3D Ethics: Implementing Workplace Values

Chapter 8 - Ethics and Doing Business in China

The superior man understands righteousness;
the inferior man understands profit.

Confucius (551 - 479 BC)

When things are investigated, knowledge is extended.
When knowledge is extended, thoughts are made sincere.
When thoughts are made sincere, the heart and mind are rectified.
When the heart and mind are rectified, the personal life is cultivated.
When the personal life is cultivated, then the family is regulated.
When the family is regulated, the state will be in order.
When the state is in order, there will be peace throughout the world.

Confucius (551 - 479 BC)

Holy Confucian Analects translated by James Legge

With the inexorable growth of China as the superpower of the 21st Century, Australia and other countries will have to learn to understand a marketplace that rests on very different assumptions about 'the right thing to do'. While we do not intend to turn this ethics primer into a primer for Chinese business ethics, we cannot ignore the growing importance of business relationships with China and the need for greater understanding as a basis for a successful relationship.

This chapter seeks to present an overview of Confucian ethics as they relate to business dynamics and how these impact on trading relations between East and West. Indeed, there is much we need to understand about the Asian approach to business in order to deal with the complexities of business in this region. It is not just a one-way relationship. The Government in Beijing is learning quickly how to adjust the levers of growth in a capitalist world. The authorities are currently struggling to deal with the social consequences of rapid growth. There are an estimated 150 million under-employed rural workers for whom jobs must be created. The Southern provinces are struggling to hold onto increasingly disillusioned workers who are growing tired of the relatively low wages and isolation from family that is entailed in 'feeding the factories' of the south. There is an imbalance of wealth between North and South, and the coastal provinces and the hinterland.

There is no question that China will achieve sustained growth in GDP of around 8 per cent per annum and that they will dominate world trade for the next 30 years. (China already accounts for 60 per cent of current world shipping.) The impact that this will have on world economies and trading partners is significant, which is why Australia has rushed to commence trade negotiations and the US economy continues in deficit. China, in the meantime, has slowly turned its sights on Europe, South America and the former Soviet Union, as well as countries like Iran, to source raw materials and debt-financing arrangements to lessen its dependence on US-backed economies.

A Confucian business ethic

In contrast to the individualism promoted in many Western countries, Confucian philosophy focuses the ethical debate on how to organise society to promote stability and collective welfare. It gives pride of place to collective rather than individual welfare and recognises the interdependence of humans; that how we treat each other determines the quality of the society that emerges.

Confucian ethics converges the public and private realm into consideration of the possible humane realm.

Here private and public good are seen as interdependent, with family being an essential part of this realm as it is in the family that virtues, correct relationships and consideration for others are learnt. From the Confucian perspective, ethical business requires business leaders to give thought to the well-being of all people, much like those who argue from a stakeholder capitalist perspective such as that advanced by Maturana in the opening to Chapter 3. Here, business must consider and respond to the different and sometimes competing needs of different stakeholders because they impact on human existence.

Thus, there can be no one rule for how to conduct stakeholder relationships since each stakeholder group has a different position and will have different needs. Virtuous business would adhere to the spirit of the law and go beyond legal compliance to ensure mutual benefit between business and stakeholders. In this way, they advance the progress and stability of society. The law is not definitive in outlining acceptable standards of behaviour. Rather it is one of the means of achieving a more humane or civilised society. Although the legal dimension is important, it can be overruled by contextual considerations or interpreted in different ways by critical stakeholders. Individuals are not seen as equal but as having different needs and resources, so they can be treated differently by the law. For example, Chinese authorities often think that those who are most able to pay should pay more than those who cannot afford to do so. In this way, the whole community benefits.

Doing business In China

Anyone who has done business with the Chinese or traveled to China on business, as we have done consistently over the past 25 years, knows that dealing with Chinese people is different. That is not to say that it easier or more difficult than, say, doing business in Europe or on the Indian sub-continent - or in Australia or the US - but it is different because you are dealing with people of an entirely different cultural or world view. To be successful, you must suspend judgement and try to get behind the thinking. In our experience, the Chinese are hard working, resourceful, warm and extremely hospitable people. But the first thing you learn is that 'face' is extremely important. To give and receive face is an essential ingredient of business dealings.

The notion of winners and losers, or the adversarial approach to business that characterises trade relations in the West, is foreign - even offensive - to the Chinese.

Chinese courts often meet with companies multiple times to bring a matter to a satisfactory conclusion. Most disputes between corporations, including foreign companies, are resolved through informal consultation or mediation rather than litigation.

The principle of 'face' - An example

Let us illustrate the importance of 'face' with a real life example. You have been sent to a Chinese province (or to one of the many countries in what has beendescribed as the Nanyang network - countries like Singapore, Malaysia and the Philippines where Chinese migration significant influenced commercial history) to sell a product or service. In traditional Western parlance, you know the value of the product and you know what price you must obtain. Therefore, you would begin discussions around either achieving full value, including a minimum level of profit. You might even be prepared to offer a generous discount to clear stock or to gain entry to a new market. You will bargain from your starting position and defend this position to the hilt, prepared to walk away if you cannot achieve your 'bottom' price.

The Chinese do not have this value system. Benevolence (Ren - see expanded explanation on page 147) is a core value, as is reciprocity.

Reciprocity - The Principle of Face

In traditional Chinese culture, the merchant was lowest ranking of the four classes of people, with the scholar first, the farmer second and the worker third, the central premise of what Confucius called Ren. When a disciple asked him for a guiding principle for all conduct, he answered, 'Is not mutual goodwill such a principle. What you do not want done to yourself, do not do to others'. (Analects XV: 13)

In Christian religions, a similar principle of reciprocity exists: 'Do unto others as you would have them do unto you.' The difference is that, in the spirit of reciprocity, the Chinese believe that each party should begin with that as a mindset. This is the principle of 'face'.

So, let us return to our negotiating table. You ask for an artificially high price for your product, but not one that would be an outrageous insult to your host - remembering that, in this country, they see themselves as host because community has such a high value. Business is secondary to social order and etiquette. Allow them to negotiate your price down to what both parties can accept as a satisfactory compromise. Here, you have given face and gained face; your Chinese counterpart can now accept the deal.

World views are shaped by a complex web of interrelated values and social norms. The social norms of 21st Century China are evolving too, but are also deeply entrenched in values built up over centuries. Even after 2,500 years, Confucianism or Confucian ethics still has a strong influence on human behaviour. Below is abrief overview of the history of Confucian thought and a précis of his teachings. Also included is a small and entirely personal selection of his verses. We can say that Confucian thinking is a layering process of values and principles with virtue (sincerity, benevolence, filial piety and propriety) as its foundation.

Filial piety is a core virtue - the requirement to honour the father even after death - and especially strong in family-owned businesses that dominate the economic landscape. To illustrate how filial piety is lived out today and what this means for business, we have included a lengthy story based on our personal experience in dealing with a contemporary Chinese family business.

Case study - A Chinese family business

Billy is 'a very Western Chinese'. He spent five years running a chain of retail shops in Australia before returning to Hong Kong to help his ageing father run his manufacturing business in Southern China, one and a half hours by ferry from the bustling metropolis of Hong Kong. Billy has a small flat inside the factory, where he stays from Monday to Thursday most weeks. He also has a sales office in Hong Kong, which is the hub of his own business, run within his father's manufacturing business.

Billy travels the world, visiting the major trade fairs in London, Paris, Milan, New York and other fashion capitals. He also regularly visits the principal buyers of major retail chains in the US, England, Australia and Europe. The business produces ceramic homewares. Billy translates trends and ideas he sees into themed homeware ranges for the myriad of house and garden stores that satisfy the value of 'instant chic'. He acts not as the manufacturer but as the buyer/specifier of quality on behalf of buyers around the world. He exhibits at the Guangzhou Fair every April and October and his stand is the most Western on show. Using an Australian designer, his products exude an aura of European sophistication in a sea of Eastern clutter. In short, Billy has succeeded in helping East meet West and has become very wealthy in the process. Because he thinks like a Westerner he can anticipate trends in the West and give the buyers what they want. Because he also understands Western standards of quality and consistency, he also acts as quality controller for Chinese factories. He uses a small number of good standard manufacturers and works closely with owners to improve their manufacturing processes. The closest he gets to manufacturing himself isthe small product development unit he set up in the far reaches of his father's manufacturing facility.

But there is another, very Chinese, side to Billy. He is very much his father's son in the Chinese tradition. His father manufactures reproduction Chinese furniture for which there is a limited international market, mostly amongst older generations of emigrant Chinese. Yet the factory employs 600 people, nearly all economic migrants from villages in the north of China. All work is done by hand - no sign of mechanisation here. The closest thing to a machine is an electric drill. In room after room, young men and women squat with hand tools, sandpaper and scrubbing brushes, laboriously and intricately creating the illusion of centuries of wear and tear on pristine wooden surfaces that will eventually adorn the drawing rooms of affluent Chinese in far-flung civilisations. The artisans of Michelangelo or Rodin would be proud to observe these endeavours.

Work begins at 8.30 am and finishes officially at 5.30 pm. For an additional payment, workers can do four hours 'overtime' from 6.30 pm to 10.30 pm. All take advantage of the offer. The extra money is very valuable to their families back home. Work is every day, with two days off each month. For Chinese New Year, they are allowed to take a month off and go back to their villages in the North to reconnect with family and friends and join in the celebrations.

Billy's father runs the factory, even though he has passed his 75th birthday. One day, he says, he will retire. Three years previously he decided to take it easy and pass control to Billy but it was in name only. Billy's uncle, his father's brother, is the factory manager and also lives at the factory. He is in charge on a day-to-day basis but very much under the direction of Billy's father. Screaming instructions and rebukes at workers are heard throughout the day. Raised voices are something you get used to in China.

When he first returned to China, Billy wanted to modernise the factory. He employed the services of a Western consultant to bring fresh thinking to the manufacturing process. He employed three young Chinese graduates to help him with automation of the administrative processes; they simply set up their computers next to the abacuses and manual processes in operation for decades. One factory, two systems.

Whatever changes he suggested had to pass by his father first and the answer was invariably 'No'. The consultant, vastly experienced in manufacturing in a Western environment, sought leave to talk to the father.

'Aren't you afraid that the Government, which mandates that all workers should have 1 day a week off, will send inspectors to your factory?' he asked.

The father replied, 'We will take care of the inspectors, as we always do. Anyway, that law only applies to Government factories.'

'What if your customers find out how you treat your workers?' the consultant asked.

'All private business is done this way in China,' he replied.

'Wouldn't you like to treat your workers better? Wouldn't they work harder if conditions were better? That's certainly the experience in the West.'

'They're all lazy. You spoil them and they take advantage. I don't want to be the first. No one else I know does that. When it becomes common practice, I might follow. In the meantime, I'll continue doing what I know works best. Besides, we treat our workers well. They get fed three times a day. We provide the opportunity for worship. We provide accommodation (six to a room 2.5 metres by 2 metres). They want for nothing and no one complains.'

Billy would love to change things but is powerless. Under the virtue of filial piety he must subjugate to his father's will. Only with his father's death will Billy be able to change things.

Indeed, Confucius said that the measure of a man's filial piety is that, if three years after the death of a father the son has changed nothing of his way of life, then he has practised the virtue of filial piety.

An introduction to Confucianism

'Confucian ethics' are derived from the teachings of Confucius, his disciples and subsequent interpreters of his works, such as Mencius (Meng-tse), and Hsun-tzu.

During the Han Dynasty (618-907 AD), Han Yu revived Confucianism and it subsequently became known as neo-Confucianism.

Neo-Confucians believed that all humans share a fully formed virtuous nature whose existence is obscured by selfish desires.

Other more recent followers and interpreters of Confucius include Chu Hsi, the Cheng brothers and Lu Wang. What we know today of Confucius' thinking is derived from a multitude of interpretations, translations and additions to his original works.

The name 'Confucius' comes from the Latinisation of K'ung-fu-tse by early Jesuit missionaries. K'ung-fu-tse, was born in 551 BC into a poor family in the feudal state of Lu.

The teachings of Confucius are considered to have two categories - the 'King' (Classics) and the 'Shuh' (Books).

The texts of the 'King', were divided into five books -

  • the 'Shao-king' (Book of History)
  • the 'She-king' (Book of Songs)
  • the 'Y-king' (Book of Changes)
  • the 'Ch'un-ts'ew' (Spring and Autumn)
  • the 'Li-ki' (Book of Rites)

The last of these, the Li-ki, details rules of conduct for religious acts of worship, court functions, social and family relations, and dress. For cultured Chinese, it is still considered the manual of proper conduct. Scholars believe that in the 11th Century AD, the original two volumes of the Li-ki were combined with other texts into what has become known as the 'Sze-shuh' (Four Books).

The first of these is the 'Lun-yu' (Analects). The second of the four is the Book of Mencius. Mencius (Meng-tze) lived about a hundred years after Confucius but gained a reputation as a great Confucian scholar and proponent of his philosophies. His disciples collected his sayings and published them in a book under his name. The third and fourth books of the 'Shuh' are the 'Great Learning' and the 'Doctrine of the Mean'.

Most of what the West knows of Confucius' philosophies and principles is taken from the Analects (Lun-yu), a collection of stories and sayings bound into 21 books of verse, although academics believe that only 15 of these date from Confucius' time. Each book of the Analects contains up to 30 verses. At the centre of his teachings is the concept of Jen (pronounced Ren). Ren is variously interpreted to mean 'benevolence', 'humaneness', or simply 'goodness'. Another interpretation is that there are two aspects of Ren, those of loyalty and reciprocity. Yet another definition is 'social virtue'. Confucius believed that Ren was an aspiration not an attribution; something everyone should strive to achieve; a state that one devoted one's life to, like the three principal virtues of Christianity - chastity, honesty and faithfulness.

Four Virtues

At the centre of Confucian philosophy are the four virtues of sincerity, benevolence, filial piety and propriety:

  • Sincerity, meant to be truthful, to keep one's promises and to be conscientious in discharging one's duties to others. This was a reflexive virtue, insofar as Confucius believed that sincerity included the capacity to be virtuous within oneself.
  • Benevolence, which means showing concern for the welfare of others and being prepared to help others in their hour of need.
  • Filial piety, which means respecting the wishes of the father. This is similar to the Christian commandment 'Honour thy father and thy mother'. However, in Chinese society. it goes much further and deeper in the psyche (see Case Study above). Filial piety is total subservience to the wishes of the father, even to the extent of living with one's parents after marriage and, in earlier times, respecting the right of the parents to arrange the marriage.
  • Propriety, covering all aspects of human conduct and extends to the complex system of rites and customs binding everyday Chinese behaviour. Ceremony is a prominent part of the virtue of propriety. In a Western context, this is translated as 'doing the right thing'.

Confucius and the notion of profit

'Lead the people with governmental measures and regulate them with laws and punishment, and they will avoid wrongdoing but will have no sense of honour and shame. Lead them with virtue and regulate them by the rules of propriety, and they will have a sense of shame and, moreover, set themselves right.' (Analects II:3)

Confucius (551 - 479 BC) Holy Confucian Analects translated by James Legge

Confucius ranked the four principle 'occupations' in descending order, with the scholar having the highest ranking, followed by the farmer, then the worker and lastly the merchant. Merchants were considered necessary for the development of society but it was not considered that they could be people of virtue. After the ascendance of Mao Zedong in 1949, and particularly after the Cultural Revolution of 1964, with the widespread adoption of Marxist thinking in the highest levels of government, scholars were relegated below farmers and workers.

In 'Confucian business ethics and the nature of business decisions', Jonathan Chan from the University of St Thomas, Houston [Online Journal of Ethics, volume 2/4 (Spring 2000)], argues that, although at first sight Confucius was against profitmaking endeavours - and therefore there is no such thing as Confucian business ethics - provided one adheres to the principle of Ren, there is nothing wrong with gaining wealth and station for the right reasons.

'One major criterion that Confucius uses to distinguish the gentleman (or a person of excellence) from the small man (or a mean person) is the man's attitude towards profit. The gentleman takes trouble to be conversant with what is yi or right, whereas the small man takes trouble to discover what will pay or benefit him. If that distinction is valid, it seems reasonable to infer that one should not be versed in profit-seeking activities.' [Jonathan Chan, para. 4]

If business decisions are necessarily motivated by profit, then Confucian ethics are opposed to them. However, Chan goes on to say that businesses are rarely motivated by profit alone but the need to make profit ensures the sustainability of business. Chan calls this 'the Compatibility View'.

This is entirely consistent with the stakeholder theory of organisations. As we have highlighted elsewhere, those businesses that manage for the narrow band of their shareholders will not achieve the same growth rates in terms of expansion and return as those that manage for wider stakeholder bands. The Chinese system, whether based on the Confucian principle or the collectivist values of Marxism, emphasises the inter-relationship of humans and society, and of humans and nature.

To Confucius, public order was of paramount importance. This, he argued, was more easily attainable when the community had a healthy economic base - but there was a clear sense that the economy had to benefit everyone rather than for the exclusive benefit of a ruling elite. Indeed, Confucius said that the people would prosper when the ruler set the highest example of good conduct.

'Is there a place for Confucian ethics?

'Confucian ethics focuses on our capacity to learn and prepare to serve our family and community. Thus, we needed to discipline ourselves for self-improvement, and to study the ethical values essential for practical living. For a long time, however, the mandarins thought only a few people could achieve this and provide social leadership. They thought that merchants were useful but only had narrow roles to play. They would have to perform ethically like everyone else, but there was no such thing as business ethics. The Confucians did not give them a respectable social position, and thus restricted their contribution to the commercial and industrial development of China. The Confucian idea of profit is important. On the one hand, rulers were advised not to seek profit. This meant that the ruler (of the government) should not engage in activities in competition with his own people. But this also suggested that profit was something immoral, something that rulers and mandarins should leave to those willing to be merchants. On the other hand, merchants were useful because they were willing to take risks to supply what the people needed. But excessive profits from cheating, manipulating the price of goods, and corrupting pubic officials, had to be stopped. The marketplace had to be governed by the same ethical principles that applied to families and communities, even if this meant restraining the activities of the merchant classes. I am not convinced that the reason lies in the totality of Confucianism as a philosophy. 'More important are two factors. The first is the basic universalism in the core ideas of Confucius about family and the social order, not the exaggerated accretions in later commentaries, but those expressed in the Confucian Analects. The second is the way Confucianism was constructed for political ends, and then pared down and re-shaped over the centuries in the face of deadly challenges from foreign conquests or imported new ideas. This enabled its core values to be gradually adapted to deal with social change. In the context of business ethics, the universalism affirms that business should take into account the natural bonds of family and kinship and build the edifice of trust around that understanding of basic human relations. When that was understood and the family-based business structure became viable, it was easier to reconcile business with the goals of the state. Confucianism has been massively adaptable because the core of its ethical values is small and can be universally applicable. But possibly the most important underlying factor is the fact that Confucius offered a this-worldly approach to state and society and that, up till now, this attitude is the best suited to the post-Enlightenment secularism that the West has bequeathed to our globalised age.' Wang Gungwu 2003

Reproduced with permission from: Professor Wang Gungwu, Director of East Asian Institute, National University of Singapore cum Former Vice-Chancellor of the University of Hong Kong; presented at 7th WCEC (27th -30th July 2003) Kuala Lumpur, Malaysia.

Western perceptions of Confucian ethics

In the media, journalists have a similar perception of the difference in doing business in China. Will Hutton, writing in The New Zealand Herald (26 March 2005) says that, although China may well become the world's second biggest economy within 20 years, they still have a long way to go in adopting all aspects of the capitalist system:

'Paying interest on bank loans, for example, is an alien concept; if the big four Chinese banks, despite enormous infusions of capital, ever had to accept the resulting loan write-offs, they would go broke. Half the shares quoted on the Shanghai stock market have never paid a dividend. Too many Chinese businessmen think that money comes free; if the attitude doesn't change, ultimately the money tap will have to shut, bringing the growth engine to a halt.'

Nevertheless, Hutton argues:

'Confucian capitalism will join European capitalism as another economic and social model with which to challenge the US variant.'

Since Confucianism strongly emphasises the network of obligations, duties and relationships binding an individual to family, community, state and society, it has the effect of harmonising the individual's ethics with that of society in pursuit of social order.

Kathy Chen, writing in The Wall Street Journal (13 April 2005), says that cultural change brought about by the capitalist revolution is likely to place enormous strains on the traditional values of Chinese society. She quotes statistics from China's Ministry of Civil Affairs which show that 1.6 million couples divorced in China last year, a 21 per cent jump over the previous year, while domestic violence in Beijing is rising steeply - with 800 reported cases in 2004.

Richard Spencer, in a piece for London's The Daily Telegraph (16 March 2005), entitled 'China rediscovers Confucius in drive for social harmony', reports a renewal of public interest in Confucianism, long proscribed by Communist leaders of the last half-century, and claims that it is being tacitly accepted by the ruling party.

'Confucian scholars have been particularly excited at the repetition by the Communist Party's general secretary, Hu Jintao, of the phrase "harmonious society" at the annual session of parliament this week. In Confucian thought, "harmony" was the aim of both the individual and the state, attained by observing the principles of benevolence and reciprocity within a hierarchical society.'

Confucian ethics and corporate social responsibility

A Confucian ethic seems to sit more comfortably with the notion of business accountabilities to a wider group of stakeholders beyond shareholders. It also seems to sit more comfortably with notions of virtue ethics, human character and the ethic of care emerging in Europe and other Western societies. While it can appear confronting from the American individualistic perspective and the American segregation of private and public sector spheres, it can be more easily appreciated, and appear less foreign, if viewed from a corporate social responsibility perspective.

A global marketplace has emerged and we are still struggling to develop some sort of world society ethos where the growing concentration of wealth does not come at the expense of the majority of world inhabitants who have no net wealth; and where the earth's natural resources are not being consumed by a minority at the expense of today's majority, or the natural inheritance of future generations.

Coming to a better understanding of our ethical challenges is one of the many benefits of coming to terms with what we mean by ethics in business today.

3D Ethics: Implementing Workplace Values

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