Tuesday, June 24, 2008

Compliance and Ethics in Asian Firms

A few weeks ago there was an article in the South China Morning Post (on 17 May, to be precise), where the head of a consultancy argued that the very notion of anyone with a responsibility for ethics and compliance (an Ethics Officer or a Compliance Officer) goes against Asian culture, where everything is done on the basis of relationships. The author was writing in a specifically Chinese context, so he refers of course to guanxi, which is entirely alien to rules-based ways of doing business - which are what enabled the West to begin to catch up with the East from the sixteenth century, and to outstrip the East from the eighteenth century.

Naturally, the job of the Head of a Consultancy is, among other things, to drum up business, so it is not suprising to find him arguing that if Chinese firms put Ethics and Compliance Officers in place, this will serve as a proxy for cultural change and so attract Western businesses and public sector organisations as clients and partners.

There is some truth to this, but if Chinese (or any other) firms appoint these Officers only for such a narrow-business purpose, they will soon discover that every business can play this game - and the suggested competitive advantage will disappear.

The real competitive advantage comes, as the West discovered after the sixteenth century, from driving ethical norms through an organisation, for the sake of the norms themselves because the norms give life and liberty and so empower the entire organisation. In other words, the norms do result in a competitive advantage, but putting the norms in place because of the advantage subverts the norms.

In fact, putting a norms-based culture in place is a gigantic task in national and regional cultures which are relationship-based. Principally because it is not easy for an individual entrepreneur or ruling clique to limit their power by appointing an Officer whose job is part fool, part prophet, part judge, part advocate and part business adviser: the Officer has to be able to challenge only the culture but also the individual(s) who are in charge.

However, there are a few examples of companies that have put in place a sufficiently rules-based culture within an overall relationships-based country or region. The Tata Group is probably the longest-lived and most outstanding but, as far as I know, nothing has been published on this particular aspect of the Group's experience (and they have never had a Compliance or Ethics Officer, to my knowledge, because that work was done by the Founder/ Chairman/ CEO rather than by someone else).

Clearly, Asian firms cannot become global leaders without transforming themselves so that they are newly based in ethics or norms. As Asian firms face that challenge, it will to be interesting to watch their journeys from being kingdoms, empires and oligarchies to becoming meritocracies based on the rule of law.

When a firm completes that task successfully, an even bigger challenge is how to prevent newly-rule-based-organisations in overall-relationship-cultures from sinking back into relationship-based-organisations once again. I don't believe there is any literature on how to prevent that, but there is at least some literature on how the phenomenon happens, for example studies of the degeneration of the Indian Administrative Service and the Indian defence services between British times (when they were rules-based) and now (when they seem to have become increasingly lax) Sphere: Related Content

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