Culture and Ethics in Business

Prof. Christopher Balding

March 26, 2015

West and East in Pictures: Anger

West and East in Pictures: Ego

West and East in Pictures: Networks

IPO For Bear Bile Company?

• A storm of criticism in China over share listing plans by a company that sells tonics made with bear bile (胆汁) is highlighting the increasingly affluent country's changing attitudes toward the environment and wildlife. Reports Friday said dozens of well-known entertainers, writers and other celebrities signed a petition to the China Securities Regulatory Commission urging it to withhold approval for the initial public offering by Guizhentang, a Chinese medicines maker. The company is awaiting approval for a share listing in Shenzhen. Hundreds of thousands of comments on "weibo," the Chinese version of Twitter, blasted the company for extracting bile from bears.

The Ethics of Bear Bile

• Why is profiting from bear bile different from pork, beef, or chicken?

• What does the criticism by the Chinese celebrities and public say about the potentially changing attitudes towards what is expected of business?

• Would you use this product? Why or why not?

Success Outside the Dress Code “…(researchers) asked shop assistants and pedestrians in Milan to rate what they thought of people who walked into luxury stores wearing gym clothes. The subjects also rated those who wore outfits typically considered more appropriate, like a dress and fur coat. Pedestrians were more likely to think that a well-dressed individual was more likely to have the money to buy something in the store. Shop assistants thought the opposite. Those more familiar with the luxury retail environment were more likely to assume that a gym-clothes-wearing client was confident enough to not need to dress up more, and therefore more apt to be a celebrity making a purchase than someone wrapped in fur.

Success Outside the Dress Code cont. There are boundaries to the benefits of looking different, the Harvard work showed. If an individual was viewed as accidentally out of sync with everyone else, such as mistakenly wearing a red bow tie rather than black at a formal event, that erased positive feelings about him among those surveyed. Those opinions only improved when the survey group believed their contrarian acted differently on purpose…the environment must give cues that suggest a person’s talent or wealth. Standing in the front of the classroom or walking confidently into a luxury store already imply some level of belonging. But when an observer didn’t know whether the person they view is part of the group, eccentric dress was seen as a negative, according to the researchers.

Success Outside the Dress Code cont.

Francesca Gino, an associate business administration professor at Harvard Business School and an author on the paper, decided to test the theory outside the lab as well. She wore red Converse sneakers to teach a one-day event on small business management education. Dr. Gino found that those who identified themselves on a questionnaire as having a higher need to be unique were more likely to give her higher ratings than those who didn’t. “They inferred, ‘She’s so autonomous, she must do whatever she wants,’ ” Ms. Bellezza says.

With Zuckerberg’s Help, China Dean Targets Creativity Over Rote

“We want to nurture leaders, every kind of them including nonprofit leaders, opinion leaders and pop-culture leaders,” Qian said in a three-hour interview at the university, which minted President Xi Jinping and predecessor Hu Jintao. “I want them to have aspirations, have their own understanding of life and have their own values. I want them to be different.” – Qian Yingyi Dean of the of Economics and Management Tsinghua University

With Zuckerberg’s Help, China Dean Targets Creativity Over Rote cont.

Fred Hu, chairman of Beijing-based Primavera Capital Group and former China head of Goldman Sachs Group Inc. (says) “The country is desperately short of creative talent.” Dominated by rote learning, strict discipline and cramming, China’s education system cramps the thinking needed to create breakthrough branded products such as iPhones or Facebook.

With Zuckerberg’s Help, China Dean Targets Creativity Over Rote cont.

“How did I show there is a regime change in the MBA curriculum? No quantitative courses at all in the first eight weeks,” he said. Instead, all the courses focused on “soft skills and only then did people know that it’s a regime change, a radical change, a dramatic change.”

You are a product of your environment and frame your view

of right/wrong/acceptable through that prism.

Disclaimer About Religion and Ethics

The classes incorporating religion in the study of business ethics are not attempts to

convert anyone to any religion, but rather provide students with a better

understanding of the cultural and philosophical framework for ethical misunderstanding or conflict in an

international business setting.

Religion and Business Ethics

• Why do we study religion and business ethics? • In many countries throughout the world, the

religious orientation of the country helps determine the ethical, legal, and cultural mores of that country

• The west comes from a Judeo-Christian world view and many legal and ethical foundations even in business stem from this understanding of right and wrong

• In the Middle East, Islam has a direct impact on business practice through among other factors the prohibition on the collection of interest

Biblical Foundations of Business Ethics in the Framework

• What does the Bible say specifically about business ethics?

• Are their commonalities between Confucian or Eastern Philosophy ethics?

• How well do companies exhibit these values?

• Should we consider Biblical ethics a framework or expect all western companies to be Biblical companies?

Islamic Ethics and Business

• What are Islamic ethics that also apply to business?

• What are the differences between Islamic, Christian, and Confucian impact on business ethics? Similarities?

• Why does Islamic teaching have a more direct impact on the practice of business?

The Equate Project Framework

• Why are we studying the Equate Project?

• How will this impact how you think of doing business deals and investments around the world in different cultural or religious environments?

• Are all religions or cultures so closely related to business or financing arrangements?

• How is the financing structured to comply with religious (Sharia) law?

Managing Diversity Framework

• What are the challenges you will face working or studying in a multinational environment?

• How have you responded to me creating a different classroom environment than you are probably used to?

• How do you resolve conflict when also negotiating unknown cross cultural dilemmas?

• How does the Rabobank experience with diversity translate to China and internationalization?

Cases and Foundational Readings

The Details

Biblical Ethics I

• “In biblical times, pollution may not have been as serious a problem as it is today, but the Bible does contain laws that exhibit a great deal of concern for the land. For instance, the Bible does not allow soldiers to cut down fruit trees, even when conducting a siege of an enemy’s city. The Talmud extends the prohibition of not destroying fruit trees to any type of wasteful destruction. In fact, the Talmud considers wasteful destruction of any kind a violation of the Torah.”

Biblical Ethics II

“The Bible has numerous laws describing what farmers must do to help the poor. For instance, the corners of the field were not harvested by the owner but were left for the poor. Individual stalks that fell from the sickle during the harvest were also left for the poor. If a bundle of grain was accidentally left in the field during the harvest, the owner was not permitted to return for it. This sheaf had to be left behind for the poor: “It shall be for the stranger, the orphan, and the widow.” In a similar vein, the farmer was not permitted to pick all the fruit off the vine or tree and leave it bare. He was obligated to leave the gleanings of the vine and the olive tree for the poor. Care for the poor not only took the form of gleaning as described above, but was also practiced through tithing. Tithes were taken for the physical needs of the priests and the Levites,0 and farmers were expected to make a special tithe for the poor.”

Biblical Ethics III

• “One type of poor person that is mentioned numerous times in the Pentateuch is the stranger. According to one opinion in the Talmud, the precept of treating the stranger properly is mentioned thirty-six different times in the Pentateuch. For instance, Leviticus 25:35 states: “You shall strengthen him, whether he is a stranger or a native, so that he can live with you.””

• “Even slaves have rights in the Bible. The Bible states: “You shall not rule over him through rigorous labor.”22 The Midrashic explanation of this verse is that one should not ask his servant to heat up his cup unnecessarily—or to perform any task that is not needed—simply to keep the slave busy or to assert one’s authority.”

Biblical Ethics IV

• “The Bible states: “You shall not oppress your fellow and you shall not rob; the wages of a worker shall not remain with you overnight until morning.” Employers must pay employees on time. Withholding payment due workers is a violation of biblical law.”

• “The Bible requires the master to give his or her slave a severance gift known as hanakah. The Bible states: “Do not send him away empty-handed. You shall give him a severance gift from your flocks, from your threshing floor, and from your wine cellar....”. An ethical employer should realize that if the Bible demands that a slave be given a severance bonus after six years of labor, it is certainly appropriate for employers to reward loyal workers who have been with a firm for many years.”

Biblical Ethics V

• “The Bible states: “If you sell something to your neighbor or buy something from your neighbor’s hand, you shall not wrong one another.” This verse is interpreted by the Talmud to refer to overcharges and undercharges. For example, if an item normally sells for $600 and a retailer charges a customer $800, then the retailer has violated this law. The Talmud rules that if the overcharge is more than one-sixth, the sale is null and void.”

• “…in Leviticus: “Do not steal, do not deny falsely, and do not lie to one another. Do not swear falsely by My name … Do not cheat your fellow and you shall not rob.” Obviously, all types of deception and dishonesty are prohibited. The Bible also states: “Distance yourself from a false matter,”44 which includes all kinds of falsehoods such as press releases with misleading information, deceptive advertisements, deceptive labels, deceptive packaging, and so forth.”

Biblical Ethics VI

• “Negotiations are quite common in business. In particular, there are employer employee and buyer-seller negotiations. The story of Abraham and Ephron demonstrates the importance of being honest. Ephron comes across as a sleazy character because he promised much and then ended up overcharging for his property. Ephron was more concerned with grandstanding than with being honest and straightforward.”

• “The Talmud is so concerned with honest measures that the sages even prohibit vendors of liquids from pouring a liquid rapidly from a great height. Since foam is generated, the consumer ends up with less liquid. Firms deceiving consumers about the true weight of their packaged product are also in violation of the spirit of this law.”

Biblical Ethics VII

• “Talmudic law requires that the seller inform the buyer of any hidden defects in the merchandise. Sales made under false pretenses, for example, by hiding a product defect, would be null and void.”

• “…the Talmud derives the principle that one must behave in such a manner that he does not give rise to suspicions on the part of others.”

• “Employees also have responsibilities. Employees are required to work to the best of their abilities and not waste time. Incidentally, companies that are hired on a cost-plus basis as contractors have the same obligation of working to the best of their abilities and not wasting time and money belonging to others.”

Islamic Ethics I

• “Muslims derive their ethical system from the teachings of the Qur'an (which Muslims believe is a book revealed by God to Muhammad in seventh century Arabia), and from the sunnah (the recorded sayings and behavior of Muhammad). The goals of Islam are not primarily materialist. They are based on Islamic concepts of human well being and good life which stress brotherhood/sisterhood and socio economic justice and require a balanced satisfaction of both the material and spiritual needs of all humans (Chapra, 1992).”

Islamic Ethics II

• “Islamic jurists' categories of necessities (daruriyyat), conveniences (hayiyyat) and refinements (tahsiniyyat) would fall into Keynes' first class of needs. These are any goods and services which fulfill a need or reduce a hardship and make a real difference in human well-being.”

• “From an Islamic point of view, social change must be gradual and cannot be achieved through force. The Qur'anic injunction "There is no compulsion in religion" (Qur'an 2:256) is relevant here. Change can occur by inviting people to alter their ways or by setting an example.”

Islamic Ethics III

• “The key to the business philosophy of Islam lies in a person's relationship with God, His universe and His people. In common with other revealed religions is the moral appeal to humans to surrender themselves to the will of God. Islam goes beyond this exhortation and teaches that all life is essentially a unity because it also provides the practical way to pattern all facets of human life in accordance with God's will.”

Islamic Ethics IV

• “Islam is absolutely unambiguous in its objective of eradicating from society all traces of inequity, injustice, exploitation and oppression. The Qur'an also condemns vicarious guilt or merit and teaches the greatest possible individualism "... no bearer of burdens can bear the burdens of another; . . . man can have nothing but what he strives for . . ." (Qur'an 53:38-9).”

• “This individualistic outlook on the spiritual destiny of humanity is counterbalanced by a rigorous con ception of society and social collaboration. In their acquisition of wealth, however, people should not lie or cheat; they must uphold promises and fulfill contracts. Usurious dealings are prohibited. Islam teaches that all wealth should be productive and people may not stop the circulation of wealth after they have acquired it, nor reduce the momentum of circulation.”

Islamic Ethics V

• “People are viewed as trustees of the earth on behalf of God. This does not mean a negation of private property but does have some important implications. No inhibitions attach to economic enterprise and people are encouraged to avail themselves of all opportunities available.”

• “Muhammad advised Muslims to be moderate in all their affairs; he described Islam as the "middle way." A balance in human endeavors is neces sary to ensure social well-being and continued development of human potential.”

Equate Project I

• “… Islamic investors are looking for long-term investments that are religiously acceptable. The challenge, therefore, is to develop project finance structures that are not only consistent with Sharia principles, but also attractive to international capital providers.”

• “Because Sharia prohibits interestbased financing, investors must use profit based structures that involve asset ownership in one form or another. Although there are advantages to using Islamic finance, the asset ownership requirement generates several potential complications in deal structuring and project management. “

Equate Project II

• “The project is a joint venture between Union Carbide Corporation and petrochemical Industries Company (PIC) a subsidiary of Kuwait‟s national oil company. The name Equate is based on the concept of “Ethylene Products from Kuwait” (Ethylene-Kuwait), the letters E and Q also stand for Excellent Quality. The plant was financed with $800 million of equity and subordinated debt, $600 million of tern debt from international banks with an 8.5-year maturity, $400 million of term debt from regional banks with a 10.5-year maturity, and $200 million of Islamic funds in the form of an Ijara, or leasing, facility ($100 million was allocated to each tranche of tern debt). “

Equate Project III

• “One of the most important features of Islamic finance, and probably the only feature known by most people, is the scriptural injunction against interest, or Riba. Interestingly, the Qur‟an condemns Riba, but provides little explanation of what the term actually means. In fact, the Arabic term Riba, a noun, means any payment in excess of the original principal, which can be interpreted as any form of interest payment…. Instead of interest, profit is the just return for someone who accepts the risks of ownership. The emphasis on asset ownership biases Islamic finance towards equity structures. Despite this orientation, project finance, and hence this article, is largely about debt finance.”

Equate Project IV

• “Basically, you cannot sell what you do not own or cannot describe in accurate detail. Thus, you cannot sell fish in the sea prior to catching them because you cannot describe them in sufficient detail (i.e., in terms of type, size, and amount). The subtle difference here is that the former relies on the occurrence of an uncertain event for its fulfillment. Islamic law also declares gambling, or Maisir, as unacceptable because it can lead to immorality (the compulsion to gamble) and other social evils such as poverty. This restriction has direct implications in the dealings of modern financial instruments such as futures and options, which may be deemed illegal due to their speculative nature. “

Equate Project V

• “At the time, however, there were few precedents for Integrating Islamic and conventional funds in a single, project-financed deal.”

Human Resources Diversity I

• “Ethnic diversity of the workforce became an issue for the bank several years ago, with the recognition of the changing demographic composition of the labour market. The demographic composition of The Netherlands has changed dramatically in the last two decades.”

• “We were interested in what implications it could have for the bank – new customers, new personnel, maybe there is a need for new products. . . if we wanted to maintain our market position, we couldn’t close our eyes to these demographic changes.”

Human Resources Diversity II

• “Rabobank decided that the ‘ethnic’ part of the society was an interesting market to work in, growing fast, with higher incomes than previous generations and better educated. A decision was made to start a project that would attract those groups to Rabobank. However, further discussions led to the conclusion that this approach would be a success only in the short term, and, if Rabobank were to work with ethnic minorities in the long run, a more systematic way had to be elaborated.”

Human Resources Diversity III

• “Soon after it was established, the Office created the Diversity Network. Members of the network, internally referred to as Ambassadors of Diversity, are employees from throughout the entire bank, from different local branches and departments, various hierarchical levels and different ethnic backgrounds. They gather twice a year to discuss problems, achievements, ongoing projects and future plans related to diversity. In its first years the network was quite small – just thirty-five people. In late 2003 the figure stood at over 300. The Office feeds the members of the network with electronic newsletters and training seminars. The Office perceives the network as an important tool to spread information about diversity and to raise awareness in the organization.”

Human Resources Diversity IV

• “It is interesting to look at what has actually been achieved since the issue of diversity became important for the bank. The manager of the Diversity Office is confident that, so far, at least one major task, that of bringing in ethnic minority employees, has been achieved: ‘They have understood that Rabobank is not a bank only for Dutch people and that they can also work here. So we receive now a lot of applications from them.’”

Human Resources Diversity V

• “…there is a big difference between the proportion of ethnic minority employees in the central office and that in local Rabobanks. That difference can be explained by the co-operative structure of the bank. It seems that a large number of local banks are not willing to diversify their workforce. In these cases, the centre (the Diversity Office or the Personnel Directorate) cannot do much to influence local banks as the latter have considerable autonomy. Most of the ethnic minority employees employed by Rabobank work in the large cities of the country, where the majority of the ethnic population also live.”

Human Resources Diversity VI

• “However, it seems to be common thinking among managers that promoting ethnic minorities to managerial positions is a tricky business, even if they qualify in terms of education and experience. During interviews with managers we occasionally came across the argument, that, for instance, Turkish managers are not able to deal with the pressure caused by their compatriots asking for confidential information or the bank’s financial services on favourable terms. Therefore, it was argued, Rabobank should be very careful when promoting ethnic employees to high positions that require decision making responsibilities.”

Human Resources Diversity VII

• “All other employees also agree that the multicultural team is very important for the bank and acknowledge the fact that the ethnic composition of the population has changed and therefore having a multicultural team is ‘more real’. For the Surinamese floor manager, the multicultural team has further advantages: ‘We can learn from each other. It’s true that sometimes it’s difficult to communicate, but we are colleagues, friends, we are a team and we can learn from [the] different cultures we represent.’”