded, the coalition of a limited number of owners (“blockholders”) controls them. (World Bank & International Monetary Fund, 2003). Privatisation primarily served the purposes of selling state-owned compa- nies to strategic investors, maximising the revenues of the state, encouraging the inflows of foreign direct investment, overcoming the debt crisis, increasing pro- ductivity, downsizing, formatting a competitive market, innovation, job creation and the reorientation of labour. It did not promote the rise of shareholder capital- ism. In some public offerings only a thin fraction of shares was sold in the stock market, therefore their minority holders could neither influence nor control the business activities of these large-scale public corporations. In opposition to the Polish and the Czech attempts, the Hungarian privatisation did not intend to trans- form the former state-owned corporations into large-scale public corporations with dispersed ownership structure. The dominant allocation mechanism was private sale to a selected group of investors and not public offerings of shares via the stock market (Biais & Perotti, 2002; Dewenter & Malatesta, 1997; Roland & Ver- dier, 1994).
As in the European economy, the majority of the Hungarian firms are small and medium-sized enterprises usually held in groups with complicated cross- ownership structures (VIP, 2003). This pyramid type of organisational structure raises many agency problems both for the owners and the managers of these firms (Shleifer & Vishny, 1997; Mallin & Jelic, 2000). Their managements are mainly dependent on the ultimate owners’ decisions, whose intentions and long-term pur- poses are not particularly transparent. Since they are not public corporations they are not obliged to publish quarterly financial reports, social and environmental accountings and other public documents relating to their activities. Because of the pyramid type of economic organisations they usually do not act as distinct eco- nomic actors, therefore their responsibilities, accountabilities and business policies towards their stakeholders are difficult to identify. In this type of firm, the rela- tionship-based system of governance is predominant in opposition to the rule- based one. Many of them are affiliates and subsidiaries of large-scale or even mul- tinational corporations without following similar standards or being acquainted
144 László Fekete
with the value statements of their owner companies. Because the pyramid type of organisational structure of firms poses extra challenges, especially for the transi- tion economies, many authors in the management literature discuss it critically.
They indicate that the dismantlement of pyramids is a preliminary condition for making fair, ethical and transparent business. Nevertheless, La Porta, Lopez-de- Silanes and Shleifer (1999) find that approximately 25 % of the firms in their rep- resentative samples taken from the twenty-seven most developed countries are members of pyramids (McGee & Preobragenskaya, 2004). Other authors are much more empathetic towards the pyramid type of organisational structure. They em- phasise the importance of technology-driven fragmentation and disintegration of production and distribution, which offers new opportunities to small and medium- size enterprises to integrate into the global network economy (Zysman &
Schwartz, 1998). As to the ethical institutions and documents of the small and medium-size enterprises, few of them have codes of conduct, announce value statements or organise ethics training for their managements and employees. Ac- cording to the representative survey of more than 400 Hungarian companies made in 1997 only 15 % of the small and medium-size enterprises have codes of con- duct, value or policy statements. Stakeholder management, partnership pro- grammes, ethics officers, social and environmental reports were practically un- known institutions to them. It does not mean, of course, that the owners and the managements of the small and medium-size enterprises would be ignorant of the importance of ethical conduct in business. Their social responsibility strategies, however, are poorly documented and not particularly institutionalised. Although, the EU Green Paper (Commission of the European Communities, 2001) uses the notion of corporate social responsibility a bit loosely as it applies the term to all types of business enterprises, many survey researches show that industry, size, ownership and organisational structures, domestic, cross-border and multinational business activities play an important part in formulating and implementing ethical programmes (Spence, 1999; Jenkins & Hines, 2003).
In Hungary more than 40 of the 50 largest multinational corporations operate di- rectly or via their affiliates and subsidiaries. Because the contributions of multina- tional corporations to the GDP are more than 50 % and they employ 30 % of the labour, the economic and social impacts of their operations on the Hungarian soci- ety and economy are enormously significant (Kaminski, 1999). Besides the posi- tive spillover effects of the total factor productivity increase, managerial expertise, technological transfer, new organisational arrangements and foreign direct in- vestment as well as implementation of a new corporate culture are certainly an important factors in the current transition as well.
Despite the growing influence of the new corporate culture in economic conduct the question of whether the multinational corporations foster corporate social re- sponsibility, stakeholder management, social and environmental accounting, and other ethical institutions has not been seriously scrutinised so far in Hungary. The
Hungary – Social Welfare Lagging Behind Economic Growth 145
first difficulty is of linguistic nature. The notion of corporate social responsibility sounds a little bit mannered, even if it can be properly translated into Hungarian.
Until recently it has been used in self-centred bureaucratic and managerial dis- courses rather than in everyday discussions. In addition, corporate citizenship is almost totally absent from the political and economic language. If a corporate speaker uses such figurative language in public discussions, he runs the risk of perplexing his audience. Of course, it does not mean that Hungarian society and the business community are unaware of the importance of fair business conduct.
They simply express their views, the demands of the community and social needs in a more familiar language and not in the fashionable mode of speech of the busi- ness ethics literature. The leading daily and weekly newspapers and the economic press habitually discuss economic subjects from the ethical point of view. Accord- ing to my estimation, in the last ten years the newspapers each day published at least five articles, interviews, and editorials which used moral arguments and called attention to the outstanding importance of fairness, accountability and re- sponsibility in economic conduct. The findings of the latest survey research con- firm that, 93 % of the people receive information about the social responsibility policies of the corporations from the press (Szonda Ipsos, 2003).
Interestingly enough, multinational corporations do not make great efforts to in- form their clients, customers, business partners and the Hungarian public in gen- eral about their mission statements and their corporate social responsibility poli- cies towards society. Multinational corporations usually do not take the burden of publishing and popularising their social responsibility policies, social and envi- ronmental reports in Hungarian. For instance, on Nokia’s Hungarian website there is no reference at all to its ethical guideline and value statements. Nokia’s Corpo- rate Responsibility Report 2003 and other ethical documents are available in sev- eral languages, except for Hungarian. The same practice applies to the majority of the multinational corporations, for instance, to Siemens, Electrolux, IBM and Flextronics. Multinational corporations appear to Hungarian society more like cosmopolitan sojourners than corporate citizens. Among the multinational corpo- rations only few – Novartis, Philips, Samsung and Unilever – briefly inform Hun- garian society about their business conduct and core values. These short value statements at least reveal that the vocabulary of the discourse between the corpora- tions and society goes through some changes and is becoming partly moral and social in character.
As far as action is concerned, these value statements seem to represent the strate- gic incentives of the multinational corporations rather than strong commitment to comply with the ethical requirements of society towards the business community.
To be sure, the motivations of the investments and operations of the large-scale multinational corporations in Hungary are purely economic. They take advantage of the cheap, disciplined and educated labour, the proximity of the Western and the Eastern markets, the economic benefits of the enlargement of the European
146 László Fekete
Union, the tax subsidies of the state and the local governments and the overall enabling environment of the country (HVG, 2004). If the original conditions change and become less favourable from the point of view of corporate profits, or if the tax subsidies of the state terminate, multinational corporations frequently choose to divest their mobile investments. Instead of following the recommenda- tion of the EU Green Paper (Commission of the European Communities, 2001), namely “adaptation to change”, many corporations – IBM Storage Production, Mannesmann, Salamander, Kenwood, Philip Morris, and others – divested in the last few years. Mission statements or corporate philanthropy do not make up for the economic and social consequences of their divestments. As I have pointed out above, the mission statements of the multinational corporations and the Hungarian public do not speak the same language. It is banal to say that a common language is a preliminary requirement for stakeholder dialogue. Due to their disregard of the local culture it is hard to find any country-specific remarks in the corporate social responsibility documents of the multinational corporations and explicit references to the geographical place where they operate in their environmental accounting.
Therefore, few examples can be recalled which demonstrate that multinational corporations take a proactive stance towards the general welfare of Hungarian so- ciety. Especially, General Electric, MOL, ING Group, Levi Strauss and Richter among the multinational corporations and TVK, Pharmavit, and Architekton among the large firms show that corporate social responsibility policy is an impor- tant factor of their strategic purposes.
In spite of the above-mentioned examples the corporate social responsibility poli- cies of the majority of multinational corporations can be characterised as mainly instrumental. For the majority of multinational corporations, corporate social re- sponsibility merely confines to philanthropy, strategic and cause-related marketing (Melé & Garriga, 2004). They usually finance entertainments, exhibitions and shows. A few years ago the Béghin-Say sugar company financed the performance of Grimm’s Sleeping Beauty in Budapest Circus. The old fairy tale was com- pletely rewritten and made to serve the marketing purposes of the company. The actors made the old story into a pretext for singing songs, praising the latest candy bars of Béghin-Say. The new moral of the old story was the joy of sugar consump- tion. Multinational corporations are especially active in supporting schools to or- ganise sport and artistic competitions for children in order to promote their brand names and new products and to convert children to faithful consumers. The phil- anthropic donations rarely contribute to the creation of new and highly original achievements in creative and performing arts but capitalise on the popularity of such pseudo-artistic happenings like “The Three Tenors” or the nostalgia concerts of the past celebrities of popular music. Sport competition is also a case in point.
As sports results have lost the ideological justification of the superiority of one nation-state over the other, it is becoming more and more part of the private port- folios of the multinational corporations. As far as cause-related marketing is con- cerned, telecommunications companies are particularly skillful at mixing up their marketing with their corporate social responsibility policies. The donations of
Hungary – Social Welfare Lagging Behind Economic Growth 147
proprietary computer programmes of software companies, like Microsoft College Program worldwide, also raise serious debates because of the corporate influence on university curriculums and academic research projects (Cha, 2003). To sum up, the substantive accomplishment of corporate social responsibility does not appear to be an intrinsic part of their corporate agenda.
Since 1990 the Hungarian governments have not made any attempts to introduce any corporate social responsibility policies towards corporations. No governmen- tal documents have been published since then which would have explicitly brought up this concept. The issues of corporate social responsibility are thema- tised by a few domestic and multinational corporations and professional organisa- tions like Joint Venture Association or Hungarian Manager Association. Nongov- ernmental and civic organisations mainly focus on the protection of the social and physical environment, consumers’ rights and corporate obligations towards busi- ness partners, employees, and local communities. The involvements of churches and religious organisations in promoting fair business are occasional and rather marginal.