OPINION – A CSR perspective on the Amendment of the Gaming Law

By Macau Institute for Corporate Social Responsibility in Greater China  

Note: This articles comes in response to the Macau SAR Government’s public consultation on the revision of Law no. 16/2001 “Legal Framework for the Operations of Casino Games of Fortune”.

1 – Gaming Concessionaires and CSR: “Quality not Quantity” and the Introduction of International CSR Standards 

Section 1 of the consultation document mentioned that the introduction of more gaming concessionaires may lead to undesirable competition and sub-concessions will not be permitted. From the perspective of CSR, a business needs to firstly achieve its own economic sustainability before any investments or contributions concerning CSR can be made. Therefore, maintaining a certain number of high quality and financially sound gaming concessionaires is essential for the sustained CSR activities in Macau.

Although it is emphasized that this new tendering process should start anew, it is certain that some current concessionaires will attempt to bid for new licenses. The bidders will surely provide their past CSR performance and achievements, especially on those six dimensions as stated in section 8 of the consultation document (1. Supporting local SMEs, 2. Supporting local industries, 3. Compliance with the labor law (including promotion of local employees and maintenance of labor benefits), 4. Hiring of the disabled and the rehabilitated, 5. Philanthropy, 6. Supporting academic, cultural and social exchanges).

A number of points could be expanded from these six dimensions mentioned in the consultation document. In fact, CSR activities which lead to long term sustainability have much more to do than the above six areas. Many gaming concessionaires are following international sustainability reporting guidelines such as the Global Reporting Initiative (GRI) which covers universal standards (3 standards), economic standards (7 standards), environmental standards (8 standards) and social standards (19 standards).

The adherence to such internationally recognized reporting standards is highly suggested to be made mandatory as social reporting is inevitable in all industries worldwide. Some emerging disclosure topics such as reporting on sustainability development goals (SDGs), climate risk and carbon reduction may also be considered in CSR reporting requirements. The Guidelines for Preparing CSR Reports in China (CASS-CSR4.0) published by the Chinese Academy of Social Sciences (CASS) serve also as an important reference.

It is suggested here that the concessionaires’ CSR should engulf many other aspects including environment, gender, quality of life, justice and fairness, and so on. The new gaming law should not be rigid in the sense that every CSR topic has to be written down as if it was a statute law article. There are many international standards and guiding principles, such as Sustainability Accounting Standards Board’s (SASB) framework, ISO26000, Climate-related Financial Disclosure (TCFD), which can be referred to.

2 – More Transparency on the Allocation of the Gaming Concessionaires’ Social Contribution and the Introduction of Impact Assessment

According to Inside Asian Gaming (September 2021), a report has depicted the distribution of CSR efforts by the gaming concessionaires. They include education (20%), sports (4%), One-Country (14%), environment (5%), supporting SMEs (7%), responsible gaming (4%), staff development (8%), and arts and culture (10%), community (28%). It is found that CSR efforts have been largely spent on education and community services. To a certain extent, it can be said that the current concessionaires are doing quite satisfactorily in terms of CSR. It would be desirable if the government can encourage concessionaires to include social impact assessment and environmental impact assessment in the sustainability or social responsibility reports.

It is suggested here that the concessionaires’ CSR should engulf many other aspects including environment, gender, quality of life, justice and fairness

However, the society still has expectations on the concessionaires to do more on CSR. Firstly, it is necessary to have a systematic legal framework to push the gaming concessionaires to make transparent their input into CSR through formal social responsibility reporting by following international standards such as GRI.

Secondly, a companion legal framework to verify and audit such social reports is also urgently in need. In fact, these efforts in reporting and verifying CSR activities of the concessionaires go hand in hand with other legal requirements including financial reporting standards and the corporate governance code (which has yet to be considered more deeply in Macau). Importantly, it is the government’s requirement on transparency and complete disclosure in sustainability or social responsibility reports that makes the gaming concessionaires engage actively in CSR.

3 – Legally Required Contributions to CSR Efforts or More Flexibility?

Also, should the government make such requirements as to how many percent of the gaming revenue should be put into which area? This rigid allocation of CSR investment is not satisfactory for the ever-changing economic and sustainable development of Macau. Every operator has its own special feature and strengths (and in fact, they should be encouraged to have different marketing features to bring in diversity in relation to the direction of Macau being a world center for tourism and leisure). Rigid percentages or even minimum spending on various CSR areas are not recommended.

If no minimum percentages are set for each CSR area, will unhealthy competition result among the concessionaires? Will they strive to take a lead in CSR even in a cutthroat manner? As mentioned before, a business enterprise will engage in CSR only after a sustainable return for investors is achieved. Research has also indicated that more profitable enterprises will invest more in CSR, which in turn can help them build up reputation and gain the so-called “social license to operate” in the local community and society at large.

In an oligopolistic market in Macau, the one which does not strive for legitimacy will naturally and eventually fade out. The suggestion of having a suitable legal framework for verification and audit takes the role of check-and-balance within this legitimacy-seeking process.

4 – Opinions on Special Gaming Tax and CSR

Turning to the point of the Special Gaming Tax. It is well known that the 35% tax is on the gross income of the concessionaires, not on the net profit. This makes Macau’s gaming tax the highest in the world. In addition to the 35%, another maximum of 5% is also charged for the purpose of social and urban development. There has been voices in the society saying that another X% should be charged on the concessionaires especially for the purpose of CSR.

This is not desirable and it is against the voluntary spirit of philanthropy (although CSR is not only about charity). With a strong reporting and verification system, those concessionaires which are not meeting the society’s expectation will soon lose their social trust and license to operate. This is also reflected in the consultation document that there is an emphasis on the quality but not the quantity of concessionaires.

The concessionaires should bear more CSR, but not merely in the form of more tax contributions. They should be provided with some degree of flexibility to demonstrate innovative ideas of CSR. For example, in supporting SMEs, how can they support SMEs but not in the form of monetary contribution? Provision of rent-free spaces in their properties? Provision of technical know-how support? Collaboration with suppliers, advertisers and even customers to create some form of vertical integration (from CSR to CSV (Creating Shared Value))? It is suggested that the government can encourage the concessionaires to actively develop reasonable, affordable, yet innovative ideas in contributing more to CSR in addition to taxation.

DICJ meeting gaming industry representatives on September 20, 2021, during a consultation on the proposed amendments to the gaming law


Furthermore, the government may also refer to the rather new GRI-207 disclosure standards on tax (2019). As taxation is a mutual matter between the government and the taxpayers, the open and public disclosure of tax receipts spending can promote confidence among the public and the stakeholders, thus making transparent how the taxes collected from the concessionaires are put to use.

At present, the 35-40% gaming tax is basically collected by the government and redistributed in various public expenditures. It is therefore desirable to indicate what is the fair share of contribution of the gaming concessionaires spent on which social aspects so that people will be confident with the tax practices and policies of the government toward the gaming concessionaires.

5 – Resource Allocation and a Government-guided CSR Coordinating Unit

The gaming concessionaires have invested their CSR activities in arts and culture and so on. The promotion of this aspect has a much higher level of advertising effect within the society than matters like “environment”. However, it is a waste of valuable resources for all the gaming concessionaires to invest in the same non-gaming activities at the same time since very operator has its own strengths and marketing niche.

As the government consultation document has already emphasized on high quality concessionaires, specialization of work among them becomes even more important. In order to achieve a win-win situation, the government may consider to guide the gaming concessionaires to form a coordinating unit to better allocate work and to avoid resource duplication and wastage. 

It is suggested that a more comprehensive and effective “Corporate Governance Code” be legally implemented before government representatives can unleash their most effective functions.

The above coordinating unit can also take an important role in times of local (such as typhoon Hato) or global (such as COVID-19) crises. The typhoon Hato experience had already provided a lively example of how the gaming concessionaires could coordinate much better in rescue and restoration actions. As to COVID-19, tighter coordination among the concessionaires through this suggested coordination unit should result in better work and resource allocation.

6 – Suggestions on Corporate Governance

The consultation document mentions about introducing government representatives into the governance committees to oversee and offer advices on the concessionaires’ management. The number and qualification of government representatives on the boards need to be carefully considered in order to avoid too much government intervention. 

It has been for years that government representatives have been sitting on the boards of many public utility companies and still these entities are subject to scrutinization and even criticisms from the public. The appointment of government representatives in the idea of corporate governance here resembles that of state-owned enterprises (SOEs) or government-linked companies (GLCs). It is suggested that a more comprehensive and effective “Corporate Governance Code” be legally implemented before government representatives can unleash their most effective functions.

Regarding the distribution of profits, the government may first consider the traditional principles governing corporate practices and the regulations regarding distributable profits, and also refer to the situations of profit distribution restrictions in other countries. For instance, the Company Law generally only provides that a company is free to distribute its profits if it has no accumulated losses and has accrued adequate legal reserves. This provision protects the company’s creditors and its freedom to distribute profits to its shareholders, which is in line with general corporate principles and local traditions, and is a common norm in free economies.

It is also suggested to introduce a restriction on dividend payments only during extreme cases such as times of severe crises, so that the government’s intervention on the decision to pay dividends will not become a norm or default in order to maintain the legal tradition of Macau. It also provides a mechanism for the stability of the concessionaires during extraordinary times. The cases of the Bank of England and the US Federal Reserve’s restrictions on dividend payments by regulated banks during the pandemic are vivid examples.

Conclusion

Summarizing our opinions as described in the six points above, it is hereby proposed the suggestions on enhancing future social values created from the Macau gaming industry, realizing CSR of the casino concessionaires, as well as some possible measures to strengthen the corporate governance standards of the industry.

During the amendment of the “Legal Framework for the Operations of Casino Games of Fortune” (Law no. 16/2001), it is suggested that the government may consider the adoption of international CSR standards for the periodic performance assessment of the concessionaires.

Besides, the government may also ponder upon the establishment of a legal framework to verify and audit the CSR reports of the concessionaires, and to guide the industry participants to form a CSR coordination unit for more effective allocation of related tasks and resources among them. Furthermore, the concessionaires could be encouraged to take part in CSR actively through more innovative channels, and a more comprehensive corporate governance code to strengthen oversight in a systematic manner.

It is envisioned here that a better CSR framework would be introduced during the process of this revision. The future legal system for the concessions of operating the games of fortune could foster the industry’s effort to integrate and support the sustainable development of Macau’s tourism and leisure sectors, the local micro-small-and-medium enterprises, as well as the socio-economic environment in general. It is believed that a comprehensive and proactive legal regime will help solidify the long-term commitment to social responsibility within the gaming industry.