Leaders carry the torch in ethics battle

PUBLISHED : Tuesday, 03 May, 1994, 12:00am
UPDATED : Tuesday, 03 May, 1994, 12:00am

BUSINESS ethics is making a splashy arrival in Hong Kong this week, with the Independent Commission Against Corruption (ICAC) being charged by Governor Chris Patten to convene a conference on the subject.

Speakers will advocate the adoption of codes of conduct by firms in an effort to maintain and raise the ethical standard of business in Hong Kong.

The list of sponsors and supporters of the conference, which opens tomorrow, is a veritable ''Who's Who'' of the Hong Kong business community.

In his policy address last October, the Governor conceived the campaign for businesses to adopt codes of conduct as a bulwark against ''mounting apprehension that our business sector will become tainted by the lower ethical standards it encounters when it embarks on production or financial operations elsewhere''.

The usually plain-speaking Governor diplomatically said that by standing together and vowing to adhere to ethical codes of conduct Hong Kong firms might avoid becoming entangled in the web of corruption that threatened to cripple business and political development in China.

Many Hong Kong business people are painfully aware that the payment of bribes and kickbacks is often an integral part of doing business in China, and many enlightened business leaders are looking to codes of conduct as a way to combat this.

Although business leaders convening the conference are careful not to publicly criticise Hong Kong business ethics, the privately acknowledged reality is that the ethical climate for business in Hong Kong is not what it should be.

The territory has suffered some high-profile lapses of basic business ethics. Beyond these, many Hong Kong business people worry that conflicts of interest and misuse of inside information occur too frequently in less publicised circumstances.

The high-profile campaign for ethical codes of conduct is meant to serve an important public relations function, signalling to the world that Hong Kong will continue to be a first-class place to do business.

Paul Cheng Ming-fun, chairman of the Hong Kong General Chamber of Commerce, has said: ''Business ethics is a growing global trend. Hong Kong must move in line to maintain its international reputation and competitiveness.'' The Governor's initiative must, therefore, be hailed as an intelligent one made at the right time.

Chee-Lung Tham, a member of the board of governors of the American Chamber of Commerce said: ''More economically developed societies have more defined standards. In the Far East, these standards have yet to be created. The sooner the better.'' However, if business ethics is to become more than a passing fad in Hong Kong, some fine tuning will be necessary.

First the role of the ICAC should be reconsidered. Despite many years of serving as an effective force for clean government and business in Hong Kong, the commission has, of late, come under criticism for its lack of accountability to the public.

The Governor gave the ICAC the task of drawing up and implementing codes of conduct for private firms because of the substantial experience of community relations department director Eddie So Chuen-yee and his staff in this field.

Unfortunately the ICAC has a potential conflict of interest in this matter.

Despite the honourable efforts of ICAC staff, the same agency that is charged with detecting corporate misconduct is not ideally suited to set up systems to detect and prevent such misconduct.

This is not a reflection on the individuals involved, but on the nature of the system.

The problem is that when a firm is designing and implementing a code of conduct, it must come to terms with past instances of, and the potential for, mischief within the organisation.

Each firm must tailor its code of conduct to its own particular circumstances. Therefore, rather than merely engaging in public instruction, the code of conduct initiative would take ICAC staff into the offices and boardrooms of every listed firm in Hong Kong.

Grey legal areas must be openly discussed to draw up an effective code of conduct.

This frankness will not be possible when the code is being designed by a Government entity that may later investigate violations of that code.

Raymond Wacks, of Hong Kong University's Department of Law, said that ''strictly speaking, the involvement of the ICAC in drawing up a code of ethics doesn't constitute a conflict of interest, but it does present certain difficulties, particularly in that it may act as an obstacle to candour and openness.'' To cure this problem of frankness and openness, the Governor should spin off the professional staff at the ICAC into a separate agency.

In this way, the expertise of the staff can be used more effectively by businesses seeking to implement a code of ethics.

As Mr Wacks points out, ''if codes of conduct are to be productive and effective, it stands to reason that companies should be as open and frank as possible. Having the ICAC sitting at a management meeting might inhibit the openness with which any genuine discussion could be conducted''.

Another key to the successful implementation of the Governor's initiative is to avoid the paying of lip service to codes of conduct.

If a company's chief executive commits time and effort to an ethics programme, other employees will get the message that ethical behaviour is important.

If the chief executive is content to simply pin the code of conduct on the wall, then employees will believe that concern for ethics is a facade they will not be expected to take seriously.

Employees must be involved in the process from beginning to end, or they will think of the code as a convenient way for top management to shield itself in the event of wrongdoing.

When one United States military contractor put out a code dealing with the gathering of competitor information, employees became wary and stopped reporting all information.

Professor Lynn Sharp Paine, of Harvard Business School, summarised the hallmarks of an effective programme to prevent unlawful conduct in the March-April issue of the Harvard Business Review.

''Managers must establish compliance standards and procedures; designate high-level personnel to oversee compliance . . . effectively communicate the company's standards and procedures; take reasonable steps to achieve compliance through audits, monitoring processes and a system for employees to report criminal misconduct without fear of retribution; [and] consistently enforce standards through appropriate disciplinary measures.'' Another potential pitfall in implementing the Governor's initiative is that it must be made clear whether or not the initiative is about ethics or law.

Ethical obligations can be more restrictive than legal obligations. In deciding to implement codes of ethical conduct, Hong Kong firms must ask themselves whether they are willing to make such a commitment.

If not, attempts to implement such codes will be seen as an unwelcome intrusion on business practices.

There are many difficult and subtle issues that Hong Kong firms must consider when implementing codes of conduct.

It is best for Hong Kong firms to realise what they are getting into, lest they become discouraged when they learn that such a code is not a magic bullet against corruption.

In the long term, the code of conduct initiative must be supported by broader attention to ethical issues throughout Hong Kong.

The University of Hong Kong's Sally Stewart, head of the Department of Management Studies, has spearheaded the creation of a Centre for the Study of Business Values that will draw on expertise from a number of academic departments.

''It is clear that Hong Kong businesses are aware that they confront many problems that should properly be classified as ethical or value-related,'' she says.

''But these problems are often analysed improperly or neglected because the analytical tools for dealing with them are not available.'' When announcing the code of conduct initiative, Mr Cheng best summed up the task ahead.

''At the end of the day,'' he said, ''ethics is the concern and responsibility of everyone. Ethics is a state of mind - it is about creating an environment in which fair play and fair competition flourish.

''Ultimately, we must start with our children and instil in them an understanding of the importance of ethical behaviour. Parents and teachers, therefore, have a key role to play in our efforts to sustain Hong Kong as the location of choice in Asia to trade, to invest and to live. It is up to all of us.'' Michael Santoro is a Fulbright Fellow at the University of Hong Kong, researching US-China trade and human rights.