Friday, July 15, 2016

Chinese vs. Western Governance Practices

The recent emissions scandal that has engulfed Volkswagen — and could cost that company at least US$15 billion to settle claims in the US alone — is a reminder of the importance for companies to establish standards for business conduct. However despite the numerous anti-bribery and corruption (ABC) laws and conventions that exist, their operational requirements are unclear and many multinational companies (MNCs) struggle with what features to implement.

Chinese MNCs face the same challenges. Their record-breaking outbound M&A volume of US$135.3 billion in the first half of 2016 highlights their growing global importance, and raises questions about Chinese business practices. There is a perception that these practices are misaligned with Western-based governance models, and until these perceptions are negated, the Chinese will continue to experience mistrust, which may limit business opportunities, particularly in Western countries.

One way to reduce this mistrust is for Chinese MNCs to demonstrate their commitment to international ABC compliance standards. To better understand Chinese governance practices, CEIBS Professor of Entrepreneurship S. Ramakrishna Velamuri has co-authored a research study that explores the regulatory framework in China and the extent to which Chinese multinationals have implemented and disclosed their anti-bribery and corruption compliance practices. It is one of the first studies to make explicit comparisons on the disclosure practices of leading Chinese MNCs and their western counterparts.  

In their study, the researchers first documented the evolution of international anti-bribery legislation and codes of conduct introduced by multilateral organizations and national governments, including China. They also looked at materials published by international organizations focused on evaluating ABC compliance standards, primarily within a business context, and interviewed leading experts in the area of ABC compliance with regards to expectations for Chinese MNCs. Finally, they compared the ABC disclosure practices of four Chinese MNCs with four best-in-class Western counterparts.

Their research documents in detail how China, the world’s second largest economy, has responded with hard laws (legislation) and soft mechanisms (such as the Chinese Business Leaders Forum’s Business Integrity Handbook) to address the serious problem of corruption in its corporate sector. In fact, many Chinese companies going global are adopting robust corporate governance standards. A 2014 report published by the World Economic Forum notes that 125 Chinese Globalizers have achieved some level of operational success, including in their corporate governance standards. Half of these have been labelled Chinese Globalization Champions.

Prof. Velamuri and his co-authors concluded that while there has been significant progress in a very short time, Chinese MNCs still have room for improvement in their ABC compliance programs and related disclosure practices. The researchers believe that better disclosure is an easy win for Chinese companies. Leading Chinese companies could improve transparency through better disclosure of the compliance standards they have adopted and the related mechanisms and procedures they have implemented.

Their findings appear in the paper titled “Evolution of International and Chinese Anti-Bribery and Corruption Compliance Programs” which has been published by Corporate Governance. Prof. Velamuri’s co-authors are Karen Schonfelder and Wilson Liu.

Image courtesy of Sira Anamwong at

Add new comment