Ethical differences and Corporate Transparency …mobile.gcbe.us/2015_CBEC/data/Emily Lin, Tiffany...

2015 Cambridge Business & Economics Conference ISBN : 9780974211428

Ethical differences and Corporate Transparency comparing China, and the

United States of America- A comparison of countries on Ethics Position Questionnaire and

Hofstede’s Cultural Dimensions

Emily Lin, University of Texas at Dallas

Tiffany Wong, University of Texas at Dallas

July 1-2, 2015Cambridge, UK 1


Abstract

Through studies of ethical comparison, the Peoples’ Republic of China and the United States of

America are compared observationally. This research extends research drawn from Geert

Hofstede’s six dimensional model including Power Distance, Individualism, Masculinity,

Uncertainty Avoidance, Pragmatism and Indulgence. These six dimensions give a wider scope

on the differences between each of the three countries. Forsyth’s Ethics Post Questionnaire was

also utilized in terms of Relativism and Idealism, two terms evaluating differences in perception

of morals within different countries. Many differences between the East and West are derived

from cultural origins as well as influences of religion on societal belief. These findings assist

future studies in ethical comparison and also provide each country differentiation. Much research

has been done compare and contrast corporate reputation management in various countries based

on constructs of masculinity, culture, and ethics. However, little has been written about the

power audiences such as stakeholders and rival companies possess to either enhance or destroy a

company’s reputation and push them to censor information that is potentially harmful to the

company’s reputation. This research will provide a new perspective on how heavily corporate

reputation and transparency should be stressed, enforced and viewed in Western and Eastern

countries and how corporate censorship can effect business processes both positively and

negatively.

Purpose

The comparison of these constructs lay the ground work to study how business agreements can

be protected through corporate transparency laws that can be customized to specific regions to

better protect the corporation. Differences between China and the United States areslowly



trending to become countries of comparative research. The purpose of this paper is to depict and

pinpoint preliminarybusiness related ethical differences betweenthe People's Republic of China

and the United States for future comparative research projects.

A review of the empirical research on culture, ethics, and masculinity and corporate transparency

in Eastern and Western corporations was conducted to construct the overall paper. Because little

research has been done about corporate censorship, this paper investigates the causes of

corporations to feel the need to withhold information from their shareholders and business

partners.

Design/methodology/approach

For any company with multinational relations, the most imperative element of the relationship is

placing forth to understand the cultural fundamentals of management and power in different

locations. Because of the significant amount of money that can be lost without proper

preparation and reparation, multinational companies in particular must identify problems and/or

potential issues and solve them as soon as possible. This will in turn maximize that company’s

potential in management. The ways of life in one culture may or may not be done in the same

way in a partnering country base.

An American company is considering a possible business deal with a Chinese company. Both

companies seem to be in good standing but unbeknownst to both companies, the other is

withholding valuable information that could possibly thwart the course of the business deal.

Because this deal is important to both corporations, neither of them are willing to be completely

transparent to the other. The American Company does not want the Chinese company to know

that a top executive was caught partaking in fraudulent behavior and the Chinese company does



not want the American Company to know that their factories were not up to par with safety

standards and that it had already killed three people that year. This information is undoubtedly

important but it could negatively affect the deal. In today’s increasingly knowledge based world,

companies and organizations have realized the vital importance of corporate transparency, which

describes the extent to which a corporation's actions are observable by outsiders. This is a

consequence of regulation, local norms, and the set of information, privacy, and business policies

concerning corporate decision making and operations openness to employees, stakeholders,

shareholders and the general public. Without proper information, how can companies be sure

they are making the right decision to follow through with the deal? Consequently, severe

repercussions may arise later within the corporate relationship that may cause strain and

potentially harm the reputations of both companies.

For example, we can take a case of the infamous Chinese food scares. Kentucky Fried Chickenis

one of many large scale companies that have been effected by spoiled and questionable produce

in China. Along with other years full of issues, 2010 became the year that high levels of

antibiotics found their way into Chinese chicken farms.Yum! Brands, the parent company of

Kentucky Fried Chicken, failed to report this information to the appropriate authorities. In terms

of management, damage control, and customer awareness, this corporation failed ethical

perseverance in several categories. This produce scare resulted in a six percent decline in China

KFC sales. Similarly to the unfortunate example Kentucky Fried Chicken left in their recent

history, other companies also have issues they could avoid with proper knowledge of cultural

differences. This paper will delve into ethical differences between Hong Kong, China, and the

United States through Forsyth’s Ethics Position Questionnaire as well as cultural observations

and generalizations gathered from studies in the past utilizing each of the structures of Geert


http://en.wikipedia.org/wiki/Stakeholder_(corporate)


Hofstede's Six Dimensional Model. These models will assist my research of ethical

comparatively between countries.

Expected Findings

According to Cwiak (2014), “An organisation's reputation is its most relevant asset. The

perceptions of the various audiences with which an organisation interacts both directly and

indirectly can enhance or destroy that reputation.” Employees, stakeholders, shareholders and the

general public have the power to change the course of corporations with a single review. They

can greatly increase the value or completely tear apart a company’s positive standing. Reputation

is universally important, whether the organization is a lemonade stand or a Fortune 500

company, both are equally vulnerable and under the jurisdiction of their external audience. This

paper will examine the significance of corporate transparency within an organization and how

culture influences reputation management in Eastern and Western Countries. Transparency falls

into a wider category called corporate social responsibility (CSR) which may be defined in

general terms as "the obligation of the firm to use its resources in ways to benefit society,

through committed participation as a member of society, taking into account the society at large

and improving welfare of society at large independent of direct gains of the company" (Kok et

al., 2001).

Because ethical or unethical behavior is contextual and perceptual, individuals form differing

views of what constitutes ethical and unethical behaviors (Carlson and Kacmar, 1997). The

question arises, is it unethical to unidentify certain information from the general public to uphold

a corporation’s good name? Reputation is universal. People do not want to trust other people

who are said to be untrustworthy. The definition of reputation varies depending on the cultural

background of the company or person and can also be fuzzy and subjective.Although the term


http://www.sciencedirect.com/science/article/pii/S0883902613000761#bb0075


reputation is clearly defined by Webster’s Revised Unabridged Dictionary (1913) as “the

estimation in which one is held; character in public opinion; the character to attribute to a person,

thing or action; repute”, over the years authors in this area have adopted different, sometimes

even contradictory definitions for the term corporate reputation (Gotsi& Wilson 2001). But this

paper will be looking through the optic of corporate reputation from an outsider’s point of view

and will identify key reasons why corporate transparency is vital to benefit the long term

direction of the business.

The increased growth of international relations across countries and multinational corporations

have stimulated a demanded response to unethical conduct that have sprung up along the

way.Through this study of ethical disparity, it is expected to find insufficient cultural

misunderstandings to be the root of issues in ethical dysfunctions. Formal paths of

communication cover set strategies in business practices-worldwide common practice standards.

However informal ways of communication would arise through not only consider cross cultural

differences, but also through non transparent attitudes in situational ethical decisions. Sims, R.

L., &Gegez, A. (2004).Because China has become one of The United States’ biggest business

partners, it is pertinent for both sides to be transparent in their business practices. The definition

of “ethics” differs in China and The United States, making it difficult to determine the extent in

which the companies have to compensate for the other. Issues such as government influence

contribute greatly to the propensity of companies to feel the need for censorship.

Originality/Value

This conceptual paper, useful for companies and leaders working in the global business industry,

uses empirical research to show the disparity between Eastern and Western ethical standards and

its impact on corporation reputation management to offer a better reason why corporate



transparency should be stressed worldwide. Because Eastern and Western economies are on the

rise, there has become a need to further inform ethical differences amongst countries such as

these. As more influential world economic powers skyrocket in the Western and upcoming

Eastern world, it becomes more important to establish a stronger understanding of the wedge of

cultural differences between Eastern and Western locations. Both formal and informal ways of

communication are integrated into an organization’s communication system. (Ho, C.F. 2013)

The cross cultural references between local and national standards and performance of

businesses have been a higher topic of interest in the past few years due to worldwide unethical

performances in high profile companies (take for example the multiple companies in the Wall

Street bailout that caused the United States’ financial crises in 2008) and misunderstanding

between multicultural management. In the United States, there is a trend of instilling traits of

personable communication in collegiate curriculums as well as employee training. In order to

nurture these skills and learn implementations of global communication, the differences between

ethical values in countries across the world are imperative to personal and corporate growth. The

purpose of this paper is to provide an empirical insight of Hong Kong and the United States to

show how ethical implications affect their respective economic practices, as well as value

differences and similarities held in China. “Rapidly changing markets, high buyer expectations,

and fast technological developments, along with increased international competition, represent

some of the main factors characterizing the modern business environment.” Barnes, B.R. (2010).

The overlap of cultural structures and ethical disparity will become indicators for differences in

these respective countries in global perception and industrial management.This research also

provides a more in depth explanation into each of Geert Hofstede’s dimensions rather than just



one or two dimensions typically found amongst other studies that also utilizeHofstede’s

dimensional tool of cultural capacity.

These social measurement structures standardized a culmination of studies to better understand

cross cultural implications. Social and economic environments feed several processes into a

cycle of ethical or unethical behavior and organizational cultures. (Ford, J.B. 1997) This pertains

to the “why” of different cultural aspects of reasoning behind decision making (or in other

words, determining what ethics means to each culture), furthermore using social measurement

structures to gauge and explain cultural differences. This study aims to help further

understanding across the Eastern and Western cultures through philosophy and modern day

context.

Forsyth’s Ethics Position Questionnaire

The second model this work uses to determine ethical differences between the United States and

People’s Republic of China is Forsyth’s Ethics Position Questionnaire. It is one pertaining to

deontology. This questionnaire covers two scales of consideration- Relativism and Idealism.

Forsyth, D. R. (1980). Within the questionnaire, there are twenty questions categorized by the

two factors. These questions are formulated into opinionated statements requiring individuals to

scale their responses of agreement and disagreement. Idealism deals with moral orientation or the

measurement of avoiding harm against others, while Relativism consider how far individuals

push their personal thoughts on moral ethical rules and standards. Forsyth, D. R (2011) The

higher individuals’ scores are on Relativism, the less likely they are to use morally universal

rules to standardize their ethical judgments. Inversely, the lower an individuals’ scores are, the

more likely they are to adhere to Universal standards when making an ethical decision.



The one limitation in this paper is the lack of data pertaining to Hong Kong in the Ethics Post

Questionnaire. With past studies, Asiatic countries studies utilizing the Ethics Post Questionnaire

show the differences between Korea and China, but lack in depth differentiation between Hong

Kong and China. This research paper will provide an opportunity for future studies utilizing

Forsyth’s EPQ. The table below shows the high and low descriptions between relativism,

idealism, and the combination of the two.

Table of taxonomy of Ethical Ideologies, Forsyth, D. R. (1980).

The results of Forsyth’s Ethics Post Questionnaire provides a generalization that Americans

scored lower than their Asian counterparts in terms of “relativism”, although there is no certain



absolute in morality or ethical behavior. It is also noted that Chinese are less dependent on

idealism in their ethical decisions. Redfern, K., & Crawford, J. (2004) Culture and values picked

up amongst childhood have a large effect on the results of this questionnaire. “Culture is

described based on its manifestations: symbols, heroes, rituals, and values… Values are acquired

and developed at an early age and can only be inferred by outside observers.” Mintu, A.T. (1992)

Ethics maintains moral philosophies on an individual’s way of life.

Hofstede’s Six Dimensional Model

Through six dimensional points of Hofstede’s Model, we are able to pinpoint specific

organizational characteristics per specific country to predict cultures of the industry in their

respective locations. (Mintu, A.T. 1992) These characteristics can be used to understand foreign

cultural impact, which are Power Distance, Individualism, Masculinity, Uncertainty Avoidance,

Pragmatism, and Indulgence. (Hofstede, 1990)



Beginning with the first part of Hofstede’s model, power distance is the attitude of the culture’s

viewpoint on society. It describes to what extent a country can accept the gap of power between

individuals in their societies.In societies with large power distance, less powerful people are

expected to accept unequal power. Tsui, J., & Windsor, C. (2001). In terms of ethical practices, a

respect for a higher authority can cause a fear to speak out for an action.Hong Kong, whose score

was in the median range between the United States and China, scored a 28 point difference

higher than the United States. (Lower than the 40 point difference that China and the United

States have). Societies of lower power distance expect individuals to have an equal power

distribution. Tsui, J., & Windsor, C. (2001). Much like the United States’ government practice of

Checks and Balances, there is supposed to be an equal distribution of power within individuals

within a society. Equal treatment within society is expected within the work place. Through these

statistics, we can conceptualize that power abuse is standardized by ethical behavior response in

informal elements such as stories, rituals, and role models. (Cohen 1993). Such elements of

differing values are intangible, but explain why authorities hold the reigns in ethical stance.

Industrial management is highly relevant in the effects of power distance. The Chinese Value

Survey (CVS) results of the United States, Hong Kong, and People’s Republic of China (as

detailed in Ralston, D. A., Giacalone, R. A., &Terpstra, R. H. (1994)) showed that industrial

management across these three countries have notable differences. As mentioned in the previous

paragraph, Confucian “guanxi” is considered a cultural value across Chinese Culture.

Benevolence is a highlighted terminology in Confucianism as well as a beacon of tradition and

well-practiced values. However, reverberating communist pushes supporting communistic

practices over Confucian values in combination with the failure of western management models

in unethical practices throughout the years (ex. Halliburton, Toyota Recalls, Goldman Sachs and



Monsanto) have mustered up a push and pull effect on the influence of Confucianism in modern

day People’s Republic of China. Miles, L., & Goo, S. H. (2013) Even so, Confucianism has

stood the strongest in the People’s Republic of China over Hong Kong, and Hong Kong stronger

than the United States. The in-between status of Hong Kong in regards to Confucian influences

link to the education systems and governance by the United Kingdom in the past.

As shown on the Hofstede model in the “Individualism” sector, there is a 66 point difference

between the United States and Hong Kong, and 71 point difference between China against the

United States (furthermore indicating that group ties are even more emphasized in China). The

United States has a higher take on individualism through branches such as self-evaluation,

priorities of self-seeking interest, and high short term benefits over Hong Kong and China. Sims,

R. L., &Gegez, A. (2004). However, because economic development and national wealth are

correlated with individualism, the gap between the two Asiatic countries and the United States

may gradually lessen.

Uncertainty avoidance is the concept of how much a society is threatened by uncertain,

unknown, ambiguous, or unstructured situations. Hofstede, G. (1980). Societies with low scores

in this sector such as China and the United States have a high level of ambiguity. This means that

those in these with low uncertainty avoidance are seen as adaptable and entrepreneurial.

Americans are also tolerant of ideas and have the freedom of expression within their society.

Americans embrace the unknown and take risks if it means expanding their personal value and

place among their peers. With a fast moving market, American businesses have to constantly

think ahead and extrapolate competitor’s strategies. Thus, Americans view uncertainty as a

frontier to conquer.



Societies unavoidably utilize bits of their history to handle challenges they face in future and

present time. Pragmatism is the extent to how a society utilizes its past to handle predicaments,

furthermore measuring how much they utilize their history to fuel the solutions of their future.

The United States scored a low, normative score of 26 in comparison with Hong Kong, 61, and

China, 87. Long-Term Orientation is also known as Confucian Dynamism in China. It measures

the extent to which a culture values steadiness, stability, and respect over thrift and perseverance.

China and Hong Kong score fairly high in this dimension, meaning that individuals depend on

the outcome of a situational to be contextual- based on truth, time, and situation. They take

tradition and mold it into a way that works for the situation.

Chinese culture, although rapidly evolving into an economic empire, has always stayed true to its

cultural heritage.The contemporary Chinese culture in the People’s Republic of China consists of

three major elements: traditional culture, communist ideology and, more recently, western values

(Fan 2000). Most of China’s traditional social values are derived from Confucianism, developed

from the ethical-sociopolitical teachings of Chinese philosopher Confucius who set forth a moral

doctrine regarding human relationships, virtuous behavior, social structures, and work ethic.

With a score of 20 in individualism, China has clearly displayed itself to be a collectivist culture,

holding relationships in high regard. Chinese culture values the good of the whole over the good

of the individual. Sacrifice, honor, and selflessness are principles that still hold true today in

traditional Chinese families. In regards to relationships, Confucius coined his Five Code of

Ethics which highlights five basic human relationships: loyalty between king and subject,

closeness between father and son, distinction in duty between husband and wife, obedience to

orders between elders and children, and mutual faith between friends (Yum1987). China is a

society that places much respect and reverence upon the elderly. While Americans see



experiences and advice of the elderly as outdated and prudish, the Chinese turn to their elderly

for wisdom and approach them with the utmost admiration. Individualism is often frowned upon

and frequently seen as backwards thinking.

We can take the Chinese terminology for relation, “guanxi”, as a prominent example. It is a

personal connection where interpersonal associations replace formal organization structures. Au,

A. M., & Wong, D. N. (2000). Networks and Chinese “guanxi” networks almost always refer to

trustworthiness. (Barbalet, J. 2014) Family enterprise maintains its level of “guanxi” simply

through kinship loyalty in China. If top employees of an enterprise are family members only, this

facilitates almost automatic distrust of outsiders (otherwise as non-family members) over those

that are related. (Barbalet, J. 2014) This informal rules are testaments to show that China has

adhered to an adaptive personality, hence, valuing personal relationships over legal agreements.

Ralston, D. A.(1992) This leads back to essence of “guanxi”. Organizationally sanctioned

dimensions are rated as more ethical by American managers whereas Destructive/Legal and

Illegal dimensions are deemed as more acceptable in Hong Kong. Ralston, D.A. (1994). Kinship

loyalty as well as Confucianism are both ways of life and are complete concepts that show why

China and Hong Kong scored significantly higher than the United States in long term orientation

versus short term normative orientation.

An elevation of disposable income has pushed the markets to become more populated. Since the

expansion of Western businesses into the Eastern realm. Because Hong Kong is located on the

Southern tip of China, it serves as a perfect geographical business transition location for

international trading into the larger market of Mainland China.Barnes, B.R. (2010). However,

this is a prime situation where cultural awareness is crucial to making ethical decisions. Because

Western styles of business communication has fundamentally pushed for a fast and opportune



approach to enterprises, Western companies can unintentionally push the Hong Kong market

over aggressively. Barnes, B.R. (2010)Western companiesare more than likely prone to end

quickly at a clear cut deal, while Eastern cultures are typically more interested in taking the time

to find out what relations they’re making deals with as well as what stepstheir businesses entails

according to pragmatism. In their rush to establish businesses across the Asiatic countries, many

mistakes may be made in terms of unethical actions as well as several long term effects in

behavioral dimension. The concept of opportunism and long-term orientation is captured through

the figure below.

Masculinity versus Femininity scores on the Hofstede Model indicate a motivational and

assertive driven society against a nurturing society. Boonghee, Y. (2011) The United States and

China come within a five point range of each other on the Hofstede model, further signifying that

the societal lean towards masculinity is a consistent trend throughout these three regions.Because



male leadership has always been prominent throughout histories of a numerable majority of

cultures, this data was not surprising. One of China's most significant contributions to the world

has been the creation of her system of civil service administration, and of the examinations

which from 622 to 1905 served as the core of that system (Kracke 1947). The opportunity that

the Chinese government gave to its citizens was one of extreme upward mobility. Those who

passed the imperial palace examinations at the highest level (jinshi) became the most salient

people in China’s educated class immediately upon achieving that goal, and went on to become

important members of the Chinese bureaucracy. The examinations became a social ladder in

which people of the lowest ranks could, if they studied devotedly, climb and join the top ranks in

civilization. Because Chinese society was so heavily wrapped around the opportunity to climb

from rags to riches, their culture quickly grew around hard work and success. Still holds true

today as seen in the halls of academia. It is not rare to see a Chinese student become easily upset

at an average grade because instilled in their mind is the idea that academic excellence is the

only route to success. Average is not enough and failure is frowned upon. Because of this

mentality embedded into Chinese culture, corporations feel reluctant to be transparent, as it could

possibly bring shame and taint the image of the companyAccording to Hofstede’s national

cultural dimensions, America and China are up to the standards of nations across the globe. This

element is the most similar factor out of all dimensions considered.Men and women have slightly

different views on the perceptions of morality with men principled on fundamentals of justice

and laws, and women saw morality principled contextually through interpersonal needs. The tie

into ethics between men and women have also been tested to correlate with education systems as

well as societal gender roles. Lam, K. 2008. Moral development also affects how an individual

can deal with an ethical issue. Ford, J.B. (1997)



However, it slightly differs from China because American culture is profoundly based on the

idea of individualism. Sometimes it goes so far as doing whatever necessary to achieve success.

Because of this, American companies may feel the need to conceal important information to the

public. In American culture of individualism, people often speak of reputation in terms of the

individual or individual company. This is because our culture is rooted in the emphasis of

achievement, autonomy, and independence (Bellah 1986). Because personal success is so highly

emphasized in American society, individuals often forget that they owe much of their success to

external factors such as family, teachers, or friends. In the corporate setting, businesses might be

led to think of their reputation as a personal possession. However, reputation is a highly social

concept. In order to have a good reputation, a company depends on its workers and stockholders

to support and advocate the name. Reputation can also be defined as a reflection of an

organization’s representative figures. Corporations with unethical leaders cannot expect their

reputations to be reflected outwardly with high regard. Accountability is therefore necessary to

keep corporations and executives responsible for their actions, and corporate transparency

provides a plausible foundation for ethical corporate behavior

Corporate Transparency and the Media

Corporate transparency can be defined as the extent to which the public can view a company’s

actions. Our lives are bonded to corporations. Our electricity, water, phone bills, and other

objects tied to our daily lives are almost always directly linked to corporations. However, how

many of those corporations’ business actions do we really know about? It only makes sense for

the public and shareholders to expect companies to disclose what effect they have on them and

also on the world. Most of what we hear from companies is from newspapers and magazines.

Seldom do we hear about issues from the company’s themselves. So why is there a need for



corporate transparency when the media seems to give enough information? The keyword here is

“media.” In America, media itself is a corporation with its own personal agenda and profit goals.

No matter what the mission statement or goal of a company is, the main reason companies exist

is to make money. Media reports are well known to skew facts to fit their own platform and

seldom do the media give an unbiased report of company actions. Their goal is to sell interesting

stories to the general public.The public audience typically has the least amount of detailed

information and is the quickest to come to a conclusion based on said information. The

advancement of technology and the expansive growth of social media have multiplied the reach

of this audience exponentially (Cwiak 2014). Unbiased reports can be dry and boring, in turn

calling for media to spice up the stories with a dash of fabrication and a sprinkle of sugarcoating.

Unlike in the U.S., where social media is centralized through a few providers, in China it is

fractured across hundreds of local sites. The Chinese government is very heavily involved with

the lives of their citizens. Government induced censorship is not an uncommon thing to see. The

Bank of China is one of China’s biggest state-owned banks. It is also one of the world’s least

transparent corporations. Much of the responsibility for censorship is devolved to these internet

content providers, who may be fined or shut down if they fail to comply with government

censorship guidelines (King, Pan, and Roberts 2012). In light of this, how do we move past the

alternate reality that is media? First, we must recognize that corporate transparency is not only a

procedural issue, but more importantly a moral issue.

Disadvantages and Benefits of Corporate Transparency

Morality is the distinction between what is right and what is wrong. Like a child who

steals a cookie from the cookie jar and then tells his parents he did not do it, companies dig

themselves into a deeper hole than if they had initially admitted to their actions. When



companies withhold information that is possibly detrimental to the reputation of the company, it

reflects the attitude of the company and reveals a number of characteristics about themselves.

First, they make it clear that the public eye is not a desired audience because they recognize that

this particular piece of information is not up to par with universal and corporate ethical

standards. Second, they are adding salt to the wound because they know that their actions are

wrong and, in turn, are accumulating more transgressions upon their original misdemeanor. The

simple fact that they feel the need to hide information shows the lack of a moral standard.

Finally, when companies refuse to disclose information, they are putting the company’s interests

above the concerns of their customers, clients, and shareholders.

Transparency, however, is not one sided. It can also bring many benefits and positive exposure to

the company. Companies naturally are more enthusiastic to being transparent when their

business processes bring them under a positive light. If the public sees a corporation as a

genuinely altruistic organization with a mission to help people, they will be more sympathetic to

a company as opposed to one they do not know about. In 1976, George Gallup began surveying

the American public to gauge its opinion about the ethics and honesty of various professions,

“business executives” being one of them (Stevens 2012). From 1 to 20, people were asked to

rank the professions based on their perception of the levels of ethical standards accompanied

with each profession. In year 1990, business executives were ranked #12, in year 2001, they

were ranked #21, and in year 2010, business executives were ranked #17, although higher than

the previous results, this time they were ranked below lawyers. Based on this information, it is

easy to say that the general public does not have a positive optic on the corporate world.

However, if corporations use transparency to show that they have risen above the status quo, it is

not difficult to distinguish themselves from their competitors. Another reason why companies



may feel reluctant to be transparent is because their stakeholders, more often than not, might

have a preconceived notion that since the company is a “business” the integrity is shaky to begin

with. This projection can affect the company’s view of itself negatively. Children are not

naturally born with moral behavior. They learn to be moral agents because their parents project a

moral capability on them and by rote repetition, they eventually adopt the values onto

themselves. Why should they adhere to a moral code when it is not expected of them? This is an

easy excuse for corporations to retain valuable information to themselves. The issue of ethics and

business is about the relationship of one entity to everyone with whom we come into contact

(Browne 2004).As reputation is socially constructed, in that stakeholders' perceptions become

their reality and that reality can positively or negatively affect an organisation's reputation,

understanding and being responsive to internal and external stakeholders is critical to reputation

management (Cwiak 2014).

Rights

From the western standpoint, human rights is something all humans possess by simply being

human. They are a demand for respect and an obligation to other humans to respect the dignity

that comes with the individual. Most Americans are familiar with the idea of human rights and

daily enjoy its benefits as seen in the Bill of Rights, outlining the most important rights that a

citizen of a country must possess. However, a common misconception most Americans have is

that the rest of the world values human rights as much as the United States does. On the contrary,

using China as an example, it is often asserted that Western countries recognize many human

rights related, for example, to political liberty, that have no great appeal in Asian countries. It is

certainly true that governmental spokesmen in several Asian countries have not only disputed the

relevance and cogency of universal human rights, they have frequently done this disputing in the



name of “Asian values,” as a contrast with Western values. The claim is that in the system of so-

called Asian values, for example in the Confucian system, there is greater emphasis on order and

discipline, and less on rights and freedoms (Sen 1998). Because of geographical and cultural

disconnects such as the one between China and the United States, the United Nations developed

a worldwide code defining human rights by chartering the Universal Declarations of Human

Rights which declared human rights to be unalienable, whether they deserved them or not. It is

important to note that the concept of an individual can pluralize into groups of individuals, and in

this case, corporations. The relationship between human rights and corporate transparency is

multifaceted. Corporations can, in fact, claim human rights against the state in court. This in turn

includes the right to privacy, the right to know, and the right to free speech. The question arises;

can corporations claim the right to privacy as justification for not disclosing information to

stakeholders? And do they have the right to remain silent? Of course, there are exceptions such

as reporting financial performance to shareholders the same way individuals report their incomes

to be taxed. It is human nature to want to highlight personal qualities that may further individual

and financial gain and sweep under the rug personal qualities that may inhibit positive

impressions from others. It is not necessary to require every last detail of a corporation’s actions

but when company decisions affect the lives of others, disclosure is justified.

Article 19 of the Universal Declaration of Human Rights states that “everyone has the right to

freedom of opinion and expression; this right includes freedom to hold opinions without

interference and to seek, receive and impart information and ideas through any media and

regardless of frontiers (UN, 1948). Corporations could potentially use this argument to justify

their silence. Andrew Clapham brings an interesting argument that since the power of

corporations has drastically increased because of globalization and the power of the state has



slowly deteriorated, states have a duty to monitor the activities of companies that might breach

human rights including the right to know (Clapham, 2006). It is safe to say that stakeholders and

investors have the right to know all they are investing in. Patrick Birkinshaw puts it plainly:

When power is exercised on our behalf, or our sufferance, we are not treated as full

member of that community of power wielders deny us information about why they are

using their powers the way they did or are doing (Birkinshaw, 2006).

This assertion holds true with corporations and their stakeholders. If corporations want to put

themselves under a positive light, they need to protect and respect their shareholders’ rights to

know about the inner workings of the corporation before defending their own rights to privacy.

Corruption

Corruption and transparency stand on opposite ends of a spectrum. Where corruption is,

transparency is often absent. Where transparency is practiced, corruption is seldom found.

Corruption can be broadly defined as the fraudulent and duplicitous conduct, usually by those in

power or in high office. Corruption in corporations can include graft, embezzlement and

extortion, and bribery. When a company is infected with corruption, they are more often than not

going to keep silent their misdeeds. Because corruption is difficult to quantify, Transparency

International, a leading authority on corruption, conducted a study on people’s perceptions of

corruption within their home countries using the Corruption Perceptions Index. This index ranks

countries and territories based on how corrupt their public sector is perceived to be by their

citizens. On a scale of 0 to 100, 0 being highly corrupt and 100 being very clean, the United

States scored 74 and China scored 36 as of year 2014. The public audience is most likely to react

negatively to perceived injustice, greed, inequity, irresponsibility or wrongdoing. People tend to



empathize with other people's struggles if they are open and humble in addressing them.

Organizations, on the other hand, are rarely afforded the same empathy and are often viewed as

evil empires content only to advance their own agenda. Hence, despite the fact that they have no

direct personal tie to the organization, the public audience is perhaps the most volatile and

difficult to manage audience of all (Cwiak 2014). For China, a score of 36 out of 100 proves less

than favorable. Earlier in this paper, the author discussed Chinese values and their adherence to

Confucian principles such as honesty and subordinate reverence toward superiors. Why is there

then such a disparity between Chinese principles and its perception of corruption in

corporations? The disconnect can be explained by going back to 1949 when the People’s

Republic of China was founded by Mao Zedong, a Chinese communist revolutionary. By

adopting a Marxist-Leninist command ideology, Chinese corporations became over-manned state

enterprises with low productivity (Warner, 2005). Because of communism, Confucian values

slowly disintegrated and philosophies of self-improvement became philosophies of benefitting

the whole. Mao transformed the Chinese economy from a predominantly rural agrarian nation

into an industrialized collectivist economy. By Mao Zedong’s death in 1974, although reform of

the Chinese economic system was completed, the value and ethical standard transformation was

not achieved. The old value and ethical systems were broken down; however, the new value and

ethical standards were not yet consolidated. During the time of ethical transformational, the

demand for and the absence of values and ethical standards conflict fiercely, which is another

main cause of reputational crises in Chinese organizations (Dowling 2002).Due to the lapse in

ethical standards, managers ignore the moral principles, ignore the enterprise social

responsibility, and instead, only focus on “making huge short-term profits.”



Transparency isn’t the final answer to corruption in corporations but it is definitely a good start.

The first step is always the hardest. Since corporate transparency requires the truth, regardless if

it is helpful or detrimental, companies must assume a high degree of humility. If companies

desire to improve upon themselves, the best way to go about doing so is to loosen their grip on

themselves in order to focus on positive change. Companies often feel apprehensive towards

corporate transparency because it seems to demand moral perfection. Who would want to admit

a fallacy without having solved them already? Companies who embrace corporate transparency

possess a not only humility, but also a high degree of courage in disclosing their flaws.

Some companies might find being completely transparent to be extremely unrealistic. To them,

being transparent would be picking their poison and it could mean death. The presumption is that

the decision to cheat or be dishonest is a rational calculation in which the individual weighs the

personal payoff to the dishonest activity against the expected costs, and is dishonest when the net

payoff is positive (Okeke and Godlonton 2014). Other corporations do not deem corporate

transparency as being necessary because their business has a tendency to fall into shades of grey

than black and white. The greatest obstacle companies must face is not potential financial loss or

gain but dealing with putting aside their pride and embracing embarrassment as an opportunity to

grow.

Transparency International Case Study

In 2012 a study was conducted by Transparency International which examined the world’s Top

105 companies with earnings over $11 trillion and scored them from 0-10 based on their

disclosure of various sorts of business information important for investors and the general public:

0 being the least transparent and 10 being the most transparent. The ratings were based on public

availability of information about the operations especially about the anti-corruption systems in



place (IBTimes 2012). Among the ranks were thirty-nine American companies and six Chinese

companies. Of the American companies, 23% were scored above the average of 4.2 in

transparency. It might seem like a small percentage but compared to China, with 0% of their top

corporations above a 4.2 in transparency, the number is huge. The Bank of China held the lowest

rank with a score of 1.1 in transparency.

“Of the 105 companies surveyed in our report:

50 do not disclose revenue/sales in any country of foreign operations

85 do not disclose income tax in any country of foreign operations

39 do not disclose any financial data (tax, revenue, sales, pre-tax income, capital

investment, community contributions) in their countries of operation”

In the same study conducted by Transparency International, American companies were found to

be slightly higher than average when it came to the transparency of their businesses. Out of one

hundred and five companies, Exxon Mobil, was ranked #14 with a score of 6.4 out of 105

companies, placing itself as the highest ranking American business. Ethical issues have darkened

the images of American businesses from the beginning and corruption has been present since

America’s founding. From the importation of slaves to the exploitation of immigrants,

sweatshops and child labor, and the early industrialists who ruthlessly destroyed their

competition, business has been linked in many people’s minds with swindlers and scoundrels.



For example, the 1920s Teapot Dome scandal involved both businesses and President Warren

Harding’s cabinet. Favorable oil leases in Wyoming and California were given to companies

who provided kickbacks to one of Harding’s cabinet members. The scandal blackened both

Harding’s reputation and that of the presidency (Stevens 2012). Ranked #101 out of 105

companies in the study was America’s multinational conglomerate company, Berkshire

Hathaway with a transparency score of 2.4, Berkshire Hathaway has claimed itself the title of

America’s Least Transparent Company. CEO, Warren Buffet, has been leading the company for

over fifty years. At stakeholders’ meetings, he addresses Berkshire’s investment plans and other

monetary allotments but fails to address large chunks of the company. Berkshire stands alone

among the 50 largest

companies in the Standard & Poor’s 500-stock index in not holding quarterly calls to discuss

results. Instead, Buffett and Vice Chairman Charles Munger host a five-hour question-and-

answer session at annual meetings, which typically attract tens of thousands of attendees. The

company prohibits the use of recording devices and doesn’t publish a transcript (Buhayar 2014).



Let’s assume ten thousand attendees with one question each go to the shareholders’ meeting and

each question is worth one minute and each answer is worth one minute. In the allotted five

hours, 250 questions will go answered and 19,750 other shareholders’ questions will remain

unanswered. If only 2.5% of the investor’s questions are answered, how does the general public

expect to trust in the corporation’s business actions? Transparency means, in simplest terms,

putting forth the truth. In the case of Berkshire Hathaway, the company can still somehow get by

with minimal disclosure to the public. Movements toward transparency emphasize the

importance of honesty. What is requested is that behaviors that were initially veiled by the

corporate mask of success and perfection are uncovered. Corporate ethical problems, however,

have not been confined to the United States. Four out of five companies worldwide suffered

corporate fraud between 2004 and 2007. The average cost of fraud to large companies with

revenues of more than $5 billion exceeded than $20 million and most of this was passed onto

shareholders (Engel 2007).

Efforts for Transparency: Sarbanes-Oxley Act

In the early 2000s, scandals ran amuck at large corporations including Enron, WorldCom, and

Tyco. For example, Enron, previously the largest seller of natural gas in North America,

provided complex financial statements that were unclear to shareholders and analysts. In

addition, its complex business model and unethical practices required that the company use

accounting limitations to misrepresent earnings and modify the balance sheet to indicate

favorable performance. The numbers that were falsely inflated were soon revealed when Enron’s

stock price dropped from $90.75 to less than $1 by the end of 2001. This resulted in Enron

declaring bankruptcy, being cited as the biggest audit failure, and worst of all the betrayal of all



its shareholders and investors. Investor confidence took a plunge for the worst so the U.S.

Congress passed the Sarbanes-Oxley Act (SOX) in 2002 to protect investors from potential

fraudulent accounting and financial activities performed by large companies. Two key provisions

in the SOX are:

1) Section 302: Disclosure Controls- This mandated a set of internal procedures that would

ensure accurate financial disclosure.

2) Section 404: Assessment of Internal Control- This calls for management and external

auditors to report the accuracy of said internal procedures.

The SOX also protects whistleblowers from retaliation and spells out dense consequences for

corporations who provide falsified reports. A 2005 survey by the Financial Executives Research

Foundation found that 83 percent of large company CFOs agreed that the Sarbanes-Oxley Act

had increased investor confidence, with 33 percent agreeing that it had reduced fraud.



Efforts for Transparency: Protocol of Accession

Regulatory transparency consistently ranks as one of the top concerns of US companies investing

in China, according to annual US-China Business Council (USCBC) membership surveys. Thus,

China has been making active efforts to increase transparency in their corporations. Upon

adopting the World Trade Organization’s Protocol of Accession in 2001, China has committed to

“provide independent institutions for ‘prompt review’ of all ‘administrative action.’” It could be

interesting to consider, briefly, how China's accession fits within the context of the five

fundamental principles of the General Agreement on Tariffs and Trade and the World Trade

Organization. Simply put, these principles cover: (1) non-discrimination; (2) market opening; (3)

transparency and predictability; (4) undistorted trade; and (5) preferential treatment for

developing countries. (Gertler 2002). In order to keep them accountable China's accession

commitments was under the jurisdiction of a special Transitional Review Mechanism for the first

10 years of its membership. Although China still holds the one of the world’s least transparent

corporations, it is important to note that they have made efforts to be credible top world traders

in the market.

Analysis and Implications for Future Research

Investors need to know where their money is being put and are constantly on the lookout for

information. Shareholders -- the owners of the company – are entitled to know where their

money is going. Currently, it is all too easy for a corporate executive to frivolously spend

company money on side projects to further their individual human capital. Disclosure would

authorize shareholders to participate in the supervision of executive decisions and ensure that

political expenditures are in the firm's interest. Transparency aids in helping investors and

shareholders avoid companies who partake in corruption and management malpractices.



Corporate reporting is a method of self-presentation and impression management conducted by

companies to insure various stake holders are satisfied with their public behaviors

(Hooghiemstra, 2000; Patten, 2002). By being open with their business practices, corporations

approach their partners with a stance of humility and trust. It allows their stakeholders to oversee

and determine if the company is worth investing in, which in turn keeps the company

accountable in order to keep a high market share.

In conducting this study, there was a lack of research found addressing specific examples of how

United States corporations viewed Chinese corporations and vice versa. Consequently, the

information collected only provided for how shareholders viewed their own country’s companies

respectively. Being two of the world’s top leaders in business, it is important to see how each

country perceives the other’s business practices and how it might affect willingness to enter into

partnerships with each other. Future research can also delve deeper into the differences of

transparency legislation between the United States and China and how dedicated each country is

in complying with the legislation. It can also seek to find further universal legislation that both

countries could adhere to in order to break through cultural barriers and act as a mediator

between the cultures.

Conclusion

It has become apparent that religion and education are placed in high regard in terms of the

channels impacting customs and culture. “Difference in collectivism of cultures is expected to

impact the cultural decisions of managers.” Sims, R.L., &Gegez, A. (2004) Historical

background as well as other recent studies in these countries have implicated that many beliefs

and measurements of social acceptance and ethical decisions root from cultural and religious

practices. Confucianism has a high influence in terms of cross national impact. Kwon, J.



(2012).The findings this study become a supplement for further research in cross cultural ethical

studies in Eastern and Western societies. Continuous analyses and research in ethical studies are

necessary for any possible contingencies in the perpetually global economy.

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