Dilemmas of a State-owned Enterprise in China

Chen Tonghai, the ex-chairman of Sinopec Corporation of China, was one of the members of the Communist Party. Since 1998, he was the Vice chairman of the Sinopec Corp. In 2003, he became the Chairman. During these several years, he was being corrupted and bribery including illegalized using its position for personal affairs like property acquisition, remitted money to overseas bank accounts. In 2009, he was being arrested and the Chinese government took over all of his property as well as eliminated his political rights.

All about Dilemma

Dilemma for Chen Tonghai

Since Sinopec is a state owned enterprise, the salary for the chairman is relatively low when compare to those western companies like Exxon Mobile, Chevron, etc. If the bribery does not affect the general operation of Sinopec Corp, he could see the point that he should stay away from corruption. Accounting to Pei (2007), corruption in China is almost a risk free activity. If most of the Chairmen did that kind of thing, he may believe that he can do it too. Say, if all of your classmates cheat in the examination, it will increase your incentive of cheating too.

Dilemma for Sinopec Corp.

        When the company discovered Chen’s action, Sinopec didn’t know whether it should announce it to the public and the government. After all, Sinopec Corp. is a famous company in both China and the world. If people discover the issue, it would harm the company’s goodwill. Also, shareholder would have capital loss due to this incident.

        It is just like the recent case of Alibaba. The company discovered cheating of some employee. Some buyers incur loss in their transaction. If the company didn’t announce this incident, it would just be known by some buyers and the company. If they announce the incident, some management director of the company should bear the responsibility. Therefore, it is difficult for the company to make that decision. Hopefully, Alibaba decided to announce it.

Dilemma for Big shareholder of Sinopec

        The big shareholders normally know the problem related to Chen. If they know that the company was going to announce Chen’s incident, they would sell their stock first in order to avoid capital loss. However, it constituted with insider trade and it may be unethical to do so. Due to the grey area in regulation, they may do it without breaking the law.

Dilemma for the Chinese government and court

        Should the court penalize Chen heavily or lightly? If the penalize is too heavy, it may affect the current system as well as reduce the incentive of other companies’ chairman. They may be afraid of making decision for the companies in finally they decide to do nothing and this discourage companies’ development. If the penalize is too light, citizen would believe that the government has another transaction with the business sector as well as Chen.

i.                    Ethical decision making

In China, being a government official especially in senior position enjoys a great deal of privileges and power. By making use of these kinds of authority and power, one and people surrounded can make a fortune and live an extremely luxurious life. Like Chen Tonghai in this case, he was convicted of taking US$28.7 million in bribes. This figure was underestimated as Chen transferred part of his corrupted money to overseas accounts during investigation. As the article “Corruption Threatens China’s Future” said, the odds of a corrupt official going to jail are less than 3 out of 100, corruption is a high-return, low-risk activity. For amount of money huge like millions of dollars, many people would like to risk their life to achieve that. Paying for renovation costs, house purchases or abnormal accounts on houses and free trips were some of the ways in which officials were tempted to compromise themselves. Besides, he would not thought of being caught. This is one of the tempting reasons that lure officials to take briberies. It is human nature that one put self-interest over the public interest. Driven by greediness and the low-riskiness of corruption in mainland China, it is hard to resist not engaging in any corruption activities when this has already become the norm among government departments. 

ii.                  Organizational decision making

Chen’s behavior is a severe breach of party disciplines. This kind of high-profile corruption case would bring a lot national and international attention. As a listed company, it seriously hampers the image. Moreover, since company revenues goes to a handful of senior management, the resources would be inefficiently used. Once the senior members of the company are charged, it would also affect the daily operations.

It is understandable that company employees are hard to do anything as Chen and his close friends were in charge of all the decisions of the business. So, one of the approaches is to develop an independent team in the organization to combat any corruption activities and does auditing work. But again, anything in China can be brought through bribery. Even though similar anti-corruption agent exists, implementation is still questionable. It is sad to admit that single force cannot change much on the matter of corruption.

Given the environmental factors in China as stated in the “Corruption Threatens China’s Future” article, like high involvement of government, powerful Communist party and lax enforcement etc, corruption is extremely difficult of crackdown unless a large-scale reform embark. This mostly depends on self-discipline to resist the temptation of money.

iii.                Corporate social responsibility

Sinopec, one of the largest state companies in China, should set an example on anti-corruption. Corruptions exploit the interests of general public to a handful of elites in the society. As a top listed company in China, the policies are longer a national issue but also affect how the West perceives China. As China’s determination of cracking down rampant corruption is increasing, it is wise for corporations to comply the law and regulations and fulfill its corporate social responsibilities to earn some credits from the media and the public. To specify anti-corruption, organizations should become hold an open, integrity and transparent manner. For example, disclosing annual reports to public, not falsify any documents and carefully choice the right candidate as the CEO etc.

Leadership qualities, capabilities and dilemma in managing business in the global context

Nowadays, leadership is one of the most important factors that the organization wants to be successful in the world. That means the leaders in companies should be knowledgeable, excellent and competent to direct people to achieve the goal. Moreover, leaders need to have personal characteristics and past experiences to face a current environment which is uncertain, unpredictable and uncontrollable in the complex international market.

In this case, under the management of Mr. Chen, Sinopec Corporation got into the global top 10. It proves that Chen is a capable leader to help the company achieve the business goal. He is not only capable, but also outgoing that he always communicates with his employees even the building elevator attendants. Thus, he could know more about his employees and how to manage them. In the international market, leaders should understand the needs of employees. Even if an organization can successfully identify high-potential individuals, it may not have and accurate understanding of their specific development needs (Byham, 2009). Managers should have more communication with employees to know about their personalities and needs.

Nevertheless, his decision-making is bold and creative to make the organization more successful. Open-mind and bringing new perspectives are the essential factors of a leader to present in complex international markets. This is because most of the things in the world are changing constantly that leaders should make some change to adapt it.

Even though Chen has such leadership qualities and capabilities, he failed because of corruption. The case proves that businessmen must follow the rules if they want to be success in the world. If someone break the laws in order to take some advantages, that person must be failed. He also spends 1.2 million dollars of public funds on eating and drinking with clients every month. As a top management of the company, he should make the right decision on resource allocation. This is because the resource is the important assets of the company.

When a person does business, he/she must face a problem which is very different to solve. In this case, Chen had similar problem in his business. In one side, he can earn a lot of money. In other side, he breaks the law. On average, 6000 senior local officials were prosecuted for corruption every year during this period (Pei, 2007). That means corruption is a high-return and low-risk activity. His decision may be affected by the business environment in China. Under this environment, a person may be ostracized from the majority if that person does not join the activities of corruption. In international markets, there are many dilemmas leaders need to know to solve them smoothly.

References

William C. Byham (2009), Developing the next generation of China Business leaders

M. Pei (2007), Corruption threatens china’s future