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A Confucian approach to well-being and social capital

development

Article in Journal of Management Development · July 2011

DOI: 10.1108/02621711111150245

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A Confucian approach to well-being and social capital

development Lili Zhao and Juliet Roper

Department of Management Communication, Waikato Management School, University of Waikato, Hamilton, New Zealand

Abstract

Purpose – This paper aims to discuss and demonstrate the synergies between the western concept of corporate social responsibility that is emerging from a background of individualism and market competition, and the traditional values of Chinese Confucianism, as applied to managerial practice.

Design/methodology/approach – The paper is primarily theoretical in perspective. It also draws upon interview data derived from an in depth study of a large state-owned corporate group in China in order to demonstrate the model that is known as modern Confucian entrepreneurship.

Findings – Adherence to Confucian values was demonstrated by both manager and employee interviewees. However, Chinese managers also need to reform some practices as they move into the international market place. As western managers, at the same time, increasingly seek to increase their social capital it is clear that Chinese and western managers can learn from each other.

Research limitations/implications – The examples drawn upon in this paper come from a state-owned corporation. Indications are that smaller, privately owned companies in China are more aggressively adopting market models built upon competitive individualism. Further research is needed to develop comparisons.

Practical implications – The paper suggests a hybrid model of business management that combines aspects of both western and Confucian-based management styles that are proven to be successful in building social capital. It also suggests that fundamental change needs to be effected through business school teaching.

Social implications – The paper urges a more collective view of management that is built upon trust and focuses on employee and social wellbeing. Indications are that increased wellbeing generates more cohesive, productive and happier societies.

Originality/value – The introduction of interview data provides unique insight to Confucian values in practice in a modern Chinese company.

Keywords Corporate social responsibility, Confucianism, Modern Confucian entrepreneurship, Employee wellbeing, Social capital, Managers, China

Paper type Research paper

Introduction Issues of sustainability and corporate social responsibility (CSR) are increasingly on the business agenda, particularly in western countries where businesses and governments have had to respond to repeated failures of the neoliberal free market model, dominant since the 1970s and 1980s. Neoliberal economics are premised upon ideologies of individualism: the role of the state is reduced, and the individual takes responsibility for his or her own welfare. It is the individual that shapes society. A notable example of free market failure is that of “third tier” finance companies within the USA and elsewhere that has led to global economic recession.

The current issue and full text archive of this journal is available at

www.emeraldinsight.com/0262-1711.htm

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Journal of Management Development Vol. 30 No. 7/8, 2011 pp. 740-752 q Emerald Group Publishing Limited 0262-1711 DOI 10.1108/02621711111150245

For companies, the movement towards CSR is largely linked to competitive advantage and profit, directly or indirectly, through issues of organisational reputation and legitimacy as stakeholders question the social and environmental impacts of doing business (Bonini et al., 2008; Gonzalez-Benito and Gonzalez-Benito, 2010). Thus CSR is framed in terms of a “business case”: do well by doing good (Hart and Milstein, 2003; Porter and van der Linde, 1995; Zadek, 2004). While the CSR movement is well underway, with varying success, in western democracies, pressure from western markets has resulted in the emergence of a similar movement in China. Paradoxically, however, key principles of CSR have been embedded in Chinese business practice for over 2,500 years through its adherence to Confucian principles.

China probably now stands closer to the international community than at any other point in its history, with growing leadership in the world’s economy. However, this also opens China up to increased scrutiny of its environmental and social practices. Although many have discussed China’s economic development, as well as the influences of Confucianism in business, few have closely examined these influences in practice. This paper provides unique insight into organisational social practices of employee relationships within a state-owned Chinese corporation. It explores the application of Confucian principles in the company with a view to comparing them with the western view of CSR.

Chinese political influence on organisational practices Deng Xiaoping has adopted an open door policy for China. However, rather than embrace the neoliberal free market model, he has pursued a model of socialism with Chinese characteristics, embracing the idea of a socialist market economy “characterised by increased competition and the elimination of mandatory planning but not necessarily by the replacement of state ownership with private ownership, as in a capitalist system” (Zapalska and Edwards, 2001, p. 2). The Chinese economic system today is based on public ownership supplemented by collectively-owned and privately-owned businesses (Goetzmann and Koll, 2005). The transition has been a gradual evolution from central planning to a system of management responsibility and accountability (Zapalska and Edwards, 2001).

For the next few years, Chinese government policy includes “enhancing social harmony, [sticking] to a people-based approach and [striving] for a comprehensive balanced sustainable development, in order to lay a solid foundation for the building of a well-off society in a comprehensive manner” (Zeng, 2005, n.p.). In doing so, the government is formulating CSR standards in line with China’s reality, emphasising that the fulfilment of social responsibility lies alongside enterprises’ need for self development. The government encourages all enterprises in China to “adopt substantial measures to protect all legitimate rights and interests of labourers, strengthen workers’ safety protection, assure employees’ remuneration and welfare, fulfil social security obligations in building a harmonious society and improving people’s welfare” (Zeng, 2005, n.p.). Such emphasis is not new to Chinese business, however, as for many these values echo Confucian traditions that remain evident in Chinese society and business (Cheung and King, 2004).

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Confucianism and Chinese business Zapalska and Edwards (2001) suggest that Confucian cultural values are a significant factor in Chinese business development, providing a foundation for developing a sustainable society by considering the world as an organic whole with multitudinous interconnected parts (Zhang, 1999). Harmony of the whole depends on each part maintaining its proper position and function in the order of things. According to Zhang (1999) the key to maintaining harmony is reciprocity that underpins Confucian ethics and guides ethical human behaviour in business. For instance, organisational profit or utility maximisation should be constrained by responsible business behaviour toward other sectors within society. Confucianism places great emphasis on business ethics and morality, not dissimilar to the notion of CSR in a modern business context, defined as “actions that appear to further some social good, beyond the interests of the firm” (McWilliams and Siegel, 2001, p. 117).

Confucian principles are built upon a set of five cardinal virtues that have guided family and commercial life in China for more than 2,500 years. Their dominance in business dates from the time of the late Ming Dynasty (1368-1644) when scholars increasingly sought careers in business (Cheung and King, 2004). Confucius considered that education was fundamental to successful business as education helped to develop a “properly cultivated personality which helped the merchants to avoid the pitfalls of their economic environment” (Lufrano, 1997, p. 248).

Ren is the fundamental virtue, the essence of which is loving others, aligned with the notion of reciprocity (Chuang, 2005). It is a strongly collective concept that describes the relationship between individuals, and Li or norms of society (Warner and Zhu, 2002). Together Ren and Li address the nature of organisations – shaped by the people in the organisation, while individuals are shaped by society. Therefore:

The starting point for designing, developing and transforming an organisation lies in the understanding of the people in the organisation and the relationships between these individuals and stakeholders external to the organisation (Roper and Hu, 2005, p. 6).

Confucian philosophy is influenced by Taoism, which introduces the concept of balance and harmony, represented by the Yin and Yang. Li and Ren together work in harmony with the freedom of individual behaviour constrained by the social norms that dictate that behaviour will be humane and will not violate the requirement of consideration of others in societal relationships. A breakdown of either humaneness or adherence to social norms leads to a breakdown of harmony in relationships.

In line with Ren, Yi encourages honesty and righteousness, including loyalty, reciprocity, altruism, and consideration for others (Lau, 1979). At its essence, Yi emphasises mutual profitableness and the limitation of self-interest (Hsu, 2007).

Mencius interprets Zhi as wisdom to distinguish between right and wrong, knowledge to define good and evil, and ability to know oneself and others (Lau, 1979). In Confucianism it implies action. Thus there is a close link between moral commitment (knowledge) and practice in one’s interactions with others (Lai, 2008). It is performative because it “does something; it changes the world” including by changing minds (Cua, 2003, p.875). It has ethical and historical implications as “knowing and knowledge involve not the cognition of objects independent of us, but people and [. . .] history – which are related to us and with which we can interact” (Cua, 2003, p. 563). Closely linked is Xin, often translated as “sincerity,” or “faithfulness”. At its heart Xin

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expresses a deep sense of moral truth that entails moral consistency, coherence and completeness (Lu, 2001). It creates a mutually-trusting system such as between the government and the people.

In sum, traditional Confucianism focuses on self-cultivation through exercise of the five virtues: benevolence (Ren) within the wider society; respecting those for whom respect is required by the relationship of righteousness (Yi ); appreciating ritual forms (Li ) of a particular place and time, and knowing how to express oneself properly in interactions with others; obtaining wisdom of knowing what is right and wrong (Zhi ); and being faithful (Xin).

The concept of people-based organisations (Pfeffer and Veiga, 1999) reflects the key values of Confucianism such as collectivism, hierarchy, harmony, loyalty and strategic thinking and has played an important part in the development of human capital in China. According to Confucianism, organisations must look after interests of employees who in return must be highly committed to their organisation (Warner and Zhu, 2002). The relationships between employer and employee and between employees should reflect humanity and benevolence (Roper and Weymes, 2007).

The importance of Confucian principles for organisations extends beyond employees to relationships with the wider community that should be based upon benevolence, honour and structure with others in society. These networks of relationships form the basis of guanxi, which is based on trust and respect, established first in the family and then extending to the home town, school or military unit. Without a common platform guanxi can only be attained when two individuals have complete trust in and respect for the integrity of the other. Business with guanxi implies that the transaction recognises both societal ethics and the potential for personal gain. Through guanxi business negotiations and transactions retain a basis of trust and personal integrity. In a world where community life, including commercial activities, was historically minimally regulated with a poorly developed legal system, Confucianism provided structure, a sense of certainty and direction for the early Confucian merchants (Cheung and King, 2004).

The successful combination of a strong Confucian tradition with commercial activities epitomises the ideal of modern Confucian entrepreneurship, bringing together the traditional cultural virtue of respecting employees’ values and new business concepts bred by a market economy with innovative and sustainable consciousness. Chinese business leaders are now encouraged to implement a system of “personification management” (Chinakongzi.com, 2004), borrowed from Confucius’s idea of a good business which requires business leaders to be able to inspire and care for the people working under them, with everyone taking responsibility for helping each other as in a family.

Confucian entrepreneurship in practice In order to exemplify the influence of Confucian principles in modern Chinese business, we draw on a series of 36 semi-structured interviews conducted across the state-owned FiberHome Technologies Group (FHTG). With some exceptions, the interviews confirm that although the nation’s economic reforms have been influential, core Confucian values remain embedded in the organisation’s social practices, notably those connected to notions of collectivism and harmony which underpin relations amongst employees and between employees and managers.

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Employment practices that have been discontinued as a result of government economic and organisational reform include what are known as “iron wages” and the “iron rice bowl” (Taylor, 2005; Warner and Zhu, 2002), practices that are not typical of Confucianism but were introduced during the Cultural Revolution. The “iron rice-bowl”, meaning the expectation of lifetime employment, has now been dismissed as an impediment to managerial efficiency and productivity (Ding et al., 2000). “Iron wages” refer to the maintenance of low wage differentials and inflexible hierarchical positions. Both practices have been held responsible for low worker motivation and levels of productivity. Thus government policy reform is reflected in the company’s changed management structure, in particular the employment system where the focus is on employee wellbeing. With a strong link between company productivity and employee wellbeing, there is a direct influence on employees’ work performance. Although much of this change is in response to government policy of reform, it is evident that the “new” ethical focus has its roots in Confucianism.

A collective orientation towards work A collective world view was evident in the interviewees’ discussion of the group’s business performance, echoing Confucian values that centre on family norms of love and respect, and social relations (guanxi ). From the Confucian perspective, the family represents all social organisations so that the basic unit of society is not the individual, but the family (Hofstede, 1991). For FHTG’s employees, the individual sits at the centre of social relations that are dominated by relationships with family members. His or her will is subordinate to that of family relations. Most employees regard FHTG as a family at large and they work together as family members, with the core values thus continuing into the workplace. One manager stated:

[. . .] we create, share and win together. The benefit doesn’t belong to any single person but the family at large. Individuals can get better development under the precondition of fulfilling their tasks. If the company grows, employees will grow as well.

Similarly, an employee stated:

The group is like a family to me. I always try my best to do a better job and help the management level.

Evident in the above examples is a belief amongst managers and employees in the mutual benefit between the company and themselves through the practice of reciprocity. For the interviewees, FHTG and their colleagues are an extension of the family: the employee is a trustworthy and valued member of the family, who has a duty to the company; in return, the company as parent has a responsibility for the wellbeing of its employees.

Besides their concern for family, some interviewees demonstrated a strong sense of collective honour and showed their appreciation for collective interests embodied in the company as a whole. For example, one manager stated that “achievements we have made don’t belong to any individual employee but to the company as group interests.” An employee stated “the group makes progress together. Sometimes it is necessary to sacrifice a single person’s interest to ensure the progress of the whole group.”

In Confucian society one’s personal identity, defined by the boundary of one’s physical self, is identified as “the small self”, while the social identity defined by one’s family and extended social groups is called “the great self” (Hwang, 1999). Confucians

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encourage self-sacrifice of the small self for the benefit of social groups such as work groups. Similarly, in FHTG the company is more important than an employee, who is required to make his or her personal needs and desires fit with company goals. The goals, prosperity and growth of the company are considered above those of the individual. In return the company must repay employees’ loyalty by providing a certain amount of welfare and a sense of security (see also Park et al., 2005).

Teamwork. The belief in a collective approach to work is naturally manifest in team work, where the individual benefits from the team’s success. One of the rules of Confucian ethics is:

In order to establish ourselves, we must help others to establish themselves; in order to enlarge ourselves, we must help others to enlarge themselves (Yan and Sorenson, 2004, p. 10).

Some interviewees specifically explained the importance and reciprocal benefit of building team spirit in FHTG. For example, one manager stated that:

To maintain employees’ long-term productivity and enthusiasm to serve for the company, the leadership needs to make it clear to all staff that everybody works together to create wealth so that everybody can get reasonable welfare in return.

Another manager said:

We regard team-building as the basis of the company’s development. Team-building nurtures an idea of collective culture [. . .].

In a team, an individual is viewed as an integral part of a larger network of social groups that survives and succeeds together. An employee stated:

We not only work as a team but live as a team. For example, if work makes us feel overwhelmed, we’ll get together and have a chat at dinner time. Sometimes we play sports together.

From his perspective, teammates are also friends. They may belong to different departments or have different work responsibilities, but are encouraged to support and cooperate with each other to maximise the benefits of the company and themselves as well. Teamwork provides a sense of solidarity among employees so that they feel like members of a family. In return, employees are motivated to work harder and often exceed the goals set for them.

Most interviewees placed collective interests above individual interests, and believed that individual activities and behaviours that support collective interests always deserve appreciation. These collective values affect the way that FHTG manages its employees by means of a team spirit. While this clearly benefits the company, the benefits cannot be one way or exploitative. The company believes that social and economic activities are not based on competition, but on the collective principles of cooperation, trust, and mutual support.

Harmony Teamwork, as described above, plays a vital role in building reciprocal relationships that lead to a harmonious workplace. Harmony represents the highest Confucian ethical standard of human relationships (Hsu, 2007; Yao, 2001); individual behaviour should not interrupt harmonious social relationships (Schwartz, 1999). Most interviewees regarded harmonious relationships as the most important criterion for

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job choice and employee promotion. They emphasised that keeping harmonious interpersonal relationships with other employees has a material benefit in that it strongly influences decisions regarding an employee’s promotion. For example: “the most important part in someone’s promotion is to get recognised by employers. I believe interpersonal relationships do really matter” (employee); “keep good relationships with everyone and make good work achievements [. . .] but relationships lead 70-80 per cent to promotion success” (manager). Both managers’ and employees’ interpreted “harmony” as reflecting ideas of communication, cooperation and negotiation which maintain a balance among the employees, and the company.

The importance of relationships applies to both internal and external stakeholders, including government departments and customers. The hierarchy of relationships, however, places internal relationships above those beyond the “family”. Good interpersonal guanxi is seen to foster a harmonious workplace, with open communication being the key to developing a successful personal guanxi “because a harmonious atmosphere brings a good working environment. Frequently communication increases familiarity between employees and consequently makes many things easier to handle” (manager).

Harmony was seen by both managers and employees as necessary for maintaining a “good mood” while working, which in turn improves work efficiency. Such harmony is consciously cultivated by FHTG as a fundamental part of its organisational culture “because we believe that culture promotion helps align the employees together with a shared value system” (manager). Several of the interviewees favourably compared FHTG company values with those of fully privatised companies that tended more towards western, individualistic models. One director pointed out that:

Because our company is transformed from a state institution that has a strong planned economy basis, interpersonal relationships work in harmony in our workplace. There is no intense competition between staff members [. . .] compared to some highly stressed small private enterprises.

Not all participants agreed that the company values were working for everyone in practice. A few expressed concerns about guanxi, the hierarchical nature of the company, and employee involvement. Some pointed out the potential negative effects of an overemphasis on guanxi and its practices, indicating that while guanxi does often improve company performance, sometimes it “is more important and effective than policy itself. For example, if you keep good guanxi with leaders or have some guanxi with upper level managers, you may get away without punishment to some extent”. Guanxi can also lead to information leaks: “before the final decision is made public, most employees already know the policy. This affects the seriousness of the decision-making”. One manager suggested that the balance needed some control, echoed by another who felt that the negative effects of guanxi could be avoided by improving management systems by, for example, enforcing performance appraisals.

While some saw guanxi as responsible for information leakage, a few others felt that the hierarchical nature of the company left junior employees out of discussions in decision making: “the upper level of headquarters made their decisions, but seldom communicated with us” (subsidiary company manager) and “our system is hierarchical; that is to say, the junior strictly follows whatever the superior asks them to do. Discussion conferences are only a formalistic procedure [. . .] There are lots

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of opportunities for employees’ participation in meetings, but employees from grassroots level do not think it is good to speak out because they are scared about being fired” (employee). In essence, Confucian values are grounded in a holistic sense of societal good, the collective over the individual. If this fundamental concern is violated the value system breaks down. While these values do exist in some Chinese firms today, and are encouraged by government policy, there is evidence of a break down in practice in some instances. Beyond the specific concerns expressed in the interviews above, there is clearly potential for exploitation of cultural values through violation of the virtues of Ren and Li. For example, power relations implicit in hierarchical structures could leave employees feeling obliged to give more to the company than they get in return. Similarly, guanxi can pose ethical dilemmas regarding practical responsibilities.

Bridging Confucianism and western CSR As western companies begin to acknowledge market failures and seek to avoid them through adoption of CSR, global market pressure is also forcing Chinese companies to adopt the same western notions of CSR. However, while there are elements of Confucianism that are either undesirable today or could not be applied to a western context, there are enduring values that appear to be actively and successfully upheld by modern Confucian entrepreneurs. Given that Confucian values were originally taken up by business in compensation for an unregulated commercial environment, some of them are likely to be relevant for today’s free market. Similarly, there are elements of emerging CSR practice that could be beneficial in enhancing Chinese business ethics in practice. How then might eastern and western business practices and values converge to become more ethical and more acceptable globally?

In attempting to address cross cultural issues and contexts in seeking a globally acceptable ethical framework for doing business, Donaldson and Dunfee (1999) suggest a set of “hypernorms” that transcend cultural differences (see also Carroll, 2004). We might look to a similar concept in a hybrid model of CSR, which focuses on transcultural values but is applied with appropriate sensitivity to local cultural norms. In addition, there are some processes that clearly support enactment of values in practice. An interlinked range of such core values and practices emerge from both Confucianism and western based literature on business ethics, management, and CSR. Here they are briefly explored as broad issues of collectivism versus individualism, open communication, harmony, wisdom, and accountability.

Western management practices have evolved significantly over the past few decades, from a hierarchical system and a single-minded focus on shareholder profits, to one of collaborative decision making and stakeholder engagement (see for example, Boutilier, 2009; Downey, 2002). Pragmatically, open communication is considered a key success factor in company development by ensuring effective information exchange within the workplace to maximise acceptance and understanding of company policies and processes. Employee involvement in decision-making processes can also increase satisfaction and levels of organisational commitment (see, for example Grawitch et al., 2007). Early approaches to stakeholder engagement, popularised by Freeman (1984), were similarly instrumental, seen as a part of strategic planning. Today stakeholder engagement is seen as a core element of CSR, with a normative aspect as business

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recognises its role as a part of society (see Andriof and Waddock, 2001), although instrumental approaches still dominate.

Instrumentalism in CSR is seen in its framing of a “business case” implying that CSR will be factored into business operations primarily if the result is direct or indirect financial gain (for example, Porter and van der Linde, 1995; Margolis et al., 2007). Drucker (1984) summed up his “new” CSR by stating: The proper “’social responsibility’” of business is to tame the dragon, that is to turn a social problem into economic opportunity and economic benefit, into productive capacity, into human competence, into well-paid jobs, and into wealth” (p. 62). These instrumental approaches are consistent with western societal views that are individualist rather than collective, where moral arguments appear to have little appeal (Porritt, 2005). Freeman and Velamuri (2006) see an implied separation of “business” and “society” in CSR as a fundamental problem, where social responsibility is too often seen as “doing good”. Instead, they say, business should be assessed by the value it creates for and within society, based upon a view of capitalism as “a system of social cooperation – a system of how we work together to create value for each other” (p. 10). They propose the idea of “company stakeholder responsibility” that (re)integrates business and ethics and creates value for key stakeholders. They also stress that stakeholders should not be faceless groups: a company needs to “see stakeholders as real people with names and faces and children” (p. 17). Freeman and Velamuri’s views are much more in line with normatively based Confucian values whereby the company is an integral part of society and stakeholders are very much “real people”. Indeed, employees are seen as part of the business “family”. Harmony is generated by balance between individual/company interests and those of society, with the aim of mutual benefit. Employee/stakeholder engagement, however, is an element of western CSR that has been introduced to China where, as we have seen, genuine employee engagement can conflict with the Confucian hierarchical system.

“Harmony” also features in the evolution of western ethics and is closely connected to “wisdom”, a concept that is resurfacing in western management rather than the CSR literature. Rooney et al. (2010) note that Socrates saw “balance or harmony” as a key component of wisdom with wise managers having balance “in their views and actions based on thoughtfulness and experience” and operating on a long term view (p. 38). Taking a collective view, they state that social practice wisdom works to produce communal outcomes of well-being and human flourishing (p. 56), echoing the Confucian value of wisdom (Zhi ) as action.

Another growing body of western literature that emphasises the collective rather than the individual is that linking employee and social wellbeing and happiness recognising the connection between wellbeing and employee and community welfare attained “through networking and a general concern for other people” and “a more general societal emphasis on interconnectedness and interdependence” (Sointu, 2005, p. 264). In line with the mutual benefit philosophy of Confucianism, Diener and Seligman (2004) maintain that social wellbeing can itself generate higher productivity and wealth, in contrast to the dominant view that economic growth generates increased wellbeing.

Requena (2003) links social wellbeing to social capital, derived from “acceptable levels of trust, relationships, commitment or communication” (p. 357) which in a western business context can be generated by factors such as open information,

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reliable legal systems, commonly understood and accepted organisational procedures and reliable monitoring. While in China a lack of these factors is compensated for by personalised trust derived from small scale networks and guanxi, described above, in a global market China will need to ensure wider reach of its social capital through adoption of western processes for accountability and CSR reporting (Welford, 2004).

As east and west learn from each other, new “managerial hybrid” (Taylor, 2005) models can be developed, drawing on aspects from each that have proven value in long term social and organisational sustainability. It appears that Chinese business needs to adopt the west’s more rigorous systems of reporting and accountability. The west can benefit from a more values based approach to business, derived from an integrated view of business and society. CSR as an “add on” is neither sincere nor effective in the long term (Laszlo and Zhexembayeva, 2011). However, how do we effect fundamental changes in thinking? One clear option is through the training of business leaders.

Western business schools are criticised for a culture of appealing to students on individualistic and selfish grounds of enhanced career options and high salaries (Starkey et al., 2004; Rooney et al., 2010), rather than instilling knowledge and wisdom and development of social capital. There has long been a call for business schools to integrate CSR in their curricula (Matten and Moon, 2004; Smith and Lenssen, 2009). If, as stated early in this paper, Confucian values based teachings were aimed at business entrepreneurs to help them avoid pitfalls of an economic environment (Lufrano, 1997), we should consider values rather than instrumentalism in CSR as we respond to that call.

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