June 22, 2009 / 7:18 AM / 9 years ago

Morals vs profits, a tug of war for business in China

BEIJING (Reuters) - Beyond being good corporate citizens, do international firms operating in China have a moral duty to advance democracy and human rights?

A porter carries luggage past a group of reception staff that are reflected in the floor as they stand in the foyer of the five-star rated Sofitel Hotel in Beijing November 19, 2007. REUTERS/David Gray

Executives roll their eyes at the question: the typical answer is that companies know they must set an example in upholding labor laws or face the wrath of consumers and the threat of stiffer regulation; but no, multinationals have no business meddling in Chinese politics.

Michael Santoro, a professor of business ethics at Rutgers Business School in New Jersey, challenges that conventional view, arguing that foreign business can and should do more in the coming decade to shape social and political change in China.

In a new book, “China 2020,” Santoro says it is in the economic interest of Western firms to abandon their “complacent partnership” with the Chinese government.

He wants them to stick their necks out and press for things such as an independent judiciary and Internet freedom — topical in light of fears that China’s order that all new personal computers must carry anti-pornography filtering software was a cloaked way of tightening censorship.

Multinationals think it would be foolish and culturally insensitive to wade into such deep waters, but in fact they run a bigger risk if they do not get involved, Santoro says.

“Foreign investment in China will never truly be secure unless it is embedded in a society where rights, including economic rights, are respected, where the government bureaucracy is effective in enforcing market regulations, and where a strong and independent rule of law protects the rights and economic interests of its citizens,” Santoro writes.


The publication of the book coincides with the twentieth anniversary of the killings of hundreds around Beijing’s Tiananmen Square after weeks of protests against corruption and a lack of freedom of speech.

That does not make foreign executives that Santoro is seeking to stir into action any more receptive to his arguments.

Joerg Wuttke, president of the European Union Chamber of Commerce in China, said foreign firms should not have to justify themselves by showing that they are working toward the ideal of democratic institutions.

“In the real world, their influence on local governments is minimal,” Wuttke said. “Moreover, multinationals are unlikely to exercise whatever influence they might actually have if this adversely affects the efficiency and profitability of their normal business operations.”

On the ground, international companies were making a practical difference in China under the broad banner of corporate social responsibility (CSR), he said.

They might not fight for freedom of speech, but firms were raising workplace standards, investing in skills and setting quantifiable energy and environmental protection targets.

Wuttke said manufacturing firms put weight on CSR even though the investment was often seen as a direct threat to profitability because domestic competitors ignored baseline norms that Western firms took for granted.

“In an uncertain regulatory climate, competition from local operators who take advantage of weak legal structures to cut corners on employee health and safety and labor standards performance can be crippling,” he said.

In a nutshell: don’t blame us, Professor Santoro.


Zhang Xubiao, who manages a CSR project in the textile industry for the International Labour Organization in Beijing, said many big Chinese state-owned enterprises also had a good track record.

“But those downstream of the supply chain are small and weak and their performance is sometimes a problem,” Zhang said. “In many small factories the manager and workforce don’t trust each other. So building trust is the place to start.”

The costly recall in 2007 by Mattel MAT.N of millions of toys tainted with lead paint showed the business danger for Western firms if they fail to hold their suppliers to account.

Sarah Bajc, an executive with hiSoft Technology International, a China-based global information technology outsourcing company, said foreign firms had an absolute obligation to import, through osmosis, their standards and expectations for quality control and business behavior.

“It’s not about not wanting to adapt to a local culture. It’s about the way that business globally is done,” Bajc said.

“It’s not really a Western standard. If Chinese companies want to compete globally, they also need to learn through example those methods of behavior,” she added.

Chinese can bristle when foreigners complain about pervasive bribery and how insiders use their connections, or guanxi, to win business.

“There’s been huge progress. That’s not to say there’s no corruption. Corruption is still widespread, but is it as bad as before? I would say ‘no’,” said a senior executive at a U.S. multinational, who declined to be named because she would have had to clear her remarks with her company.


Santoro says the resentment many Chinese feel over outside criticism should not prevent foreign businesses, flanked by their governments, from adopting an agenda for change that goes well beyond the traditional bounds of corporate social responsibility.

“Multinational corporations do possess great power, wealth, and influence, and therefore they do have a responsibility to help to shoulder the burdens of enforcing human rights,” he writes.

Speaking to executives at a forum in Beijing to launch his book, Santoro said they needed to show “backbone and courage.”

“It is unacceptable that no major business has initiated a court action against any level of Chinese government for anything,” he said.

“It’s also dangerous to your future economic well-being. That is not the kind of country that you want to be investing large sums of money in, because the future, without a settled rule of law, is very uncertain,” he said.

In launching a legal call to arms, Santoro wants Western businesses to reconsider some of their “short-sighted and self-defeating presuppositions” about the best way of promoting their interests in China.

But some people on the ground feel that it is a confrontation in court that would be self-defeating.

Clare Pearson, who runs ethicaledge, a consultancy in Beijing, said Santoro was wearing cultural blinkers.

“Companies aren’t the new missionaries,” Pearson said.

“The last thing you want to do is to get somebody to lose face in public,” she said, advising, “Get close before you get critical.”

Editing by Mathew Veedon

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