BUSINESS ETHICS IN ASIA

SEMBA – September 2016

Dr Benny TabalujanAssociate Professor (Principal Fellow), MBSb.tabalujan@mbs.edu

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Reflections on business ethics in Asia (especially drawing from the Industry Studies in Asia subject & trip to China)

Ethical frameworks?

Case studies: Khoo Teck Puat in Singapore Wahaha Group & Danone in China

Today’s Session

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How would you describe “business ethics”?

Is “business ethics” in Asia different compared to what you’ve experienced elsewhere? In what way?

Any personal experiences or observations to share?

What explanations can you offer to help our understanding of how “business ethics” operates in Asia, especially China?

Reflections on business ethics in Asia

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Ethics: science or philosophy of morals. A framework through which a person decides what is right and wrong.

Values: principles or standards which a person considers important in life. Values contribute to a person’s ethical framework.

Cross-cultural ethics: one person can view his/her action as ethical while another person (who has different values or a different ethical framework) sees the same action as unethical. Both are “ethical”. They disagree because of differing “values” or “ethical frameworks” –often rooted in different cultures.

Preliminary definitions

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Teleological frameworks Also called consequentialist theories. An action is morally right if the

consequences of that action are more favourable than unfavourable Example: utilitarianism of Jeremy Bentham (1748-1832) OUTCOMES

Deontological frameworks Also called duty theories. Ethical behaviour is based on foundational

principles of obligation Examples: the categorical imperative of Immanuel Kant (1720-1804) RULES or PRINCIPLES

Virtue frameworks (virtue ethics) Often traced back to Aristotle (384-322 BC) Sees virtue or excellence of character as leading to virtuous acts which, in

turn, leads to eudaimonia (human flourishing) CHARACTER

Ethical Frameworks

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Confucius (c 551-479 BC)

Key texts: Analects of Confucius and Works of MenciusKey question: “How best to order society & relationships?”

Three key values:• Filial piety • Humaneness• Ritual

Five key relationships (according to Mencius 372-289 BC):• parent and child• minister and ruler• husband and wife• older and younger brother• friend and friend

Asia: Confucian ethical framework

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Filial piety - respect for one’s parents; ancestor worship; reciprocity

“Few of those who are filial sons and respectful brothers will show disrespect to superiors, and there has never been a man who is respectful to superiors and yet creates disorder.

A superior man is devoted to the fundamental. When the root is firmly established, the moral law will grow.

Filial piety and brotherly respect are the root of humanity.”

Analects I:2

Confucianism: Three key values

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Humaneness – care for other human beings

"...The humane man, desiring to be established himself, seeks to establish others; desiring himself to succeed, he helps others to succeed. To judge others by what one knows of oneself is the method of achieving humanity..."

Analects VI:28

Confucianism: Three key values

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Ritual – respect for doing things in a particular way; what is ritually proper; doing things with propriety

"In rites at large, it is always better to be too simple rather than too lavish. In funeral rites, it is more important to have the real sentiment of sorrow than minute attention to observances.” Analects III:4

"To try to order the people through laws and regulations and implicit punishments, if you do that, people will find a way to avoid, evade the law, and they will have no sense of shame. If you lead them by virtue and the rites, then they will governthemselves, discipline themselves, and they will have a sense of shame.“ Analects II:3

Confucianism: Three key values

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Law (external) v Inner virtue & ritual (internal)Form v Substance in business contractsRule of law v Rule by righteous leaders

Individual v Family & communitySelf interest v Communal interestPersonal rights v Group harmonyProfit v Fairness Individuals are equal v Hierarchy of persons

Material purpose v Social purposeRights v Responsibilities / DutiesProfit v LearningThis worldly v Ancestor-worldly

2012 video from Markkula Center for Applied Ethics, Santa Clara University:https://www.youtube.com/watch?v=FhLcw8Im8Sk (Liu Baocheng, executive director of the Center for International Business Ethics, talks with Kirk O. Hanson, executive director of the Markkula Center)

Confucianism in Asian business

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• “set of personal connections which an individual may draw upon to secure resources or advantage when doing business or in the course of social life” (Davies, 1995)

• Guanxi seems to be the lifeblood of the Chinese business community and extends into politics and society. Without guanxi, one simply cannot get anything done…On the other hand, with guanxi, anything seems possible. (Davies, Leung, et al, 2003)

• How does guanxi impact business in China? Is it accurate to say that Chinese (and Asian?) business generally is more "relational" than "transactional"?

• How does guanxi square off with Western business ethics?

China: the role of guanxi in business

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Confucianism in practice?

Case: Khoo Teck Puat (1917–2004)

Forbes 2004 Rich List Rank: 108 Net Worth: US$4.3 billionResidence: SingaporeMarital Status: widowed, 14 children

Singapore's former richest man died in February 2004 at age 87. The banker and hotel owner reportedly died from a heart attack. He is survived by 14 children. The bulk of his fortune came from shares in Standard Chartered Bank, which he bought in the 1980s to help thwart a hostile suitor. His Goodwood Park Hotel in Singapore, built in 1900, is a historic landmark. His 11.5% stake in StanChart was sold in 2006 by his beneficiaries to Temasekfor a reputed S$4 billion. In 2007, his children donated S$125 million towards a new 590-bed hospital which opened in 2010 in Singapore. The hospital is now named the Khoo Teck Puat Hospital.

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Khoo Teck Puat & his daughters

• Reflect on the news reports of what happened in 2005. What’s the core issue here?

• What does this case suggest about the intersection of “family fidelity”, business ethics and corporate governance in the Asian context?

• What issues does this case raise for Westerners doing business with Asian family companies?

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Began the Wahaha Group in 1987 distributing soft drinks, milk drinks, ice, stationery. Entered joint venture with Groupe Danone (France) in 1996. Danone JV broke up in 2007.

Another case: Zong Qinghou and the Wahaha Group

Age: 71 (2016) Residence: Hangzhou, ChinaRank: 35 in Forbes 2015 Rich List, est wealth: US$10b.Rank: 1 in China, 2012 Hurun’s China Rich List, est wealth: US$20b.Family status: married, with 1 childDelegate to China’s National People’s CongressWahaha Group sales: around US$12b (2014)

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3-party JV formed in 1996 Danone (French), Bai Fu Qin (HK) invest via Jin Jia Investment Co. Ltd

(Singapore), contributing 500M RMB, technology, expertise – 51% Wahaha (CN) contributes Wahaha trademark, worth 100M RMB –

49%

Danone bought Bai Fu’s share in 1998, gaining legal control of JV

But Wahaha trademark was not successfully transferred to the JV – only an abbreviated version of the trademark used via exclusive licensing agreement. This was actually not in accordance with the JV agreement.

Acknowledgments: MBA syndicate group - Calvin An, Craig Mutton, Yuska Villani, Edmond Wong

The Wahaha – Danone JV

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Danone had control over board (3/5), while Wahaha Group completely ran daily operations.

The JV became the largest beverage/bottled water company in China, with 15% market share.

From 2000, Wahaha began to create non-JV companies that sold Wahaha products.

Danone found out only in 2005, and demanded to purchase 51% of these companies. Wahaha refused. Danone sued in 2007.

After a series of lawsuits and failed arbitration attempts, in 2009 Danone decided to sell its entire 51% stake to Wahaha.

Acknowledgments: MBA syndicate group - Calvin An, Craig Mutton, Yuska Villani, Edmond Wong

Good times, bad times, resolution

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Business ethics – what’s the impact of culture?

The car and pedestrian dilemmaSource: Charles Hampden-Turner & Fons Trompenaars, Building Cross-Cultural Competence(Yale University Press, 2000) 16

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Last words?

“Culture is the collective programming of the mind which distinguishes the members of one group from another.”

“Culture is more often a source of conflict than of synergy. Cultural differences are a nuisance at best and often a disaster.”

Geert Hofstede, Emeritus Professor of Organisational Anthropology and International Management, Maastricht University. Author of two famous works on cross-cultural communication and management: Culture's Consequences (1980) and Cultures and Organizations: Software of the Mind (1991).