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Markkula Center for Applied Ethics

Doing Business in Asia: The Ethical Challenges

Kirk O. Hanson

One of our continuing interests at the Markkula Center for Applied Ethics has been how American companies can operate ethically in Asia and how Asian companies coming to the US can operate consistently with American expectations of ethics and fair play. I have had the privilege of working with Chinese colleagues in Beijing to create what was the first, but now is not the only, business ethics center in China. There is a growing interest in ethics in China, and in other parts of Asia, due to two key factors:

  1. The increasing expectations of American and European companies that they be able to operate in an manner ethically consistent with practices in their home country. Part of this is that they be able to select business partners and agents who share their ethical values and practices. These Western companies are being encouraged to achieve this consistency by their own governments, by media in their home countries, and by public sentiment.
  2. The desire of Asian companies, and increasingly even Chinese companies, to deploy capital abroad by forming joint ventures with American and European companies or by buying Western companies . This leads to substantial pressures for those firms to exhibit "Western" ethical practices - from their business partners and from Western governments.

I am not so naïve to believe that all Western companies think this way, nor that all Western companies that think this way succeed in operating in Asia consistent with their home country practices. In candid discussions with some ethics officers of Western companies, they admit that they have done little to implement their ethics codes and values in China - in some cases they have not yet even translated their codes into Chinese. Nonetheless, the web of pressures on those companies from their own home country boards and executives, pressure from their home governments through mechanisms such as the FCPA, and the watchfulness of media serve to push things in the right direction.

The fact that the story of corruption in the granting of cellphone licenses in India has finally been documented and revealed is, I believe, a milestone in the gradual process of addressing corruption in that huge emerging market. On a recent trip to India, an executive said to me: We are making some good progress on petty corruption, eliminating some of the payoffs the normal citizen must make just to live his daily life, but we have not yet really address grand corruption involving government and our largest companies." Maybe now they are doing so.

In China, there are three other forces that bode well for controlling corruption:

One is the fear the Chinese government has of unrest and dissatisfaction among the growing middle class. It is these middle class, particularly the entrepreneurs, who are most angry about corrupt practices in local government and party structures. The absolute power given to district level officials in the Chinese system has led, in my view, inevitably to corruption, and now to a growing protest by the middle class who are being held back in pursuing their own dreams. The second factor is the resolve of Chinese leadership to push its own companies to go abroad. There is an awareness that these companies must adopt a certain set of ethical and socially responsible practices in order to be accepted and to thrive. This is obviously less necessary in certain unstable and less developed societies where Chinese companies operate by standards they are comfortable with, but the economic aspirations of the Chinese leadership and Chinese companies inevitably lead them to invest in developed Western societies. A third influence is that, I have come to believe, the highest echelons of Chinese government and party are less susceptible to corruption than the leadership in many other countries. There is a tradition of service to the nation over centuries of Chinese culture that is still alive at the highest levels, even if it is not at the lowest levels of party officialdom.

Kirk O. Hanson is executive director of the Markkula Center for Applied Ethics. He delivered these remarks at a seminar, "Worlds in Collision?" co-sponsored by the Ethics Center and Morrison & Foerster, Dec. 15, 2010.

Dec 15, 2010