Corruption and Governance in Asia

This book is focused upon the governance of firms in Asia. It is a concept that must be extended to include all forms of ‘venturing’ since co-joining firms seem to create conflicts between ‘us and them’ even if operating in one’s home nation, and more so if co-joining with a firm from abroad. However, we must say that we use the term ‘governance’ in this book to reflect those values developed ‘at home’ by governments that will be cascaded to their indigenous firms and institutions. We do not take a limiting view of ‘governance’ being entirely a function of corporations — though the interface between the public who lose much through poor ‘corporate’ governance has focused attention more on this aspect in recent months. We note various drivers over recent years, such as ‘globalization’ that has been a theme on the tongues of many managers. This is emphasized by the World Trade Organization (WTO) which stresses the transition from a national to a global economy in many Asian countries, most notably in China. Thus, it is prudent and timely to consider the nature of ‘governance’ — and its good and bad aspects — to aid our understanding of what may constitute ‘better’ joint governance in multinational firms.

Two factors have turned the attention of the governments of the developed world to the problems of corruption, the end of the cold war and the trends to globalisation. The end of the cold war has resulted in a far more critical attitude emerging amongst aid donors to the use of funds by recipient governments in the developing world, to issues of good governance, the rule of law and efficient public administration. Meanwhile, the globalisation of production and the challenges of the regulation of the movements of capital have resulted in attempts to regulate the international financial environment. For businesses, these demands will have a profound impact upon the way that they operate in the global economy. Whilst the pressure upon developing country governments to reform is driven, in part, by a desire to improve the investment environment for the private sector, it will also place legal constraints upon the behaviour of companies in these countries. Similarly attempts at international regulation to prevent tax avoidance and evasion and to prevent money laundering, will create additional obligations upon multinational companies and international financial institutions. This article will review the rationale for these developments and outline the various strands that are creating a new international environment for the new century.

The recent Asian upheaval revealed the macroeconomic risks and damages associated with political cronyism, a type of favoritism shown to associates without regard to their merit/qualifications. Cronyism is a very prevalent phenomenon in societies and organizations with certain cultural values such as paternalism, collectivism, and Confucianism. Despite it being cited as a major factor for Asian economic crisis and mismanagement of the Asian organizations, it is a concept that has not received due attention from management scholars. In order to better our understanding of cronyism in work organizations, we present a two-stage model, grounded in the Chinese/Asian cultural context, of the antecedents to cronyism, and present a number of propositions that follow from it.

In the West, the English language has popularized western management thinking, but the same cannot be said of eastern beliefs and philosophies. Apart from being constrained by the Chinese language that is neither spoken nor written in most parts of the world except Asia, the Orient is often viewed with a tinge of mysticism that made it almost culturally impossible for westerners to perceive. For these reasons, while there are no lack of strategic thinkers and philosophers in the East, their thoughts and philosophies are still not well disseminated let alone popularized throughout the world. With the economic opening of China, an appreciation of its strategic oriental thinking and use of philosophies is of increasing importance for managerial practice. With her rich wealth of history and talents, China has never been short of strategic thinkers and great philosophers. Apart from the eminent military strategist Sun Tzu, there were the eminent philosophers — Confucius (and his disciple, Mencius), and Lao Tzu (and his disciple, Chuang Tzu) — whose teachings have had a tremendous influence on Chinese civilization and culture. Interestingly, these three great Chinese thinkers — namely Sun Tzu, Confucius and Lao Tzu — were all contemporaries in Chinese history some 2500 years ago.

Every firm has a competitive strategy, whether explicit or implicit, that is employed to gain a competitive advantage over competitors. In the malfunctioning market and institutional environment of China, more often than not, the competitive edge is gained through extensive personal connections (guanxi). Gift-giving is perhaps the most consequential method in creating and employing guanxi. On many occasions gift-giving is simply associated with bribing and corruption. However, this chapter illustrates that by approaching the ethically loaded and yet theoretically and, by definition, controversial issue of corruption from a gift-giving approach one is able to unearth the complicated logic, risks and advantages involved in Chinese business networks. Based on ethnographic data, this chapter attempts to provide an insider point of view on the complex mechanisms of gift-giving in Chinese businesses. It shows that, in expanding and utilizing guanxi networks in the increasingly competitive environment, Chinese businessmen are actively competing with each other by differentiating their gifts in the most imaginative ways, thus forming a hidden marketplace of gifts.

Moral outrage was the response of the Chinese press, when Cheng Kejie, one of the country’s highest officials, Vice-Chairman of the Standing Committee of the National People’s Congress and former Governor of the Guangxi Zhuang Autonomous Region, was arrested on grounds of corruption on 25 April 2000. Cheng’s arrest came amidst a spate of serious corruption cases that reached into the top echelons of China’s state leadership (China Aktuell, 2000). His case attracted wide public attention in national and international Chinese media because of his high office, the number of officials implicated, and the involvement of his lover Li Ping (dubbed the “Jiang Qing of Guangxi” by the Hong Kong and overseas Chinese press) (Ming Pao, 2000), daughter-in-law of his predecessor in the position of Governor of Guangxi, and for years the most influential woman in Guangxi. This was not just a case of a local official embezzling public funds, but a story of love and greed of a popular political leader, who had achieved much for his province. This was also not the story of an anonymous mistress, but of an ambitious, intelligent and attractive woman using the position of, first, her father-in-law, then her lover, to systematically, and on a long-term basis, exploit the powers vested in the office of provincial governor.

Sokaiya literally means “general meeting handlers.” More specifically, they are corporate extortionists with (typically small) holdings of shares in targeted companies who extract payments from them in exchange for ensuring their annual shareholders’ meetings proceed quickly and smoothly. If not paid off, they may harass company executives at the meeting for hours with embarrassing questions about real or imagined corporate or personal shortcomings or wrongdoings. If paid off, they will not only refrain from causing trouble at the meeting themselves, but may also use verbal or physical intimidation to ensure no one else, including ordinary shareholders with grievances, is able to raise a question. It is illegal for the sokaiya to request such payments and for companies to provide them, yet many companies have been caught doing so in recent years, and some sokaiya groups still operate quite openly.

The legal framework and enforcement apparatus used in the fight against bribery are being steadily improved in many countries. The public and private sectors in Japan have participated in this trend. This chapter provides an overview of changes in the anti-corruption legal framework and a snapshot of corporate initiatives to fight against corruption in Japan.

Corruption refers to “the misuse of public power, office or authority for private benefit — through bribery, extortion, influence peddling, nepotism, fraud, speed money or embezzlement” (UNDP, 1999: 7). Defined thus, corruption is a serious problem afflicting many countries around the world with its own local manifestations (Jacoby et al., 1977: 6–7). In its cover story on “Corruption: The Asian Lubricant” in September 1974, the Far Eastern Economic Review (FEER) observed: “With pathetically few exceptions, the countries in this region are so riddled with corruption that the paying of ‘tea money’ has become almost a way of life.” In another cover story on “Corruption: Reform’s Dark Side” in the March 20th 1997 issue of the FEER, Aparisim Ghosh et al. (1997: 18) wrote:

Looking back on the Year of the Rat [1996] some time in the future, historians may well marvel at how much Asian newsprint and television time was devoted to reports and discussions on corruption in government. From Pakistan to Japan, corruption was the year’s biggest story.

The problem of corruption can be approached from each of three sets of factors that influence ethical behavior in organizations — individual characteristics, organizational factors, and opportunity. This paper emphasizes individual characteristics — in particular, development of the consciousness of the individual, including the individual’s level of moral development. We review these stages of moral development, as identified by psychological research. At pre-conventional stages individuals are tempted by opportunities for personal gain. In conventional stages, individuals may go along with corruption to fit in with the norms of their social group. At post-conventional stages individuals have the independence of character to resist corruption and to act according to what they hold to be universal principles of right and wrong. We describe a highest state of moral development — a natural law orientation — in which individuals spontaneously act to promote the general good. Natural-Law Based Management is presented as an approach that employs techniques to cultivate individual development in the direction of a natural law orientation. The Maharishi Corporate Development Program has applied this approach in numerous corporate settings in India and around the world to improve the overall effectiveness, well-being, and right action of managers and employees.

It is decided that the moral status of an organization is to be improved. That is to say that management procedures and decisions will be implemented to ensure that corruption and bad practice no longer feature in the organization or are a likely possibility. How is this to be achieved? What guidance is there for making the change? How do you manage the moral development of an organization? These question are not easy to answer and are the focus of this paper.

For many developing countries, the difficulties with orthodox development strategies lie not just in the relatively slow and uncertain pace of the development process but more significantly, in the very nature of the development model that has been adopted so far. It is a model in which excessive emphasis has been placed on the economic aspects, a model that has generated significant inequities, a model that is not meaningful for a large proportion of the world’s population, and a model that may not be sustainable in the longer-term. These concerns have provoked a critical questioning of present forms and processes of development, and have led to a search for better and more viable alternatives.¹