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.
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.
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.
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.
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.
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.
'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.
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.
'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.
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.'
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.
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