Culture clash in the boardroom

  • Category:
    Business
  • Document type:
    Case Study
  • Level:
    Undergraduate
  • Page:
    5
  • Words:
    3375

Culture clash in the boardroom

Culture clash in the boardroom

Introduction

Ethical considerations are essential in the proper running of a company. Ethics are considered to be values and rules that determine the actions that people should follow in their interactions with other human beings (Schwartz et al., 2001). In every business, there is economic logic that tends to dominate decisions made in the business. Each business decision has both positive and negative consequences for the people, which could either be intended or not (Frederick, 2002). There also tend to be ethical problems faced by managers who are operating businesses across national boundaries and such are guided by international business ethics. International business ethics are different from domestic business ethics (Husted & Allen, 2008). Precisely, international business ethics are more complex due to the different cultures that do not necessarily agree on what is ethical and what is not.

Moral clarity is always on the verge of blurring whenever business leaves home and crosses national boundaries. Certainty becomes even more elusive when there lacks similarity in attitudes, laws and even judicial procedures. Posing to ask whether a company should invest in a country where political and civil rights are violated is of great importance and after the company is launched, should it go along with the country’s discriminatory practices? It is therefore the role of executives to take time to rethink assumptions with regards to business practices whenever an investment is to be made in a foreign setting (Husted & Allen, 2008). A business venture that has thrived well in a home country has the possibility of failing in a country that has different ethical standards. It is therefore essential to be prepared for such eventualities because such are unavoidable (Roy, 2015). Executives must be in a position to rethink their assumptions concerning business practices especially in foreign settings. It is important to realize that what works for a company in its home country must not necessarily work in a foreign country because of differing ethical standards (Frederick, 2002). Cultural differences can create such a maze for managers but this can be resolved through upholding principles and established codes of conduct.

Lui Peijin, the president of Almond China, is faced with a serious crisis on ethical business practice in the company. Almond China has its parent company in Germany and had two joint ventures with local partners that being the only way foreigners would get to do the chemical business in China. In one of the joint ventures, Almond controlled 70% of the stock while in Chongqing, Almond had 51% stake. The Chinese directors in Chongqing are very active and increasingly vocal about the difficulties they are experiencing as a result of having to operate according to European standards. Rules against commissions and gifts are making it difficult for the business to operate in China despite such practices being acceptable and Almond’s competitors are utilizing such practices.

Almond had been listed in the New York Stock Exchange as well as the Frankfurt Stock Exchange and this means that the company has to adhere to the Foreign Corrupt Practices Act of the US government. The Act specifically stipulated that such incentives including bribery were forbidden. Wang, who is good at his work, is closing a huge sale worth 30 million Yuan. The purchasing manager is insisting on a 1% commission and says that other companies have offered him that amount. The sale is heavily dependent on the decision that will be made concerning the 1% commission but company ethics do not allow for that.

Investments of the company in environment and health safety are of great importance. Chen, the chairman of the joint venture and an executive of Chongqing are making complains about heavy spending of the company on waste treatment, environment and health safety concerns. Capitalism has long been the trend of companies where they prosper at the expense of the communities they operate in. Creating shared value is essential in redirecting capitalism in society. Moreover, shared value can enhance productivity and innovation and thus making managers more aware of human needs and the new markets yet to be explored.

It is the role of companies to help managers distinguish between different and wrong practices. There are two approaches that a manager can choose to base their decisions on; relativism and absolutism. With regards to relativists, no practice is considered sacred and none is considered wrong. However, absolutists consider the practices and values that are different from their own to be wrong practices (Geringer & Hebert, 1989). Ethical behavior of a company has to be shaped and guided by three principles which include respect for human values. The company has to also respect the local traditions in the foreign country as well as the belief that guides a people in deciding what is right or wrong (McDonald, 2010). It is a crucial ethical practice that differences are respected. According to research, there exist differences in management ethics among various cultures and respecting these differences translates to the recognition of the weaknesses and strengths of these cultures. It is however necessary to point out that some activities are unacceptable and wrong no matter the place where they take place. In the same light, what one considers wrong might be acceptable to another person.

A thin line stands between wrong and right and in order for companies to function appropriately; actions and decisions of managers must be guided by core human values. These core human values stipulate the minimum acceptable ethical values for companies (Inkpen & Beamish, 1997). Among the very basic human values is the right to good health, economic advancement and better improved living standards. The Golden rule of reciprocity where one should always do to others what they want to be done to them is a universal human value that is recognized in everywhere (Husted & Allen, 2008). It is necessary that the codes of conduct be used as guidelines by managers to guide the operations of the company. This should not be interpreted to mean that employees in the host country need to renounce their own values and principles (Rosenberg, 1987).

It is the role of every manager to be able to spot acts and practices that are intolerable and through this they will be able to exercise good judgment whenever ethical conflict arises. It is rewarding to create an ethical culture in the company that rewards ethical behavior (Coulby, 2006). It is also essential that formal standards of a corporate together with its values be treated as absolutes. Moreover, these ethical standards must be adhered to strictly and should not be wavered whatsoever, either abroad or at home (Lähteenmäki, 2004). Designing and implementing terms of engagement with suppliers and customers is of utmost importance. It is advisable to have laid rules which can act as reference point so as to avoid spontaneous decisions made based on personal beliefs. Getting foreign business units involved in helping to formulate and interpret ethical standards is highly recommended (Geringer & Hebert, 1989). This is because they will provide ethics education as well as create processes to suit the local setups that will be beneficial for the managers during ethical conflict resolution.

It requires team effort in order to be able to successfully deal with institutional corruption especially in host countries. Individually, a Liu cannot wash away a culture of corruption from the institution despite the number of times he turns down bribes (Coglianese et al., 2003). Moreover, whenever faced with challenging issues, it is important that managers exercise moral imagination. This is an art that involves resolving tension creatively and responsibly.

Cultural relativism explains that no cultural ethics are superior to another. It goes further to explain that if bribery is acceptable in a particular country, this does not mean that their attitude is better or worse than that of people who do not uphold acts of bribery. It has been a creed of cultural relativists that “when in Rome, do as the Romans do” (Geringer & Hebert, 1989). This is extremely tempting especially because at times, failing to do what the locals are used to means forfeiting business opportunities. Wang, the Vice President in charge of sales for the Chongqing venture is close to making a huge sale worth 30 million Yuan although this sale is dependent upon the company’s ability to offer the purchasing manager 1%commission since that is the kind of business he has been doing with other companies (Heffernan, 2004).

On the other hand, ethical imperialism advocates for standing for one’s principles and values everywhere, just like they do at home. This approach has been considered clearly inadequate despite its understandably appealing approach. Ethical imperialism is based upon doctrines of absolutism theory (Frederick, 2002). The theory is based on various problematic principles. Absolutists have the notion that there is only one list of truth and can be expressed with one list of concepts which advocate for maintaining same line of behavior around the world (Lähteenmäki, 2004). Secondly, absolutism makes the assumption that everyone must express moral truth while adhering to the pre determined concepts.

There are various forms of analysis which Lui Peijun can employ in his quest of finding a solution to the prevailing crisis in the company. The economic analysis focuses on the best decision that will act in favor of the company’s profits (Mascarenhas, 1982). If Lui was to utilize this economic analysis approach, he would have considered the huge sale which Wang was almost closing based on the benefits it would have brought to the company without considering all other aspects of the company’s traditions. Legal analysis focuses only on meeting legal requirements of both the host and parent countries (Coulby, 2006). Ethical analysis on the other hand focuses beyond what the company aims to gain in terms of profits and the legal regulations of both home and parent countries. Ethical analysis considers what is the right thing to do based on the organizational tradition, the national culture in which the firm operates and personal ethical beliefs. It is recommended that ethical issues be put at the forefront of every analysis other than legal or economic issues. This is because the outcome of every engagement has consequences for people whether they were intended or not.

It is important that Liu stands and advocates for the rights and principles of the company. Almond’s is an international company and bending important rules in order to achieve short term goals could cost the company its growth prospects for the future. It is therefore essential for the company to be in tandem with German ethics for the long term success of the company. Ethically speaking, it is important to act based on what is the right thing to do. Also, the organizational tradition, personal ethical beliefs and the national culture in which the firm operates in has to be adhered to. Finding the drawing board between this two is what is really essential. The company has to maintain its standards and traditions while trying to find ways of survival and operating in China. Therefore, the Chinese guanxi concept might come in handy in trying to achieve a win-win scenario (Coglianese et al., 2003). It will serve the company good if individual relationships will be cultivated with the aim of creating networks of influence. If Almond builds and maintains a relationship of trust and reciprocity with the Chinese partners, then business does not have to suffer as a result of lost sales (Limaye & Victor, 1991). This way, the company will not have compromised on its traditions and standards and the Chinese people will not feel as though they have to bend to the German rules. It will be a scenario where all the parties get to go home happy.

Liu should also take time to study the cultural dimension of the company through which he will be able to understand what values, thoughts and ideas are of importance for both parties in the joint venture. An individualistic society upholds values of independence and freedom whereas a collectivistic society values consensus and group harmony (Lane et al., 2001). It is important that Liu understands the argument of both the Chinese and German side. The training is an appropriate forum where such delicate issues that affect the company can be discussed after which a consensus be arrived at. For the company to continue operating successfully in China, the business environment in China has to be well understood. The company might have such good prospects but the business environment might make it impossible for the business to thrive. Completely assuming the Chinese business structure might not be in the best of the company, and therefore Liu should strive to strike a balance without hurting either party (William et al., 1998). It is important to get the stakeholders involved so that they can be able to find an appropriate solution collectively. This way, the Chinese partners will not withdraw from the business, a move that will affect the company operations in China negatively. Moreover, the company’s traditions and structures will not be compromised.

During future engagements between the German- Chinese joint venture, a number of cross cultural issues are likely to emerge. Safety and environment practices seem not to be a priority to the Chinese people. This is evident as they even referred to the investment on waste treatment and management as a frivolous and wasteful one. The Chongqing production facility had been built according to German national standards, including the safety equipment, shoes, helmets and protective clothing which had all come from Europe. To the Chinese, safety does not come first, profits do and that is why they considered this a luxurious expenditure. This can be a source of major clash especially because of varying interests and goals.

European standards stipulate that factory waste be treated as substance that is highly dangerous and should be processed with a cleaning agent that has been specially formulated to detoxify the waste (William et al., 1998). This is likely to cost millions of Yuan’s and the partners are mesmerized at this. Chinese law does not mandate that such processing of toxic waste be carried out and therefore to the Chinese partners, this is a waste of resources (Heffernan, 2004). Liu refused to compromise especially because he had seen the consequences that lesser standards had when he was working for another Chinese chemical company. The company had suffered explosion injuring 200 staff members as well as residents in the surrounding area. Moreover, production activities were halted for one entire month. The Chinese see this initiative as a waste of resources which would otherwise be redirected into other useful channels including gifts and commissions which would facilitate further sales for the business.

The Chinese partners are bent on taking shortcuts toward success without considering the long term effects this might have on the environment and the community at large. All they see is that the venture is only making them spend and spend on unnecessary waste (Inkpen & Beamish, 1997). It also appears that the Chinese would have preferred on downscaling the costs on payments and salaries without considering the fact that this would demoralize the staff. A demoralized group of employees would translate to losses in the long run.

Chen also points out that Liu is planning to launch SAP’s ERP software which will be used to synchronize the joint venture with the headquarters. This is yet another expensive venture which the Chinese partners do not see important. They are overly concerned about when this spending will stop and then comes this (Lane et al., 2001). This software will positively benefit the operations of the company but it is not really a priority for the Chinese partners.

In order to be able to deal with cross cultural issues appropriately, Almond needs to set an example by establishing standards for ethics and safety (Coulby, 2006). It is also important for the Chinese partners to understand that by bowing to hidden rules, a company is likely to achieve its short term success goals. However, the company is also most likely to fail in the long term. Business environments are evolving and China is a good example since it is not what it was 30 years ago. The evolution does not end there but rather, it will continue to evolve.

Conclusion

In conclusion, Lui needs to put various factors into consideration before embarking on any decision. Lui might want to consider whether the product is for export or to be used locally. If the product is for export, production should be done based on the high German standards. However, if the products are to be used domestically, then the company might want to consider guidelines that comply with the Chinese law (Inkpen & Beamish, 1997). Moreover, if the SAP software is an expensive undertaking for the company, then the joint venture might wasn’t to explore and consider other cost effective options which are also compatible with the global Almond system.

Increased pressure on companies to consider safety and environmental protection issues is essential. It is therefore recommended that companies take up high standard measures towards adhering to the stated rules and regulations (Inkpen & Beamish, 1997). The actions should be even higher than the recommendations of the country, like China, if they are not up to standard. This should be taken positively especially because it will benefit the company in the long run.

Both the Germans and Chinese have their own values and standard operating procedures with inform how they run their businesses. The Chinese seem bent on profits while the Germans are keen on safety and environmental conservation (Geringer & Hebert, 1989). Both should not be faulted especially because they are standing up for their values. The best approach would be to find solutions that work for both values without totally compromising on the values of one. Liu is in a difficult situation of mediating a resolution between the Chinese partners and the Germans. However, it is important that he realizes that he ought to persuade the Chinese partners using emotions while employing reason when dealing with the German side.

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