Western Perspectives on Business Practices in China

How do Chinese business practices vary from Western notions of ethics and compliance? At a meeting of several dozen business executives, consultants, and academics at Santa Clara University's Markkula Center for Applied Ethics, participants discussed this and other questions. The panel, part of the Business and Organizational Ethics Partnership, was moderated by Chris Cooper, a partner at Deloitte. It also included Carson Block, research director at Muddywaters, and David Chen, VP China legal and corporate affairs for Microsoft.

The panelists noted that it is easy to sound critical of Chinese business practices when your job is to anticipate and avoid risks vs. focusing on the tremendous market opportunities that exist there. In fact, it's important to note that the country is succeeding in many areas: It is able to feed its population of almost 1.4 billion, and overall life is improving for almost all of its citizens. Today, a much larger number of Chinese university students who come to Western countries to study want to return to China, which was not the case in the past.

Still, China faces huge challenges, in particular because it uses a lot of natural resources such as coal, but generates a relatively smaller portion of the world's GDP. The country has been focusing on sustainable business practices in recent years, and it now faces challenges such as education, health care, and housing.

Participants also noted several issues specific to the Chinese business system:

• • For those investing in public companies, there is not the same level of due diligence as in the West.
• • Lawyers, bankers, and auditors can appear less accountable than in more developed nations. U.S. regulators have little control over Chinese companies even if they sell shares in the United States. It can be difficult to get documents that are supposed to be available to the public if those documents reflect poorly upon the performance of the government
• • Intellectual property rights are problematic, though the government is trying to raise awareness of these issues as its economy moves toward more intellectual, value-add work.

Although the speakers and audience members held varying views, several reasons emerged that could explain these and other issues:

• • China is very hierarchical, which creates an atmosphere in which workers are less likely to challenge corruption when they see it.
• • Most Chinese used to work for paternalistic, state-owned companies, which provided housing and other benefits to workers. When they switch to private enterprises and are no longer getting the extra benefits, they may still feel entitled to continue to receive them
• • The legacy of the Cultural Revolution – a time when children turned in their parents and neighbors turned in neighbors to the authorities – rendered China a low-trust society, one in which it's OK and even expected to say one thing and do another.
• • Chinese society has undergone rapid economic and social transformation, which has created a lot of strain on individuals, families, and social institutions. A feeling that the current situation is not sustainable may have people looking for short-term advantages.
• • Corruption at the top of any organization might encounter less resistance as it quickly cascades down.

As one participant said, "The future is bright: That is why we are all interested in China. But the road is winding."