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New understanding of business ethics?

The Lucent case: firing of execs calls for transparency in China
New understanding of business ethics?

The following news recently came over the wire: Lucent sacks four China executives after internal corruption audit. What did these managers do that was so wrong? The way the issue is being addressed in PRC offers a new understanding of the changing business landscape.

Lucent says that the Chinese executives were “Separated from the company because of internal control deficiencies”. Only one executive has talked. “I can promise that I have not engaged in any bribery. I will find an opportunity to formally clarify the situation to the outside world, because it has greatly damaged my reputation and credibility, and the decision by the headquarters was not a responsible one,” he says. Chinese sources described him as speaking rather “lightly” when saying that he was “not so sure about the others”.

The situation arose after Lucent, stinging from accusations of impropriety in Saudi Arabia, took a normal step in post-Enron/WorldCom scenario to maintain stock price viability, reputation and positive perception – all fairly new concerns in Chinese business. Lucent conducted an investigation of its operations in 23 countries, and submitted the report to the Securities and Exchange Commission (SEC). It cited instances of violations of the U.S. Foreign Corrupt Practices Act (FCPA) stemming from employees at the Qingdao operations in Eastern China for granting favors to quasi-government officials in order to win large-scale contracts. The PRC market accounts for 11% of Lucent’s revenues, second only to the US. The company recently won a US$350m contract from PRC’s second-largest telecom carrier. Of the 23 operations, problems were discovered only here. This is not surprising to anyone doing business in Peoples Republic of China.
What has been surprising is that it has taken American business rule to bring into the open how those habits do not fit with global standards that emphasize transparency and disclosure. Rather than taking a xenophobic attitude, the Chinese media sees the actions as positive, and has been very critical of the PRC’s inability to reform. Many have lamented that it will be difficult but absolutely necessary to change the “rules of the game”, whereby companies must “wine and dine” or give gifts to local officials to get ahead in business. The debate is over where the line is drawn between bribery and normal procedures under a Chinese cultural context. If it is wrong to be overly favorable and provide local officials opportunities to benefit, then many firms are in trouble. We have to understand that every transaction in PRC is linked to some level of official involvement, whether a company is paying a fee to use a public facility or, in this case, a large multinational telco is signing a contract with a domestic telco. In globalized business this has international implications.
Major publications in PRC have commented on this case to target corruption and the government itself, calling for leaders to take responsibility. China Business states, “This unprecedented issue aims at the underlying rule of business operations in China, and should provoke the government and enterprises to examine themselves. Everybody in business knows it so well. The only reason that executives have been sacked is that they obeyed the rules of the game in business operations in China”. The Beijing News said, “Reputation is easily lost and hard to regain”. And the Beijing Youth Daily suggested that investigators dig up the whole “radish” of rotten executives, rather than only the “leaves” that show on the surface. Only by grouping all the bad apples together in one boat and dumping it can regulate the industry purchasing market. The insight that businesses and officials must focus on transparency and improved definitions of relationship is an extremely positive message, making this debate very healthy. The sense of growing frustration by China’s business elite with time, energy and resources spent on “relationships” is an important change. The attention paid to transparency and international reputation is significant, showing that PRC officials are getting serious about becoming a global business power.
(Source The Hoffman Agency)
Gerhard B. Wolski
EPP EUROPE 401
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Titelbild EPP EUROPE Electronics Production and Test 11
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11.2023
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