Developing Responsible Leaders in China: a challenge but a survival imperative Henri-Claude de BETTIGNIESDistinguished Emeritus Professor of Globally Responsible Leadership, CEIBS, Shanghai The Aviva Chair Emeritus Professor of Leadership & Responsibility, INSEAD email@example.com The Doughty Centre for Corporate Responsibility Cranfield School of Management May 11, 2011
Plan• Introduction – China: its originality and achievements – China: its challenge for leaders – China: its approaches and proposed solutions – Implications for business – Implications for business schools• Conclusions
Great achievement of China• Its achievements amaze the world: lifting 400 millions of people from poverty in a short time.• Its process puzzles: blending socialism and capitalism.• Its performance had a cost: making leaders aware and acting• Its renaissance creates concerns: bringing uncertainty and fear of the new global power.
China• Very different (in spite of the appearance, e.g in Shanghai)• Very big (e.g. size of the land, population)
China• Very big (e.g. size of the land, population)
A Comparison Population (in thousands) Country Area (km²) (km² 2010 2050 China 9,596,960 1,330,141 1,303,723 India 3,287,590 1,173,108 1,656,554 Canada 9,984,670 33,760 41,136 EU 4,324,782 501,260 505,719 (2060) USA 9,826,630 310,233 439,010Source: Eurostat 2010; US Census; www.countrysize.com
China• Very diverse (e.g. provinces, cultures, minorities)
° China as N°1 ( "globally") • Energy-saving bulbs • Textile • Computer materials • Toys • Cell phones • Steel and iron • Color TVs • Leather • Batteries for electrical • Aspirin cars • Tobacco • Domestic electrical • Piano appliances • Shoes • Solar panels • …… • WindmillsSource: Le Point, Dec 24-31, 2009
China: a giant in banking The first 5 in market value (billion US$ 27/11/09)Source: Bloomberg
Automobile production (million units)Source: OICA; JAMA; Wikipedia; China Daily, Feb 3,2010
Internet users (million)Source: CNNIC; ITU; Nielson
China 2011: toward N° 1• With such a large population (1.33 billion) – a great economic performance (>9% over a long period) – in a short time (30 years)• No precedent in history Hence, it nurtures admiration, anxiety and fear (internationally)
Developing "responsible leaders" in China: a challenge. But a "necessity".
Xi Jianghuo, Director of The China Enterprise Reform & Development Society, says• "In fact, while Chinese enterprises and entrepreneurs are amassing huge amount of wealth, they are simultaneously contributing to serious negative impacts the include: the widening of the gap between the rich and the poor; practices of deceit and bribery; production and distribution of fraudulent goods; widespread pollution; unrecoverable environmental damage; and "sweatshops" labor practices that trample on human rights of workers"• From Opening up the era of Chinese CSR, Leading Perspectives,Summer 2006, p.16
Examples of challenges Public Public Economic Economic Healthcare, Healthcare, Inefficiency, Inefficiency, Work Safety, Social protection, Social protection, Work Safety, Bribery/corruption Bribery/corruption workers Old age Old age workers protection protection Gaps:Urban-rural, Gaps:Urban-rural, coastal-inland, coastal-inland, gender genderIntellectual Intellectual Human rightsProperty Human rights Property Pollution, Pollution, Environmental Environmental Degradation Degradation Legal framework Resources Resources Legal framework and its Shortage (Water) Shortage (Water) and its implementation implementation
The water challenge (1)• The per capita water volume in China is one fourth of the world average.• 90% of cities’ groundwater and 75% of rivers and lakes are polluted.• As a result of widespread water pollution, 700 million people drink contaminated water every day.• Waterborne diseases have created a rising number of premature deaths.• Between November 2005 and January 2006, three large- scale incidents occurred, halting water supply for millions of people and raising awareness of the challenges ahead.
The water challenge (2)• If present trends are not reversed, the World Bank forecasts that by 2020 there will be 30 million environmental refugees in China due to water stress.• With 20% of the world’s population but only 7% of global water resources, China meets with a severe challenge.• More than half of China’s 660 cities suffer from water shortages, affecting 160 million people.
Challenge: the environment• China will spend 15 billion yuan (2.2 billion U.S. dollars) in the first half of this year to beef up sewage treatment facilities as the nation works to clean up its environment. (Ministry of Environmental Protection of the PRC, April 2010)• China issued its first national census of pollution sources, with data showing that the countrys wastewater discharge totaled more than 209 billion tons while waste gas emissions topped 63.7 trillion cubic meters in 2007. (Ministry of Environmental Protection of the PRC, April 2010)
Total global installed wind power capacity (GW) Source: Global Wind Energy Council; South China Morning Post , April 14, 2010
The view of Premier Wen Jiabao (NPC speech, March 5th 2005, on the 11th 5-year plan, 2006-2011)• "In the outline (draft), the target for reducing energy consumption per unit of GDP is set at about 20% and the target for cutting the total discharge of major pollutants is set at 10%. These targets are designed to address the acute problem of mounting pressure on resources and the environment…. We must work ceaselessly if we are to create clean and pleasant living and working conditions for the people and leave our future generations with blue skies, green land, clear water and verdant mountains…"
Leadership & Responsibility: the dysfunctions• Poor safety and labor treatment: Migrant workers treatment, low wages (but increasing), workers unpaid, child labor, many coal mine accidents and casualties, miners suffer from pneumoconiosis…• Human rights abuses: - Arrests of journalists, academics, writers, artists, researchers, human rights activists, spiritual leaders and simply whistle-blowers… - Human organs (e.g. from executed prisoners) trade, often without prior consent - Censorship of the media, monitor the Internet to curb dissent.
CPI (Corruption Perceptions Index) ranking 2000 2005 2009 Finland 1 2 6 New Zealand 3 2 1 Canada 5 14 8 Singapore 6 5 3 UK 10 11 17 US 14 17 19 Germany 17 16 14 France 21 18 24 Japan 23 21 17 South Korea 48 40 39 China 63 78 79 India 69 88 84 Philipines 69 117 139 Russia 82 126 146 Indonesia 85 137 111Source: Transparency International, 2010
Corruption• About 150,000 officials being punished every year for bribery, corruption and other offenses. (The New York Times, Sept 24, 2009)• In February, 2010, the party issued a new code in the hope of ending a problem that exploded in 2009 with the conviction of 106,000 officials for corruption. (Central Commission for Discipline Inspection)
Corruption• “We will give high priority to fighting corruption and encouraging integrity. This has a direct bearing on the firmness of our grip on political power.” (Premier Wen Jiabao, March 2010, the National People’s Congress)• In 2009, according to the Ministry of Supervision and the CCP’s Commission for Discipline, more than 100,000 officials were punished for corruption and 4.44 billion yuan (US $650 million) were recovered. The number of officials arrested and punished for corruption involving more than 1 million yuan (US $146,500) increased by 19 percent in the first 11 months of 2009 compared to the same period in 2008. At least 15 corrupt high ranking officials were punished, the highest in 30 years.
Corruption: leaders take action• About 150,000 officials being punished every year for bribery, corruption and other offenses. (The New York Times, Sept 24, 2009)• Action is taken: in February, 2010, the party issued a new code in the hope of ending a problem that exploded in 2009 with the conviction of 106,000 officials for corruption. (Central Commission for Discipline Inspection)
Corruption: leaders take action• “We will give high priority to fighting corruption and encouraging integrity. This has a direct bearing on the firmness of our grip on political power.” (Premier Wen Jiabao, March 2010, the National People’s Congress)• In 2009, according to the Ministry of Supervision and the CCP’s Commission for Discipline, more than 100,000 officials were punished for corruption and 4.44 billion yuan (US $650 million) were recovered. The number of officials arrested and punished for corruption involving more than 1 million yuan (US $146,500) increased by 19 percent in the first 11 months of 2009 compared to the same period in 2008. At least 15 corrupt high ranking officials were punished, the highest in 30 years.
Corruption cases Name Position Crime Sanction Date Former head of Taking bribery and Beijing airports LI Peiyang embezzling of Death penalty Aug, 2009 management US$16 million company Former vice Taking bribes president of the totaling RMB 11.96 Death with a two- WANG Yi April, 2010 China Development million (US$1.76 year reprieve Bank million) Former Shanghai Taking bribery ofCHEN Liangyu Communist Party 18 years in jail April, 2008 US$340,000 Chief Former director of Taking bribes of China’s top foodZHENG Xiaoyu 6.49 million RMB Death penalty Jun, 2007 and drug safety (US$ 850,000) agency
Corruption: some recent cases (2) Name Position Crime Sanction Date Former vice Taking bribes Death with a two-LIU Zhihua Jan, 2009 mayor of Beijing of 1 million US$ year reprieve Taking bribes CHEN Former chairman of 28 million Death with a two- July, 2009 Tonghai of Sinopec Corp. US$ year reprieve Former Taking bribesWEN Qiang Chongqing of 2.4 million Death penalty April, 2010 justice chief US$ Founder & CEO 14 years of prison, Bribery, insider of GOME fine: RMB 600M, HUANG trading and Electrical & property May 18, 2010 Guangyu illegal business Appliances confiscated: RMB dealings Holdings Ltd, 200 M
Corruption• “Corruption has not derailed China’s economic rise, but it’s rotting the establishment of a rule of law. The Chinese government has more than 1,200 laws, rules and directions against corruption, but implication is ineffective. (Prof. GAO Quanxin, the Chinese Academy of Social Science)• “Corruption is the glue that keeps the party stuck together. Getting rid of it is not possible as long as they keep this system.” (Prof. PEI Minxin, Claremont McKenna College )Source: The New York Times, Sept 4, 2009
Some Business Leaders give their position, explicitely (Wang Licheng, Chairman of the Board, Huali Group)• "Commercial bribery has become a malicious tumor hindering the healthy development of Chinese enterprises. If we compete through bribery, it will set a corrupt standard for our whole commercial society and ultimately none of us will win…" (China Today, September 2006, p16)
The view of Premier Wen Jiabao (NPC speech, March 5th 2005, on the 11th 5-year plan, 2006-2011)• "We will work hard to build a clean government and combat corruption. We will conscientiously carry out all tasks and measures for punishing and preventing corruption. We will launch a campaign this year to combat bribery in business, focusing on unhealthy practices in construction, land transfers, property transactions, purchase and sale of drugs, and government procurement, in order to resolutely put a stop to irregular transactions and we will investigate and prosecute cases of bribery in business in accordance with the law. We will continue to remedy improper practices that harm public interests and strive to resolve such outstanding problems as arbitrary educational charges and excessively high medical costs…"• "Government employees at all levels, especially leading officials, must be devoted, diligent and responsible and serve the people wholeheartedly… They also need to be realistic and pragmatic in their approach to work, refrain from making empty promises, triumph over bureaucracy, formalism, deception and exaggeration, and fully carry out all tasks and assignments…"
Intellectual Property Rights• FY 2009 seizures of IPR infringing products from China totaled $204.7M and accounted for 79% of the total domestic value for all IPR seizures. (U.S. Customs and Border Protection, U.S. Immigration and Customs Enforcement, Oct 2009)• China deals with 200,000 counterfeit cases valued 3.37 billion RMB (490 million US$) in 2009. (Xinhua, Jan 2010 )• Branded goods, food ,building materials, home appliances, mobile phones ,auto parts, even medicines…
Cooking the books ++• Shanghai Worldbest, a medicine unit of Chinas State-owned textile and pharmaceutical conglomerate, said in a statement that it used inaccurate date to inflate profit by 65.11 million yuan (US$ 8.1million) from 2001 to 2004. (China International Business, O6.06 p.46)• In China, a number of top bankers have been charged with fraud in recent years. Example: Zhou Lin, Shenzhen Development Bank) (WSJ 32.04.06), Liu Xiaoguang (GM of SOE Beijing Capital Group) (FT, 21.06.06)• Corruption cases in China are becoming more sophisticated as the economy continues its rapid development and pose unique challenges to enforcement authorities… "Almost every type of financial institution has seen the emergence of criminal cases involving the solicitation of bribes in return for loans" Mr Ye Feng, (Director General at the Supreme People Procurate). Last year Chinese prosecutors launched more than 41.000 graft investigations, ¾ of which led to charges… The Chinese government is concerned that corruption will continue to fuel popular discontent and unrest, especially in rural Areas where local officials often exercise absolute authority…" (FT, 10.05.06)
Developing"responsible leaders": a survival imperative
Where will change come from?1. Government regulations and guidance
• The government has an answer and wants to implement it: The "harmonious society" and…
"The concept of a harmonious societyis really Chinas rephrasing of the concept of CSR, sustainable development and human rights in China" (W. Valentino, China Daily, 27.10.2006, p. 11)
CSR in China? a change in process1. A "fashion"? A buzzword?2. An often misunderstood concept3. A concept that induces scepticism4. Some successful examples5. From concept to implementation: what can be done?6. Responsible competitiveness: a "categorical imperative"
Some misconceptions (?)• CSR equals charity• CSR is philanthropy, giving money away• CSR is for big corporations• CSR adds to costs, too expensive• CSR is just "cosmetics", a PR effort• CSR is "not too pollute"• CSR is just a fashion, it will pass. A fad, or A new "religion"• CSR does not really pay, it just "costs"• Small companies have not time, no resource for CSR• CSR is "a trick to make us less competitive, under the cover of doing good"• My competitors do not pay attention, why should I• CSR Yes! in 10 years (when I will be rich… when I will have time)
The view of Premier Wen Jiabao (NPC speech, March 5th 2005, on the 11th 5-year plan, 2006-2011)• We must sustain steady, rapid economic development, speed up change of the pattern of economic growth, improve Chinas capacity for independent innovation, balance development between urban and rural areas and among regions, intensify efforts to build a harmonious society, deepen reforms and open wider to the outside world, we need to change our way of thinking about development, create a new pattern of growth, improve the quality of development, and make economic and social development more people-oriented, comprehensive, balanced and sustainable…"
Where will change come from (beyond the promotion of Confucius and the "harmonious society")?1. Government2. International standard certification, e.g. Social Accountability 8000 (SA8000, 26000)?3. Voluntary participation in international efforts e.g. Global Compact, OECD code of conduct, Caux Roundtable?4. Corporate codes of conduct?5. Unions?6. Pressures from the civil society: media, NGO, consumers?7. Education: in business schools (teaching CSR)?8. Business leaders: "responsible" business leaders?9. Transfer of management practices for competitive advantage?10. Globalization pressure (foreign pressure on supply chain)?
CSR in ChinaBut a concept progressively implemented with some success.
Groups active in CSR Reporting in China• PetroChina• CNOOC • Degussa• China Mobile • John Crane• Zhejiang Mobile • Volswagen• PingAn Insurance • Atlas Copco• Baosteel • Total• Guizhou Telecom • Shell China• JX Mobile • Novozymes• China Life• State Grid • Toshiba China• Chalco • Sony China• Cosco • Pfizer• Haier • Omron• Xizi UHC • BASF• SinoChem • Coca Cola• Lenovo • Nike• Hysan AsiaPacific • Bayer• Yili Group • Standard Chartered• … • APCO • …
Number of sustainability (CSR) reportsSource: CSR China
Global Compact participantsSource: Global Compact, 2010
What can be done to developresponsible leaders in China?
Discuss with the skeptics (1)• Make clear what CSR is not: – CSR is not philanthropy or a charitable deed – CSR is not a gimmick, a gadget, a fad – CSR is not cultural imperialism – CSR is not a luxury for rich companies – CSR is not a costly investment turning into a sunk cost – CSR is not a constraint induced by NGOs pressure – CSR is not an old product in a new package to create a new market for consultants
What can business leaders do, in China?(1)• Understand the evidence that: – Successful corporations need a healthy society and that a healthy society needs successful companies – Such interdependence makes CSR a strategic necessity, win-win for both (given a good identification of the societal problems the firm is best equipped to help solve and from which it can gain the greatest competitive benefit).• Realize that CSR offers an opportunity to be proactive.
What can business leaders do, in China?(1)• The pressure is growing from: – The employees will (increasingly) demand it – The government, pushing for the "harmonious society" – The civil society; pushing through local communities, medias, NGOs, … – The international community, pushing through international organizations, foreign customers, supply chain partners and investors, … – Some business leaders who want to build their brand – Some shareholders
What can business leaders do, in China?(1)• Understand the evidence that: – Successful corporations need a healthy society and that a healthy society needs successful companies – Such interdependence makes CSR a strategic necessity, win-win for both (given a good identification of the societal problems the firm is best equipped to help solve and from which it can gain the greatest competitive benefit).• Realize that CSR offers an opportunity to be proactive and that…
What can business leaders do, in China?(2)• The pressure is growing from: – The employees will (increasingly) demand it – The government, pushing for the "harmonious society" – The civil society; pushing through local communities, medias, NGOs, … – The international community, pushing through international organizations, foreign customers, supply chain partners and investors, … – Some business leaders who want to build their brand – Some shareholders
A bright future?• A government fully aware of the challenges.• A government driven by ambition but pragmatism.• A government still in quasi "full" control (and determined to hold to it).• A government "feeling the stones" as it makes progress.• An urban population mostly satisfied with the results achieved and by the opportunities it provides.
«Internationalization", global standards, values & CSR• The globalization process brings pressure on Chinese values and behavior for common « global » standards: – Labor: e.g. elimination of child labor, minimum wages, union recognition, working hours – Safety: e.g. equipments (helmet, shoes, belt), safer methods and reliable technologies – Environment: e.g. emission limits, effluents treatment, waste management, forest logging limits and methods – Human rights: e.g. freedom of expression, prisoners’ work and control – Property rights: e.g. rules of property ownership, patenting systems, protection of intellectual property• China access to WTO, entry into OECD, ILO etc… brings obligations, acceptance of standards embedded into values.
Bringing CSR, through the growing pressure for global standards?• It is supposed: – to bring "best practices", – to promote common pattern of behavior (easier to understand and monitor) – To facilitate regional and global HR management – to level the playing field: every one using the same rules of the game (a « global » game)• But: – It is often ressented: ‘an imposition by the rich, or the West’ – it is said to be inappropriate: ‘it does not fit into China’ – It is too early: ‘In 10 years, yes, but not now’ – Its implementation is improper: ‘the process to transfer the practices goes against our values’
Some "Dilemmas"On one hand:• I want to transfer our « best practices », because we have more knowledge and experience: Chinese will have to adapt to our methods, approaches, practices and standards.• Let’s use a code of conduct, to have everyone in our operations in China sharing the core values of our corporate culture.• We need a global, common corporate culture• On the other:• I must do in Rome as the Romans do (e.g. as I should not have the arrogance to impose my values on the Chinese): this is why I pay bribes (or outsource bribery to my local partner or to my agent).• I have global standards through the code of conduct of my company, but I do not apply them here (e.g. for environment, for safety) as I prefer local laws (less demanding) and regulations (less stringent).
The double talk of best practices• I shall rely upon and transfer « best practices » when they fit me: I have to be opportunistic• When they do not, I will be a relativist (« It depends! », « There is nothing right or wrong per se… »), and « do in Rome as the Roman do »• I will lobby against more labor regulation, and union development, but ask regulation for IP• In any case, « the best practice is the one which contributes the best to the bottom line » (while I am here…): I am a utilitarian: the end justifies the means.• In short: let’s implement my values, my best practices, but as long as it delivers the most value for my shareholders.• It is Values for Value, rather than values for values• « Best practices » remain a tool exclusively used to achieve bottom line expectations
China’s leaders feel responsible to quickly develop their own modernity • As China is engaged in its development process, its over-heated economy is: • Associated to many issues, including: – Environmental deterioration – Infringement of intellectual property rights – Poor safety and labor treatment – Bribery and corruption – Human rights abuses • The Consequence of a mindset. – China, humiliated by the imperialist West for more than a century, is motivated by revenge, keen to catch up with the West and to (re)build its global power. A new “late development effect”? – China wants to develop a modern society, but in its own definition, its own terms, on the basis of its own (Confucian or eclectic) values. An attempt to reinvent modernity? • And China may (re?) define CSR in its own way
Developing "responsible leaders" in China: Not a choice, But an "imperative"
To conclude: who will be the "responsible leaders"?• Chinas long term performance will rely upon its capacity to develop responsible leaders able to manage complexity and willing to build Sustainable Enterprises, i.e. – Will be men and women of character demonstrating strategic courage to make the tough decisions needed to be made in the highly competitive Chinese and global environment. – Will question the «command and control» approach and be willing to explore alternative management styles contributing to grow leaders. – Will care, now, for the planet and the generations to come, integrating all stakeholders (present and future, in China and outside) in making their decisions – Will be aware of and able to reconcile contradictions, to blend East & West, Public & Private, Personal & Professional, managing the interdependence as Yin and Yang. – Will have a holistic vision, global that integrates the complexity and responsibility inherent to the Chinas power – We willl need business schools and Faculty willing to take risk to innovate. Deans and some faculty members have to take the lead.
It will be long road…With many challenges on the road… We should remain optimistic
"If you think you are too small to make a difference, try sleeping in a room with a mosquito". (African Proverb)