The issue of enforcement in Chinese corporate governance
| DOI | https://doi.org/10.1108/JFC-05-2014-0023 |
| Date | 05 October 2015 |
| Published date | 05 October 2015 |
| Pages | 468-475 |
| Author | Charles KN Lam,S.H. Goo |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial crime |
The issue of enforcement in
Chinese corporate governance
Charles K.N. Lam
Accounting Department, HKUST Business School, Hong Kong, and
S.H. Goo
Law Department, HKU, Hong Kong
Abstract
Purpose – The purpose of this paper is to discuss two important aspects of enforcement of ethical
standards: indirect enforcement, that is the Confucian approach, and common law enforcement. In the
context of Confucianism, one must adopt the ethical teachings in a moderate or “middle” way. We
should not be too attached to the liberal interpretation of the Confucian texts but must have the wisdom
to apply the concepts case-by-case. The issue then is if there are no legal consequences or punishment,
then how we can ensure that someone will continue to comply with the standards.
Design/methodology/approach – The authors analyze the Confucian texts in relation to the
enforcement of the ethical standards. The authors investigate the Entity Maximization and
Sustainability Model by referring to the exit option, the voice option, the inuence exerted on the board
of directors, the sending of the Confucian representatives to sit on the board of directors, the oppression
remedy and statutory derivative actions. The authors adopt a comparative study approach and argue
that the Confucian enforcement of ethics can ll in the gap where common law rules of procedure cannot
reach in the context of Chinese corporate governance system.
Findings – By referring to the Confucian teaching, there are several ways to encourage the superior to
follow the ethical standards, namely, education, fear of punishment by society, peer pressure, intrinsic
value, continuing education and codication of Confucian value/moral standards. In addition, there are
several enforcement options based on the Entity Maximization and Sustainability Model, which is
highly relevant to the enforcement model of Confucianism.
Originality/value – It is the rst of its kind in strengthening the enforcement of Chinese business
ethics by adopting the Confucian approach and common law approach. The two are not mutually
exclusive but complementary with each other to bring the enforcement of Chinese business ethics to the
next level.
Keywords Chinese business ethics, Chinese corporate governance,
Confucian enforcement of ethical standards, Entity Maximization and Sustainability Model
Paper type Research paper
In the context of Confucianism, one must adopt the ethical teachings in a moderate or
“middle” way. We need to be exible in dealing with the concepts like loyalty,
faithfulness, honesty and should not take the concepts to the extreme and uphold blind
loyalty or faithfulness. In short, we should not be too attached to the liberal
interpretation of the Confucian texts but must have the wisdom to apply the concepts
case-by-case. What are the consequences for failure to adhere to Confucian teachings?
What happens if the directors breach the ethical principles? First of all, as they are
merely ethical values, there are no legal consequences unless we incorporate the moral
standards into the law[1]. The issue then is if there are no legal consequences or
The current issue and full text archive of this journal is available on Emerald Insight at:
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JFC
22,4
468
Journalof Financial Crime
Vol.22 No. 4, 2015
pp.468-475
©Emerald Group Publishing Limited
1359-0790
DOI 10.1108/JFC-05-2014-0023
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