Developing responsible leaders in China- 2011

Developing Responsible Leaders in China:

a challenge but a survival imperative

Henri-Claude de BETTIGNIESDistinguished Emeritus Professor of Globally Responsible Leadership, CEIBS, Shanghai

The Aviva Chair Emeritus Professor of Leadership & Responsibility, [email protected]

The Doughty Centre for Corporate ResponsibilityCranfield School of Management

May 11, 2011

Plan

• Introduction

– China: its originality and achievements– China: its challenge for leaders

– China: its approaches and proposed solutions– Implications for business

– Implications for business schools

• Conclusions

Great achievement of China

• Its achievements amaze the world: lifting 400 millions of people from poverty in a short time.

• Its process puzzles: blending socialism and capitalism.

• Its performance had a cost: making leaders aware and acting

• Its renaissance creates concerns: bringing uncertainty and fear of the new global power.

Amazing achievements

China

• Very different (in spite of the appearance, e.g in Shanghai)

• Very big (e.g. size of the' land, population)

China

• Very big (e.g. size of the' land, population)

A Comparison CountryCountryCountryCountry Area (kmArea (kmArea (kmArea (km²²²²)))) Population (in thousands)

2010 2010 2010 2010 2050 2050 2050 2050

China 9,596,960 1,330,141 1,303,723

India 3,287,590 1,173,108 1,656,554

Canada 9,984,670 33,760 41,136

EU 4,324,782 501,260 505,719 (2060)

USA 9,826,630 310,233 439,010

Source: Eurostat 2010; US Census; www.countrysize.com

China

• Very diverse (e.g. provinces, cultures, minorities)

China

• Very consistent and rapid growth

China annual GDP growth (10.2% average)

Source: World Bank

China

• Very rapidly moving into N°1 position

China as N°°°°1 ( "globally")• Energy-saving bulbs

• Computer materials• Cell phones

• Color TVs• Batteries for electrical

cars

• Domestic electrical appliances

• Solar panels• Windmills

• Textile

• Toys• Steel and iron

• Leather• Aspirin

• Tobacco• Piano

• Shoes• ……

Source: Le Point, Dec 24-31, 2009

China: a giant in bankingThe first 5 in market value (billion US$ 27/11/09)

Source: Bloomberg

Source: OICA; JAMA; Wikipedia; China Daily, Feb 3,2010

Automobile production (million units)

Internet users (million)

Source: CNNIC; ITU; Nielson

China 2011: toward N°1

• With such a large population (1.33 billion)– a great economic performance (>9% over a long

period)

– in a short time (30 years)

• No precedent in history

Hence, it nurtures admiration, anxietyand fear (internationally)

Developing "responsible leaders" in China:

a challenge.But a "necessity".

As China is faced with somany challenges…

Xi Jianghuo, Director of The China EnterpriseReform & Development Society, says

• "In fact, while Chinese enterprises and entrepreneurs are amassing huge amount of wealth, they are simultaneously contributing to serious negative impacts the include: the widening of the gap between the rich and the poor; practices of deceit and bribery; production and distribution of fraudulent goods; widespread pollution; unrecoverable environmental damage; and "sweatshops" labor practices that trample on human rights of workers"

• From Opening up the era of Chinese CSR, Leading Perspectives,Summer 2006, p.16

Examples of challenges

Work Safety, workers protection

Work Safety, workers protection

Economic Inefficiency,

Bribery/corruption

Economic Inefficiency,

Bribery/corruption

Legal framework and its implementation

Legal framework and its implementation

Intellectual Property

Intellectual Property

Public Healthcare,Social protection, Old age

Public Healthcare,Social protection, Old age

Pollution, Environmental

DegradationResourcesShortage (Water)

Pollution, Environmental

DegradationResourcesShortage (Water)

Gaps:Urban-rural, coastal-inland, genderHuman rights

Gaps:Urban-rural, coastal-inland, genderHuman rights

The environment challenge

The water challenge (1)

• The per capita water volume in China is one fourth of the world average.

• 90% of cities’ groundwater and 75% of rivers and lakes are polluted.

• As a result of widespread water pollution, 700 million people drink contaminated water every day.

• Waterborne diseases have created a rising number of premature deaths.

• Between November 2005 and January 2006, three large-scale incidents occurred, halting water supply for millions of people and raising awareness of the challenges ahead.

The water challenge (2)

• If present trends are not reversed, the World Bank forecasts that by 2020 there will be 30 million environmental refugees in China due to water stress.

• With 20% of the world’s population but only 7% of global water resources, China meets with a severe challenge.

• More than half of China’s 660 cities suffer from water shortages, affecting 160 million people.

Challenge: the environment

• China will spend 15 billion yuan (2.2 billion U.S. dollars) in the first half of this year to beef up sewage treatment facilities as the nation works to clean up its environment. (Ministry of Environmental Protection of the PRC, April 2010)

• China issued its first national census of pollution sources, with data showing that the country's wastewater discharge totaled more than 209 billion tons while waste gas emissions topped 63.7 trillion cubic meters in 2007. (Ministry of Environmental Protection of the PRC, April 2010)

Total global installed wind power capacity (GW)

Source: Global Wind Energy Council; South China Morning Post , April 14, 2010

The view of Premier Wen Jiabao(NPC speech, March 5th 2005, on the 11th 5-year plan, 2006-2011)

• "In the outline (draft), the target for reducing energy consumption per unit of GDP is set at about 20% and the target for cutting the total discharge of major pollutants is set at 10%. These targets are designed to address the acute problem of mounting pressure on resources and the environment…. We must work ceaselessly if we are to create clean and pleasant living and working conditions for the people and leave our future generations with blue skies, green land, clear water and verdant mountains …"

Leadership & Responsibility: the dysfunctions

• Poor safety and labor treatment:Migrant workers treatment, low wages (but increasing), workers unpaid, child labor, many coal mine accidents and casualties, miners suffer from pneumoconiosis…

• Human rights abuses:- Arrests of journalists, academics, writers, artists, researchers, human rights activists, spiritual leaders and simply whistle-blowers…- Human organs (e.g. from executed prisoners) trade, often without prior consent- Censorship of the media, monitor the Internet to curb dissent.

The Migrant workers

Average salary of migrant workers (RMB per month)

2007 Green Paper of Population and Labor (published by Chinese Academy of Social Sciences); NBS

As of 2009

The "safety" challenge

Chine: accidents mortels dans les mines

Coal mines (deaths): government intervention

Source: The State Administration of Coal Mine Safety; State Work Safety Supervision Administration

But government intervenes

The "corruption" challenge

CPI (Corruption Perceptions Index) ranking2000 2005 2009

Finland 1 2 6New Zealand 3 2 1

Canada 5 14 8Singapore 6 5 3

UK 10 11 17US 14 17 19

Germany 17 16 14France 21 18 24Japan 23 21 17

South Korea 48 40 39China 63 78 79India 69 88 84

Philipines 69 117 139Russia 82 126 146

Indonesia 85 137 111

Source: Transparency International, 2010

Corruption

• About 150,000 officials being punished every year for bribery, corruption and other offenses. (The New York Times, Sept 24, 2009)

• In February, 2010, the party issued a new code in the hope of ending a problem that exploded in 2009 with the conviction of 106,000 officials for corruption. (Central Commission for Discipline Inspection)

Corruption

• “We will give high priority to fighting corruption and encouraging integrity. This has a direct bearing on the firmness of our gripon political power.” (Premier Wen Jiabao, March 2010, the National People’s Congress)

• In 2009, according to the Ministry of Supervision and the CCP’sCommission for Discipline, more than 100,000 officials were punished for corruption and 4.44 billion yuan (US $650 million) were recovered. The number of officials arrested and punished for corruption involving more than 1 million yuan (US $146,500) increased by 19 percent in the first 11 months of 2009compared to the same period in 2008. At least 15 corrupt high ranking officials were punished, the highest in 30 years.

Corruption: leaders take action

• About 150,000 officials being punished every year for bribery, corruption and other offenses. (The New York Times, Sept 24, 2009)

• Action is taken: in February, 2010, the party issued a new code in the hope of ending a problem that exploded in 2009 with the conviction of 106,000 officials for corruption. (Central Commission for Discipline Inspection)

Corruption: leaders take action• “We will give high priority to fighting corruption and

encouraging integrity. This has a direct bearing on the firmness of our grip on political power.” (Premier Wen Jiabao, March 2010, the National People’s Congress)

• In 2009, according to the Ministry of Supervision and the CCP’s Commission for Discipline, more than 100,000 officials were punished for corruption and 4.44 billion yuan(US $650 million) were recovered. The number of officials arrested and punished for corruption involving more than 1 million yuan (US $146,500) increased by 19 percent in the first 11 months of 2009 compared to the same period in 2008. At least 15 corrupt high ranking officials were punished, the highest in 30 years.

Corruption cases

Name Position Crime Sanction Date

LI Peiyang

Former head of Beijing airport's management

company

Taking bribery and embezzling of US$16 million

Death penalty Aug, 2009

WANG Yi

Former vice president of the

China Development Bank

Taking bribes totaling RMB 11.96

million (US$1.76 million)

Death with a two-year reprieve

April, 2010

CHEN LiangyuFormer Shanghai Communist Party

Chief

Taking bribery of US$340,000

18 years in jail April, 2008

ZHENG Xiaoyu

Former director of China’s top food and drug safety

agency

Taking bribes of 6.49 million RMB (US$ 850,000)

Death penalty Jun, 2007

Corruption: some recent cases (2)

Name Position Crime Sanction Date

LIU ZhihuaFormer vice

mayor of BeijingTaking bribes

of 1 million US$Death with a two-

year reprieveJan, 2009

CHEN Tonghai

Former chairman of Sinopec Corp.

Taking bribes of 28 million

US$Death with a two-

year reprieveJuly, 2009

WEN QiangFormer

Chongqing justice chief

Taking bribes of 2.4 million

US$Death penalty April, 2010

HUANG Guangyu

Founder & CEO of GOME Electrical

Appliances Holdings Ltd,

Bribery, insider trading and

illegal business dealings

14 years of prison, fine: RMB 600M,

& property confiscated: RMB

200 M

May 18, 2010

Corruption

• “Corruption has not derailed China’s economic rise, but it’s rotting the establishment of a rule of law. The Chinese government has more than 1,200 laws, rules and directions against corruption, but implication is ineffective. (Prof. GAO Quanxin, the Chinese Academy of Social Science)

• “Corruption is the glue that keeps the party stuck together. Getting rid of it is not possible as long as they keep this system.” (Prof. PEI Minxin, Claremont McKenna College )

Source: The New York Times, Sept 4, 2009

Some Business Leaders give theirposition, explicitely

(Wang Licheng, Chairman of the Board, Huali Group)

• "Commercial bribery has become a malicious tumor hindering the healthydevelopment of Chinese enterprises. If wecompete through bribery, it will set a corrupt standard for our whole commercial society and ultimately none of us willwin…" (China Today, September 2006, p16)


• "We will work hard to build a clean government and combat corruption. We will conscientiously carry out all tasks and measures for punishing and preventing corruption. We will launch a campaign this year to combat bribery in business, focusing on unhealthy practices in construction, land transfers,property transactions, purchase and sale of drugs, and government procurement, in order to resolutely put a stop to irregular transactions and we will investigate and prosecute cases of bribery in business in accordance with the law. We will continue to remedy improper practices that harm public interests and strive to resolve such outstanding problems as arbitrary educational charges and excessively high medical costs…"

• "Government employees at all levels, especially leadingofficials, must be devoted, diligent and responsible and serve the people wholeheartedly… They also need to be realistic and pragmatic in their approach to work, refrain from making empty promises, triumph over bureaucracy, formalism, deception and exaggeration, and fully carry out all tasks and assignments…"

And, a few other challenges

Intellectual Property Rights

• FY 2009 seizures of IPR infringing products from China totaled $204.7M and accounted for 79% of the total domestic value for all IPR seizures. (U.S. Customs and Border Protection, U.S. Immigration and Customs Enforcement, Oct 2009)

• China deals with 200,000 counterfeit cases valued 3.37 billion RMB (490 million US$) in 2009. (Xinhua, Jan 2010 )

• Branded goods, food ,building materials, home appliances, mobile phones ,auto parts, even medicines…

Cooking the books ++• Shanghai Worldbest, a medicine unit of China's State-owned

textile and pharmaceutical conglomerate, said in a statement that it used inaccurate date to inflate profit by 65.11 million yuan (US$ 8.1million) from 2001 to 2004. (China International Business, O6.06 p.46)

• In China, a number of top bankers have been charged with fraud in recent years. Example: Zhou Lin, Shenzhen Development Bank) (WSJ 32.04.06), Liu Xiaoguang (GM of SOE Beijing Capital Group) (FT, 21.06.06)

• Corruption cases in China are becoming more sophisticated as the economy continues its rapid development and pose unique challenges to enforcement authorities… "Almost every type of financial institution has seen the emergence of criminal cases involving the solicitation of bribes in return for loans" Mr Ye Feng, (Director General at the Supreme People Procurate). Last year Chinese prosecutors launched more than 41.000 graft investigations, ¾ of which led to charges… The Chinese government is concerned that corruption will continue to fuel popular discontent and unrest, especially in rural Areas where local officials often exercise absolute authority…'" (FT, 10.05.06)

Leaders are fully aware of the challenges

Developing "responsible leaders":a survival imperative

Where will change come from?

1. Government regulations and guidance

• The government has an answer and wants to implement it:

The "harmonious society"and…

"The concept of a harmonious society

is really China's rephrasing of the concept of CSR,

sustainable developmentand human rights in China"

(W. Valentino, China Daily, 27.10.2006, p. 11)

CSR in China? a change in process

1. A "fashion"? A buzzword?2. An often misunderstood concept3. A concept that induces scepticism4. Some successful examples5. From concept to implementation: what

can be done?6. Responsible competitiveness: a

"categorical imperative"

CSR in China

An often misunderstood concept

Some misconceptions (?)• CSR equals charity• CSR is philanthropy, giving money away• CSR is for big corporations• CSR adds to costs, too expensive• CSR is just "cosmetics", a PR effort• CSR is "not too pollute"• CSR is just a fashion, it will pass. A fad, or A new "religion"• CSR does not really pay, it just "costs"• Small companies have not time, no resource for CSR• CSR is "a trick to make us less competitive, under the

cover of doing good"• My competitors do not pay attention, why should I

• CSR Yes! in 10 years (when I will be rich… when I willhave time)


• We must sustain steady, rapid economic development, speed up change of the pattern of economic growth, improve China's capacity for independent innovation, balance development between urban and rural areas and among regions, intensify efforts to build a harmonious society, deepen reforms and open wider to the outside world, we need to change our way of thinking about development, create a new pattern of growth, improve the quality of development, and make economic and social development more people-oriented, comprehensive, balanced and sustainable…"

Where will change come from (beyond the promotion of Confucius and the "harmonious society")?

1. Government

2. International standard certification, e.g. Social Accountability 8000 (SA8000, 26000)?

3. Voluntary participation in international efforts e.g. Global Compact, OECD code of conduct, Caux Roundtable?

4. Corporate codes of conduct?5. Unions?6. Pressures from the civil society: media, NGO,

consumers?7. Education: in business schools (teaching CSR)?8. Business leaders: "responsible" business leaders?9. Transfer of management practices for competitive

advantage?10. Globalization pressure (foreign pressure on supply

chain)?

CSR in China

But a concept progressivelyimplemented

with some success.

Groups active in CSR Reporting in China

• PetroChina• CNOOC• China Mobile• Zhejiang Mobile• PingAn Insurance• Baosteel• Guizhou Telecom• JX Mobile• China Life• State Grid• Chalco• Cosco• Haier• Xizi UHC• SinoChem• Lenovo• Hysan AsiaPacific• Yili Group• …

• Degussa• John Crane• Volswagen• Atlas Copco• Total• Shell China• Novozymes• Toshiba China• Sony China• Pfizer• Omron• BASF• Coca Cola• Nike• Bayer• Standard Chartered• APCO• …

Number of sustainability (CSR) reports

Source: CSR China

Global Compact participants

Source: Global Compact, 2010

What can be done to developresponsible leaders in China?

Discuss with the skeptics (1)

• Make clear what CSR is not:– CSR is not philanthropy or a charitable deed– CSR is not a gimmick, a gadget, a fad– CSR is not cultural imperialism– CSR is not a luxury for rich companies– CSR is not a costly investment turning into a sunk

cost– CSR is not a constraint induced by NGOs' pressure– CSR is not an old product in a new package to create

a new market for consultants

What can business leaders do, in China?(1)

• Understand the evidence that:– Successful corporations need a healthy

society and that a healthy society needs successful companies

– Such interdependence makes CSR a strategic necessity, win-win for both (given a good identification of the societal problems the firm is best equipped to help solve and from which it can gain the greatest competitive benefit).

• Realize that CSR offers an opportunity to be proactive.


• The pressure is growing from:– The employees will (increasingly) demand it– The government, pushing for the "harmonious

society"– The civil society; pushing through local

communities, medias, NGOs, …– The international community, pushing through

international organizations, foreign customers, supply chain partners and investors, …

– Some business leaders who want to build their brand

– Some shareholders


• Understand the evidence that:– Successful corporations need a healthy

society and that a healthy society needs successful companies

– Such interdependence makes CSR a strategic necessity, win-win for both (given a good identification of the societal problems the firm is best equipped to help solve and from which it can gain the greatest competitive benefit).

• Realize that CSR offers an opportunity to be proactive and that…


• The pressure is growing from:– The employees will (increasingly) demand it– The government, pushing for the "harmonious

society"– The civil society; pushing through local

communities, medias, NGOs, …– The international community, pushing through

international organizations, foreign customers, supply chain partners and investors, …

– Some business leaders who want to build their brand

– Some shareholders

Some proposals to conclude

A bright future?

• A government fully aware of the challenges.• A government driven by ambition but

pragmatism.• A government still in quasi "full" control (and

determined to hold to it).• A government "feeling the stones" as it makes

progress.• An urban population mostly satisfied with the

results achieved and by the opportunities it provides.

«Internationalization", global standards, values & CSR

• The globalization process brings pressure on Chinesevalues and behavior for common « global » standards:– Labor: e.g. elimination of child labor, minimum wages, union

recognition, working hours– Safety: e.g. equipments (helmet, shoes, belt), safer methods

and reliable technologies– Environment: e.g. emission limits, effluents treatment, waste

management, forest logging limits and methods– Human rights: e.g. freedom of expression, prisoners’ work

and control– Property rights: e.g. rules of property ownership, patenting

systems, protection of intellectual property• China access to WTO, entry into OECD, ILO etc…

brings obligations, acceptance of standards embedded into values.

Bringing CSR, through the growing pressure for global standards?

• It is supposed:– to bring "best practices", – to promote common pattern of behavior (easier to

understand and monitor)– To facilitate regional and global HR management– to level the playing field: every one using the same rules of

the game (a « global » game)• But:

– It is often ressented: ‘an imposition by the rich, or the West’– it is said to be inappropriate: ‘it does not fit into China’– It is too early: ‘In 10 years, yes, but not now’– Its implementation is improper: ‘the process totransfer the practices goes against our values’

Some "Dilemmas"On one hand:• I want to transfer our « best practices », because we have more

knowledge and experience: Chinese will have to adapt to ourmethods, approaches, practices and standards.

• Let’s use a code of conduct, to have everyone in our operationsin China sharing the core values of our corporate culture.

• We need a global, common corporate culture• On the other:• I must do in Rome as the Romans do (e.g. as I should not have

the arrogance to impose my values on the Chinese): this is whyI pay bribes (or outsource bribery to my local partner or to myagent).

• I have global standards through the code of conduct of mycompany, but I do not apply them here (e.g. for environment, for safety) as I prefer local laws (less demanding) and regulations(less stringent).

The double talk of best practices

• I shall rely upon and transfer « best practices » when they fit me: I have to be opportunistic

• When they do not, I will be a relativist (« It depends! », « There is nothing right or wrong per se… »), and « do in Rome as the Roman do »

• I will lobby against more labor regulation, and union development, but ask regulation for IP

• In any case, « the best practice is the one which contributes the best to the bottom line » (while I am here…): I am a utilitarian: the end justifies the means.

• In short: let’s implement my values, my best practices, but as long as it delivers the most value for my shareholders.

• It is Values for Value, rather than values for values• « Best practices » remain a tool exclusively used to achieve

bottom line expectations

China’s leaders feel responsible to quickly develop their own modernity

• As China is engaged in its development process, its over-heated economy is:

• Associated to many issues, including:– Environmental deterioration– Infringement of intellectual property rights– Poor safety and labor treatment – Bribery and corruption– Human rights abuses

• The Consequence of a mindset.– China, humiliated by the imperialist West for more than a century, is

motivated by revenge, keen to catch up with the West and to (re)buildits global power. A new “late development effect”?

– China wants to develop a modern society, but in its own definition, its own terms, on the basis of its own (Confucian or eclectic) values. An attempt to reinvent modernity?

• And China may (re?) define CSR in its own way

Developing "responsible leaders" in China:

Not a choice,But an "imperative"

To conclude: who will be the "responsible leaders"?

• China's long term performance will rely upon its capacity to develop responsible leaders able to manage complexity and willing to build Sustainable Enterprises, i.e.– Will be men and women of character demonstrating strategic courage

to make the tough decisions needed to be made in the highly competitive Chinese and global environment.

– Will question the «command and control» approach and be willing to explore alternative management styles contributing to grow leaders.

– Will care, now, for the planet and the generations to come, integrating all stakeholders (present and future, in China and outside) in making their decisions

– Will be aware of and able to reconcile contradictions, to blend East & West, Public & Private, Personal & Professional, managing the interdependence as Yin and Yang.

– Will have a holistic vision, global that integrates the complexity and responsibility inherent to the China's power

– We willl need business schools and Faculty willing to take risk to innovate. Deans and some faculty members have to take the lead.

It will be long road…With many challenges on

the road…

We should remain optimistic

"If you think you are too small to make a difference, try sleeping in a room with a mosquito".

(African Proverb)