MBA Course Assignment For Corporate Governance And Ethics on Business Ethics In China.

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Business Ethics in China
Group Assignment on Corporate Ethics
Table of Content
What is Ethics?
What is Business Ethics?
Background about Chinese Culture And Business Context
Cultural Traits
Business Context
Business Ethics And Cultural Clashes In China
The Double Standard
It Will Be Known
Some Cases For Unethical Practices In China
Samsung Illegal Labor Practices (2012)
China Meat Supplier Faced Claims (2014)
China Milk Scandal (2008)
Rules for Business Ethics in context of China by Dr. Stephan Rothlin
What is Ethics?
Ethics (also moral philosophy) is the branch of philosophy that involves systematizing,
defending, and recommending concepts of right and wrong conduct The term ethics derives
from the Ancient Greek word ἠθικός ethikos, which is derived from the word ἦθος ethos (​habit​,
“custom”). The branch of philosophy axiology comprises the sub­branches of Ethics and
aesthetics​, each concerned with concepts of value.
Ethics is two things. First, ethics refers to well­founded standards of right and wrong that
prescribe what humans ought to do, usually in terms of rights, obligations, benefits to society,
fairness, or specific virtues. Ethics, for example, refers to those standards that impose the
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reasonable obligations to refrain from rape, stealing, murder, assault, slander, and fraud. Ethical
standards also include those that enjoin virtues of honesty, compassion, and loyalty. And,
ethical standards include standards relating to rights, such as the right to life, the right to
freedom from injury, and the right to privacy. Such standards are adequate standards of ethics
because they are supported by consistent and well­founded reasons.
Secondly, ethics refers to the study and development of one's ethical standards. As mentioned
above, feelings, laws, and social norms can deviate from what is ethical. So it is necessary to
constantly examine one's standards to ensure that they are reasonable and well­founded. Ethics
also means, then, the continuous effort of studying our own moral beliefs and our moral
conduct, and striving to ensure that we, and the institutions we help to shape, live up to
standards that are reasonable and solidly­based.
The three major areas of study within ethics are.
1. Meta­ethics​: concerning the theoretical meaning and reference of moral propositions,
and how their​ truth values​ (if any) can be determined
2. Normative ethics​: concerning the practical means of determining a moral course of
action
3. Applied ethics​: concerning what a person is obligated (or permitted) to do in a specific
situation or a particular domain of action.
Business Ethics is part of Applied ethics along with other ethical practices like Business,
Relational, Machine, Military, Political, Publication etc.
What is Business Ethics?
Business ethics (also corporate ethics) is a form of applied ethics or professional ethics that
examines ethical principles and moral or ethical problems that arise in a business environment,
including fields like Medical ethics​. It applies to all aspects of business conduct and is relevant
to the conduct of individuals and entire organizations.
Background about Chinese Culture And Business Context
Cultural Traits
Chinese society is heavily influenced by the traditional values associated with Confucianism
which promotes a strict system of norms and propriety. This determines how a person should
act within a community, with hierarchy a central theme. In addition, there is little separation
between business and private life in China. These traditional values can have a significant
influence on employees’ behaviour in a corporate setting. Those committed to ethical business
practice are known as ​‘Ru Shang​’ or ‘Confucianism Trader’​, and being so is traditionally
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thought to be a route to success.Guanxi is a deeply embedded system of relationships,
personal connections, contacts and networks. The cultivation of guanxi can be thought of as a
form of significant ‘social capital’ and is not something casually acquired by exchanging
business cards or having a single meal together. Rather, relationships are formed over time and
are based on trust and reciprocity. It is common in China for an employee to take contacts with
them when switching jobs as the guanxi is with the individual, not the company. Trading
competitive information among one’s guanxi network may, in some cases, also be considered
an acceptable practice. Mianzi refers to the concept of ‘face’ – broadly defined as pride or
self­respect, and its corollary – preservation of the self­respect of others. Mianzi is related to
prestige and one’s position in a hierarchy. Direct disagreement or confrontation with someone –
such as a colleague or a person in a position of authority – may cause them to lose mianzi and
is usually avoided. Thus, opinions can be difficult, but not impossible, to gather from employees
because any proposal for improvement could cause their superior to ‘lose face’ by suggesting
that they are in some way deficient.
Numerous voices inside and outside China say that the country – like others – is in a deep
moral crisis. These voices must be taken seriously but should not lead to exaggeration or
alarmism. At the current stage of China’s development, it seems difficult to fully apprehend its
complex moral situation, let alone make fair judgments about it. In other words, much caution is
warranted. However, this should not prevent one from striving to improve China’s moral
situation.
Business Context
The Chinese are very open to considering ethical issues: "They want to be global players, and
they realize that in order to become a real global power, they have to eliminate corrupt
practices." Many students at the Beijing University of International Business and Economics,
where CIBE is based, are pursuing an MBA because they are frustrated by the corruption they
witness.
But the Chinese do not want paternalism from the West. Instead, they want acknowledgement
that "they can offer something, that they can actually become a driver in the field of ethics."
Because the Chinese are emerging as an economic powerhouse, any ethical rules they
integrate into their businesses practices will have an impact on the whole world.
Often, the Chinese see hypocrisy in criticism of their country by companies that tout their own
ethical codes but then close their eyes to what their own Chinese subcontractors are doing. To
counteract this skepticism toward Western critiques, he counseled an approach that
acknowledges unethical conduct in other cultures as well.
Those who want to work with Chinese companies or bring their businesses to China. "The
strategy should be to limit the output of Western experts to a minimum," he said. Setting up a
code of ethics, for example, should be primarily the job of the Chinese. "It does not mean
anything if you translate your existing code from English and distribute it," he cautioned. "The
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Chinese will say, 'Yes, thank you,' and then throw the code away." Of course, that indifferent
kind of implementation would not work anywhere in the world. Rather than imposing a code, "let
the Chinese develop their own codes. Then the managers can identify themselves with these
codes."
This example of how the problem of corruption, which often includes favoring family and
cronies. Some students of China have argued that the Chinese are encouraged in such
favoritism by their traditions. They point to Confucius' focus on responsibility to family, citing his
admonition that a person who sees his father steal a sheep should not turn his father over to the
authorities.
Business Ethics And Cultural Clashes In China
Ethical conflicts are endemic to foreign businesses operating in China. Failure to recognize this
represents either obfuscation or denial. The best way to deal with most of them is to avoid them
altogether, and for the rest there has to be an iron set of principles to guide managers.
The only way to avoid some of the more fundamental conflicts like the one in the HBR case is to
address them at the time a company makes a decision about whether to go into China or not.
As a part of that decision process, some of the questions that need to be addressed include:
● What do our local competitors do to get and keep customer business? Is there
anything that they do as a matter of habit that is simply out of the question for us?
● What would our joint­venture partner really do if we had to make a hard choice
between ethics and sales?
● Can we turn our more ethical behavior into a business advantage, or indeed lead
the industry to more ethical practices, or are we shooting ourselves in the foot by
trying to play a “cleaner” game than our competition?
● Are foreign companies held to a higher ethical standard in our industry than local
companies?
● Do our customers care whether we do things better? Or do they only care about
price?
These seem to be tactical, but in a growing number of industries these questions can determine
whether a venture will succeed or fail, and are thus strategic. Compellingly, the same questions
need to be asked about quality, and whether customers and consumers really care about the
value we see in our products and services, or whether price is all.
These seem to be tactical, but in a growing number of industries these questions can determine
whether a venture will succeed or fail, and are thus strategic. Compellingly, the same questions
need to be asked about quality, and whether customers and consumers really care about the
value we see in our products and services, or whether price is all.
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Once in a venture, however, the questions above become somewhat moot. All that is left is for
the company to determine where it draws the line between sales and ethics. Managers will not
only require a clear set of non­negotiable principles on matters ranging from worker safety to
kickbacks to employee infractions, but a guarantee from the company that losing sales for
reasons of ethics will not count against sales targets and budgets.
What this implies, of course, is that ethics in China can cost money. The smart way to approach
this problem is to budget internally for these shortfalls, and count them on the ledger as a
long­term investment in corporate reputation.
The Double Standard
One area not touched upon by the case is the issue of government and popular expectations.
As I’ve discussed before, foreign and private enterprises operating in China are held to a higher
standard of operational ethics than local and state­owned enterprises. The ethical playing field
is not level, so behaving unethically just because the local competition does is not an
acceptable defense. Indeed, the government is more likely to make an example out of the
foreign enterprise that behaves badly than local companies that do so.
Operating in a joint venture is not likely to provide much cover, especially when the brand on the
joint venture is – or includes – the name of the foreign enterprise. A joint­venture is as good as a
foreign company when it comes to juicy targets for fines and other forms of prosecution. Any
wise JV president would have that little tidbit up his sleeve to help mollify a bombastic local
executive.
It Will Be Known
Another point that the manager can toss at his joint venture partner is the inevitability that the
unethical behavior will become public knowledge, and that such knowledge could be even more
disastrous than missed sales targets. Some of the best investigative journalists in China have
chosen to make a career out of catching unethical businesses in the act, and while taking on
locally powerful SOEs can be tricky, they have editorial carte blache to target foreign
enterprises. Add the media bulldogs to the prospect of a frustrated competitor or disgruntled
employee, and engaging in unethical behavior looks plain stupid.
Some local partners, especially the larger, better connected ones, will protest that they have the
ability to put the muzzle on the local media. This may have been the case a decade or more
ago, but it is no longer. There are simply too many reporters and too many outlets, a growing
number of whom seek to build their careers as either muckrakers or crusaders against shoddy
business practices. Lenovo, Li­Ning, and Mengniu Dairies comprise a short list of notable
companies who have discovered that the number of reporters in China who can be bought is
shrinking, as is the number of reporters who will ​stay ​bought once they have been paid off.
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Some Cases For Unethical Practices In China
Samsung Illegal Labor Practices (2012)
In the year 2012, Samsung was investigated for using illegal labor practices in their China
manufacturers. The allegations of this case were that the employees at this manufacturer were
in some cases working 16­hour days with one day off per month, and they were also found
hiring employees under the legal working age of 16 years of age.
According to Friedman's theory of individualism, the only obligation that the business has is to
maximize profit for the owner and stockholders. Samsung's manufacturer in China was trying to
cut their costs and maximize their profit by hiring younger employees and overusing overtime.
This would be deemed ethical by individualists, but they used illegal methods to maximize profit.
China Meat Supplier Faced Claims (2014)
Shanghai Husi Food, the U.S.­owned Chinese food supplier at the center of a meat safety
scandal, won a court case earlier this year against a former quality control officer whose claims
included that he was made to forge meat production dates.
Wang Donglai, who worked at Shanghai Husi Food from 2007 to 2013, sought around 38,000
yuan ($6,100) in compensation for damage to his health from exposure to chlorine used as a
cleaning agent by the meat processor. He also sought to terminate his contract at Shanghai
Husi, claiming he was forced to work overtime and made to do "unethical work" that violated
food safety laws, court documents showed.
China Milk Scandal (2008)
The toxic milk scandal became public in August 2008 with the disclosure that the baby formula
produced by Sanlu was contaminated with melamine, which caused kidney failure among the
babies who consumed it. However, until the Chinese Health Ministry confirmed on Sep 12,
2008, that the milk powder produced by Sanlu was contaminated by melamine, neither the
government nor the company took any actions to warn the public. Later, government
inspections reported that the products of 21 other dairy firms were also contaminated with
melamine. Even as the milk scandal unfolded, many countries like Hong Kong, Taiwan,
Singapore, South Korea, Australia, and Indonesia rushed to ban Chinese dairy products.
Foreign companies which sold China made products or products which used Chinese
ingredients had to recall their products.
On September 26, 2008, four executives of Sanlu including Wenhua were arrested for
producing and selling sub­standard products. Milk dealers and suppliers were also arrested for
selling contaminated milk to dairy companies. Jiabao, the then Premier of the State Council of
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the People's Republic of China, said, "The government will put more efforts into food security,
taking the incident as a warning. What we are trying to do is to ensure no such event happens in
future, by punishing those responsible leaders as well as enterprises. None of those companies
lacking professional ethics or social morals will be let off."16 In an effort to restore confidence
among domestic and international consumers, the Chinese government introduced a new set of
quality control standards which included strict limits for melamine in dairy products. In the case
of infant formula, the limit was set at one milligram of melamine per kilogram and the limit for
liquid milk at 2.5 milligrams per kilogram.
On January 22, 2009, two people were sentenced to death for their involvement in the Chinese
milk scandal. Wenhua was given a life imprisonment and three other executives were given
imprisonment from five to fifteen years.
Rules for Business Ethics in context of China by Dr.
Stephan Rothlin
“The golden rule in China – nothing is clear.”
Dr. Stephan Rothlin, Center for International Business Ethics (CIBE) explored the topic through
his ‘rules for international business ethics’ framework:
1. The importance of context. China’s Confucian history has created a different attitude and
ways of behaviour in Chinese business. To do business in China, it is essential to
respect and understand these differences. Confucian teaching contributes positively to
business ethics, for example through the emphasis on trust and trustworthiness.
2. There is a need to emphasise the business case for business ethics in China, and make
the point that there are benefits.
3. The consumer movement is a powerful stimulus for business ethics in China; consumers
are willing to take action against business and are a genuine source of pressure.
4. Developing a brand requires building a reputation based on trust and reliability.
5. Safe working conditions; new generations are more aware of the standard of living of
their contemporaries in the Western world and as a result, are increasingly less willing
than their forefathers to accept poor working conditions. This is reflected in the high rate
of suicides at Foxconn’s factories.
6. To inspire trust there is a need for transparency in business; particularly since the
economic crisis. There needs to more effective teaching of business ethics, with
business ethics integrated into courses, and business life. This is a challenge post­crisis.
7. Whistleblowing is seen unfavourably in China, as an act of disloyalty. This perception
needs to be changed, by demonstrating the positive outcomes of speaking up in a
business.
8. Balance the need for efficiency, profitability and downsizing with ethical responsibility for
stakeholders.
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9. Business should contribute positively to the social system. The rich­poor gap is a key
concern for the Chinese government. Two thirds of China’s population live in rural China
where there is great demand for learning and development. This provides business with
a key opportunity.
10. Technological changes e.g. in smart phones, are making the private­public spheres
harder to differentiate between in China.
11. The media has a powerful influence in China and is largely responsible for awakening
civil society and consumer awareness around business ethics. Businesses need to be
aware of this and the risk that it can pose in terms of their reputation.
12. There is growing concern in China around the money lost through corruption. Whereas
India had higher corruption levels, it has improved over the last 5 years, whilst corruption
levels in China have risen. The Chinese government refers to the Transparency
International Corruption Perceptions Index.
13. Since the Bhopal incident which polluted the Songhua River in 2005, there is a large
concern for the environment in China.
14. The importance of branding for an organisation to develop its reputation. Branding
should be in line with the organisation’s values.
15. As yet, China does not have an established philanthropic culture. It is difficult to cultivate
because there is widespread suspicion within China around what happens with
economic contributions to charities. In the past, charities themselves have failed to
distribute money to needy parties.
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