Journal of Chinese Human Resource ManagementEmerald Article: Business ethics and workplace guanxi in Chinese SOEs: a qualitative studyJessica Li, Jean Madsen

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To cite this document: Jessica Li, Jean Madsen, (2011),"Business ethics and workplace <IT>guanxi</IT> in Chinese SOEs: a qualitative study", Journal of Chinese Human Resource Management, Vol. 2 Iss: 2 pp. 83 - 99

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Business ethics and workplaceguanxi in Chinese SOEs:

a qualitative studyJessica Li

Department of Education Policy, Organization and Leadership,University of Illinois at Urbana-Champaign, Champaign, Illinois, USA, and

Jean MadsenDepartment of Educational Administration and Human Resource Development,

Texas A&M University, College Station, Texas, USA

Abstract

Purpose – The purpose of this paper is to examine Chinese employees’ perceptions on their ethicaldecision making in relation to the workplace guanxi context in state-owned enterprises (SOE).

Design/methodology/approach – Using a qualitative method, two rounds of interviews wereconducted with 18 participants in two SOEs “to explore Chinese employees” ethical perceptions andexperiences in the workplace. A qualitative thematic strategy was adopted to analyze and interpret the data.

Findings – The authors identified three major themes on SOE employees ethical decision making inrelation to workplace guanxi: the ethical self; malleable ethical standards; and submission to authority.The authors derived a conceptual framework to outline the relationship between the invisible hand ofguanxi and the SOE employees’ ethical decision making.

Originality/value – The paper contributes to the business ethics literature by presenting athree-dimensional profile and a conceptual framework for Chinese business ethics research. It providesan in-depth understanding of a complex dynamics of guanxi and its impact on employees’ ethicaldecision-making behavior.

Keywords China, State-owned enterprises, Employee behaviour, Employee attitudes,SOE organizations, Business ethics, SOE employees, Decision making, guanxi

Paper type Research paper

In recent years, China’s business ethical practices have received increasing attention inboth public and scholarly arenas (Chan et al., 2008; Wu, 1999). Particularly, China’srecent problems in defective products, such as toys, toothpastes, and pet food, havebeen blamed for inappropriate business practices and ethical conducts (Brand andSlater, 2003). Recent literature has examined Chinese business leaders’ perceptions andpractices regarding business ethics in organizations (Chan et al., 2008). Studies havealso reported differences in business ethics between China and Western nations(Armstrong, 1993; Ralston et al., 1993; Tsui and Windsor, 2001). While insightful,existing studies often adopted established Western instruments with limited culturaladaptations. Thus, they may lack of proper explanations on what Chinese people mayconsider as acceptable practices (Lovett et al., 1999).

A number of studies have taken the Chinese context in the research. For example,Au and Wong (2000) have found that guanxi and ethical reasoning affect Chinese auditors’professional judgment. Tan and Snell (2002) further discussed two contextual reasonsaffecting Chinese managers decision making: one is context sensitive guanxi-linked

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Journal of Chinese Human ResourceManagement

Vol. 2 No. 2, 2011pp. 83-99

q Emerald Group Publishing Limited2040-8005

DOI 10.1108/20408001111179140

morality, and the other is the managerial grasp of guanxi. Clearly, understanding China’sbusiness ethical practices requires considering the contextual “Chinese characteristics”including culture and the transitioning contexts (Tsui and Windsor, 2001).

While the relationship between guanxi and business ethics has been discussed bymany (Chen and Chen, 2004; Fan, 2002; Ho and Redfern, 2010; Hwang et al., 2009;Koehn, 2001; Zhang et al., 2009), few studies have explored business ethics andworkplace guanxi in the state-owned enterprises (SOE) setting. This study extend theliterature by investigating SOE employees’ perceptions on, and experiences in, theirapproaches to making ethical decisions in their daily work settings. Through thisstudy, we explore the following two research questions:

RQ1. What are currently held ethics and moral perceptions by SOE employees?

RQ2. How workplace guanxi affects SOE employees’ ethical decision making?

Context of the studyChinese business ethicsBusiness ethics in China has gained much attention due to the controversy over a fewof the Chinese products (Chan et al., 2008). Lu (2009) has noted that two issues areconnected to defective Chinese products. One is related to the management of industrialstandards. If the standard is not up-to-date, it is an organizational issue. The otherdeals with business owners or managers’ moral characters. If the owner or managerintentionally uses deceptive measures to lower standards, employees are asked toperform accordingly. Lately, business ethics in China has been linked to other sensitivesocial phenomena including corruption, labor rights, and distributive justice (Fan, 2002;Lu, 2009). Chinese Government has taken measures to tackle these issues throughinstitutional means, such as introducing corporate social responsibility (CSR). This hasraised the profile of business ethics concerns in China to promote “human-based” and“virtue-based” business practices using CSR norms and visions (Ip, 2009; Lu, 2009).However, it is believed that the true line in defense of ethical business practices is theethical and moral bottom line of the business owners and managers (Ip, 2009) As such,some Chinese corporations have wisely focused on establishing a corporate culture thatvalue personal ethics and build a “good person culture” (Lu, 2009).

China’s business environmentThe complex nature of Chinese business environment is shaped by the transitioningcontext with multiple ideologies and organizational forms. At least three ideologiescoexisting in China today influence business ethics. They are communist, confucianism,and capitalist. Such dynamics is rooted in the contemporary Chinese social, history, andculture evolution (Zhang and Zhang, 2006; Ding et al., 2000). The SOE system is aproduct of China’s socialist central-planned economy. Prior to the transition, SOEs haddual roles as economic entities and social institutions. As economic institutions, SOEsmust produce profits and present a large proportion to the state. As social institutions,SOEs provide life-time employment for most urban population to fulfill their role forsocial and political stability (Gu, 2001; Yang, 2005; Zhang and Keh, 2010). With majortransformation such as restructuring, ownership realignment and human resources(HR) practices redesign, the social role of SOEs has been weakened, yet it is stilldominating the mentality of managers in SOEs (Desvaux et al., 2004).

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Theoretical frameworkWe combine the perspectives of guanxi and Chinese cultural values as a theoreticalframework for this study. These perspectives collectively demonstrate how groupdecisions affect Chinese organizations and employees. These symbolic terms insurethere will be respect and harmony within group behaviors. It also describes how valuesaffect one’s approach to work and its implications for work ethics. A fundamentalassumption of Western business ethics is that the individuals has complete autonomyin making independent ethical decisions (Rachels, 2010), the same may not beapplicable to Chinese employees. Employees in SOE are part of a relational societywhere the individual is only considered a dot on a network of relationships. In thissociety, while the individual remains morally responsible, there are contextualrelational considerations that may substantially moderate moral judgments (Tan andSnell, 2002). In predominantly Chinese societies, morality is both role and behaviordependent. Morality deriving from Confucian teachings emphasizes virtuous personalqualities (e.g. loyalty, honesty, obedience, sincerity, etc.) required in performing rolesand with regard to roles (Au and Wong, 2000). As a result, moral behavior variesaccording to a person’s role, position and relationship with other role-players within ahierarchical society. Thus, guanxi, or connectedness in a network of relationships, hasa direct bearing on the Confucian moral tradition (Au and Wong, 2000).

Guanxi networkRecently, guanxi has undergone scrutiny regarding how it is connected to other moralareas. Guanxi is often seen as an outgrowth of Confucian emphasis on personalrelations (Koehn, 2001). It can be defined as interpersonal relationships based on acommon background and an existence of direct particularistic ties between two ormore individuals (Tsui and Farh, 1997; Yang, 1993).

While guanxi may be beneficial to business transactions (Lovett et al., 1999), it wasalso found to be the root of all evils in China (Fan, 2002). Guanxi governs the informalnetworks that influence business activities and are often more powerful than theformal chain of command. Trust built on guanxi is significantly stronger thancontractual agreements based on impersonal laws and institutions (Chen et al., 2004;Koehn, 2001; Tsui et al., 2004). People who are more cognizant of both positive andnegative attributes of guanxi are likely to be more effective in today’s Chinese businessenvironment (Chen et al., 2004). Guanxi urges members to do right for other people withinthe in-groups. Members of the in-groups orient themselves toward group harmony byfollowing a set of unwritten rules governed by guanxi. Favoritism and personal gain areoften the benefits of being the members of the in-group while discrimination againstmembers of out-group occurs. Sometimes, it is hard to not link it to corruption, especiallyfor Westerners (Fan, 2002; Su and Littlefield, 2001). One can certainly engage in unethicalconducts on the basis of guanxi and that have led some researchers to conclude thatguanxi is unethical (Chan et al., 2002; Fan, 2002; Provis, 2008; Warren et al., 2004).

For the purpose of this study, it is necessary to make the following two clarifications.First, guanxi is not an ethical framework; it is a set of powerful yet implicit rules thatgovern informal personal and business relationships. Guanxi by itself cannot be judgedas ethical or unethical; it is the action that people take in the name of guanxi has ethicalimplications. Governed by guanxi relationship, people are obligated to reciprocatefavors, but the reciprocation is neither immediate nor specified (Hwang et al., 2009).

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It is the individual’s responsibility to determine when and how to return the favor, thus,the individual can return the favor ethically and in time. Second, guanxi and ethicalframework works in conjunction when people making decisions of what actions to take.Guanxi plays an important role in the overall Chinese value system (Robertson et al.,2008). Hence, it is important to investigate the impact of guanxi when studying ethicaldecisions of Chinese employees and use it as an analytical lens to understand andinterpret the data.

Chinese culture valuesUnderstanding Chinese cultural values, similar to guanxi, is central to delineating whatmight be regarded as acceptable ethical behavior in organizations. Chinese employeesperceive the ethical dimensions of their work based on cultural values, and how guanxiaffects their decisions. Values are enduring believes that are personally or sociallypreferable (Rokeach, 1973). Chinese values are largely influenced by Confucian values,which can be traced back to more than 2,000 years. The philosophies of Confucius stressinterpersonal harmony, hierarchy, family integrity, kinship affiliation, and individualresponsibility (Hui, 1992, as cited in William and Sandler, 1995; Lim and Lay, 2003).Collective values and group interests are always above individual values and interests(Ip, 2009).

Culture values are not static; China has changed significantly since the economicreform, so as values. This study focus on a generation of SOE employees who haveexperienced the transition from a planned economy to a market-driven economy, thus,the 40 fundamental and basic values of Chinese people presented by The ChineseCulture Connection (CCC, 1987) remain applicable. For example, the sense of shame,kindness, reciprocation, etc. still offer ethical and moral guidance to the selection ofconduct and behavior of groups or an individual (Song and Gale, 2007).

MethodThe data used in this study were drawn from a larger study on Chinese SOEemployees’ work ethics. We collected data during 2007-2008. The outcome of the workethics study has been partially reported in Li and Madsen (2009, 2010) from differentaspects. In this paper, we partially used earlier data and added six additionalinterviews that were not reported previously.

ProcedureWe took a qualitative approach combining interviews, observations, and field notes(Merriam, 1988). Two rounds of interviews were conducted with a month interval toensure a reliability of responses and to allow supplementary reflections on workethics-related issues (Seidman, 1998). The first author collected both sets of interview datawhile the second researcher was involved in the theoretical framework, methods and dataanalysis (Merriam, 1988). The interviews were conducted in a rented apartment adjacentto the interviewees. The Chinese researcher met with interviewees individually and madesure the participant felt comfortable in a familiar environment. Chinese employees weregiven the Institutional Review Board consent notice to ensure confidentiality. Allparticipants were notified that they could terminate their participation in the study at anytime. To insure their continued participation in the second round, a small stipend wasprovided to them. No participants dropped out in the follow-up interviews.

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The interview protocols, initially in English, were developed based on a combinationof multidimensional work ethic profile (Miller et al., 2002) and confucius work ethic(Hofstede and Bond, 1988; Lim, 2003) frameworks. The translation process wasmanaged by the first author in a team consisting of three other bilingual Chinesescholars. If a term was found to have different expression from the forward andbackward translation, the team would discuss and negotiate until reaching anagreement. To insure the quality of the interviews, protocols of the questions werepiloted with other Chinese employees who were once employed in SOEs. This was toestablish a meaningful functional equivalence between the English and Chinese, not anidentical word-by-word translation of the questions (Bates and Khasawneh, 2005).A sample interview question includes “please use your own words to describe a goodmoral person/employee.” All interviews were recorded and transcribed verbatim inChinese by a professional transcriptionist. The interviews were conducted in Chinese.A total of 480 pages of transcripts were resulted from the two rounds of interviews forethical-related narratives. They were then translated into English by an independenttranslator for data analysis.

In conjunction with the interview, we also conducted on-site observations at thefactories where the interviewees were employed. As part of triangulation, this was toconfirm and obtain first-hand experience of participants’ descriptions of their workenvironment. Data from observations were used to validate interviewees’ responses totheir working conditions. For the purpose of protecting the identity of the respondents,no attempt was made to connect participants with the factories where they worked. Thefirst author kept field notes for both interviews and observations and later shared withthe second author.

SampleWe adopted purposive sampling for this study (Patton, 2005). Purposive sampling isnecessary not only because it is recommended in the literature for qualitative research(Merriam, 1998), but also because people in China are generally suspicious of beinginterviewed or questioned without personal connections or guanxi (Wright et al., 2002).We identified sample organizations based on the following criteria:

. They must have existed before the economic reform.

. They must be controlled by state government.

We relied on our professional networks and identified two SOEs that met the abovecriteria.

The first is a cotton factory located in South China. It manufactures a variety ofyarns. The second is a glass factory located in North China. It produces glass productsused for commercial buildings and for sophisticated military purposes. Both factorieswere established in the 1950s and were located in mid-sized cities with urbanpopulations of about one million. They both have about 10,000 employees prior to thereform and have been struggling for profitability since the economic reform. Bothorganizations currently have about 5,000 employees.

We used the following criteria to select interview participants in the two SOEs:

(1) front-line employees or managers/ supervisors; and

(2) aged in the range of 35-55 years.

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The first criterion is to ensure we obtain data from all perspectives, and the second is toensure the interviewees have sufficient experiences with the SOEs’ transitions. We alsoconsidered balancing gender and educational background. Six from the cotton factoryagreed to be interviewed and 12 from the glass factory participated. Table I listed thedemographic information of the 18 participants.

Data analysisA qualitative thematic strategy was used to analyze and make sense of the data (Boyatzis,1998). We first coded the data with respect to different formats (interviews, documents, orobservations). We then used constant comparative method to identify major themes(Glaser and Strauss, 1967). Through constant comparison, we identified subthemes undereach major theme as properties or descriptors to reveal the underlying nature of the themes.The data were presented thematically and the relationship between the findings andcurrent literature was integrated into the discussion of themes (Glaser and Strauss, 1967).

As researchers themselves are part of instrument in qualitative research (Merriam,1988), we have the following advantage for the data analysis. The first author wasChinese origin and bilingual, she has been educated and is currently teaching in the USA.She returns to China frequently, thus has what is termed a negotiating insider/outsiderstatus (Merriam et al., 2001). As such, the bilingual first author was able to understandthe cultural contexts and values of the participants and their interpretations.

We adopted a number of measures to ensure trustworthiness of the data analysis:. We developed an explicit coding system and established a consistency of judgment.. We adopted diverse perspectives to examine the interview data. For example,

one interview statement might be coded under different thematic categories.

No. Age Sex Years at SOE Education Area of responsibilities Number of subordinates

M1 52 M 29 University Training supervisor 2-3M2 55 M 35 University Supply division manager 200-210M3 45 M 21 University Training manager 20-30M4 46 M 22 College Product research manager 20-30M5 46 F 22 College Product quality manager 20-30M6 39 F 14 Tech school Product quality manager 20-30M7 45 M 26 Tech school Electrical maintenance

manager80-90

M8 45 M 24 Tech school Engineer maintenancemanager

100-110

E9 52 F 32 College Trainer 0E10 55 F 24 Some college Secretary (recently retired) 0E11 47 F 28 High school Lab technician 0E12 43 F 21 High school Machine operator 0E13 42 M 25 High school Repair technician 0E14 44 F 26 High school Maintenance worker 0E15 48 M 21 High school Maintenance worker 0E16 39 F 20 High school Electrician 0E17 37 F 21 Mid school Electrician 0E18 52 M 35 Mid school Driver 0

Table I.Demographic informationof interview participants

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. We constantly reminded ourselves of being sensitive and reflexive to themeswhen interpreting the data (Alvesson and Skoldberg, 2000; Boyatzis, 1998).

FindingsOverall, Chinese SOE employees’ perceptions on ethics vary according to their rolesand positions within the SOE. The interviewees were affected by the hierarchy withinthese contexts. In many ways their decisions were affected by who they interacted withat the factory level. Many believed that working hard and being ethical framed the waythey operated in the workplace. For the most part, Chinese employees tried to avoidshame. They did not want to embarrass themselves in front of their coworkers.We identified three themes from the data analysis. They are: the ethical self, malleableethical standards, and submission to authority. Table II reported the three themes anda short description of each of the themes.

Theme 1: the ethical selfThis theme described a shared perception that all the interviewees expressed.One should first be responsible for him/herself. It was important that guanxi wasdemonstrated in everyone performing good behaviors. Employee worked collectively toestablish a form of self-cultivation. It was similar to the “good person culture” that someChinese companies are advocating (Lu, 2009). In this culture environment, an employeeshould be a righteous person and avoid doing things that will bring a sense of shame tooneself and others. The perceived use of the term “sense of shame” (Zhi Chi ) impliesone should internalize what it meant to deal with other people in a fair and responsiblemanner. The emphasis was to avoid shame by doing the right thing in the first place,hence, the importance of self-cultivation (Chinese values listed by CCC, 1987).

Workplace guanxi implies that forming personal connection and strong grouporientation can replace formal structure, employees pressed each other to maintain aninformal sense of ethics. This informality governs one’s judgment on if something isfair or not. M7 explained what it means by not to harm others:

For example, we have bonus, my boss give me more because I am the manager, others mayget some bonuses too, but they may not receive as much as I do. In this case, I will acceptthe bonus happily. If I receive bonus while others get nothing, I would feel guilty, it is equal toharming others.

For the employees being ethical was grounded on how they had lived their own lives.This implied that employees must work hard, and be worthy of their pay check.Almost all interviewed believed that they have worked hard but the reward was notadequate, as articulated by E10:

No. Theme Description

1 Ethical self One should first be responsible for him or her own behaviors andbecome a good person through self-cultivation

2 Malleable ethicalstandards

The understanding of what consist of a right (ethical) decision iscomplex. When making decisions, there were many factors that wereconsidered beyond the formal ethical standards

3 Submission toauthority

Value their loyalty to superiors. Obeying the order of their superiorswithout question even when in doubt

Table II.Chinese employee ethics –

themes and descriptions

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I have been working hard here for such a long time, but the salary I received didn’t make mesatisfied. Our salaries are so low and I don’t have enough money to buy an apartment or a car.

When asked about what represents an ethical employee, all the descriptions by theinterviewees were consistent with the following statement by E12:

Using my own imagination, that is, respect for the old and love the youth, be responsible forone’s work, never take advantage of others, like to help others and be positive towards life.That is a good moral worker.

It was these qualities that led to an ethical self that permeated how employeesinteracted with one other.

Subtheme 1.1: responsible for self. This subtheme represents the nature of the invertlooking of an employees’ ethical self and avoiding interference with other’s unethicalbehavior whenever possible. Employees believed they were responsible for their ownbehaviors. The underlying guanxi aspect of trust and group orientation meant if theyhad made a mistake, they would feel a sense of shame and would attempt to rectify it(Au and Wong, 2000). To them, a mistake meant something they did that had negativeimpact on their team or the organization. They expressed that because of theirrelationships with others they had to accept the consequences. With group orientation,responsible employees would work hard and focus on the job at hand. Managersconsidered that they were not only responsible for creating informal networks ofguanxi, but also set examples for their subordinates, as noted by manager, M4:

I often tell them [my subordinates] if you want to perform your job well, first, you need to beresponsible for yourself, [and] second be responsible for your job. In the long run, you[always] need to be responsible for your family.

Yet for employees, E14 offered a typical behavior:

[. . .] If it has nothing to do with me [I won’t do anything about it], because everyone has theirown thoughts, I don’t want to argue too much with others and use up my energy.

Both guanxi which emphasizes group orientation and Chinese values of self-cultivation(xiu yang ) which emphasizes self-discipline had direct linkage to individuals’ethical behaviors. Many perceived that while they were responsible for themselves,they still would be accountable for their peers as obliged by workplace guanxi.E12 articulated her experience:

Like us, we work on cotton spin catcher machines, we have to keep working, not a lot of freetime. Lunch is only half an hour. I have a bad stomach, sometime I cannot finish my lunch in30 minutes so when I get back from lunch, others have already been working, they may havefinished some of my work, when that happens, I feel shameful.

In many ways this form of peer pressure also affected how they themselves would beresponsible to others in the workplace. This phenomenon was observed when employeesformed informal work teams as a subset of in-groups in relation to the overallorganization. This group orientation focused employees’ attention toward their in-groupaffairs than that of the factory. The notion that one is only responsible for oneself but alsotowards their group resulted in limited reasoning abilities. As noted by manager M5:

From one’s own standpoint, one should be purely oneself. Actually one cannot change thereality. I think in China this is a tradition, it has been like this for over 2000 years.

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Subtheme 1.2: avoiding interference. Owing to concerns of possible negative impact onguanxi, most people avoid confrontations by not interfering even when there wereproblems in defective products or company resource uses. Employees, some of the times,went through a sense of dissonance because guanxi relationship conflict with theirethical values. The need for trust among their group, yet dealing with their individualethics caused them much stress. Employees cited several examples when they turnedaround and looked in the other direction when they observed others not followingworkplace regulations, problems of taking company things for personal use. Eventhough the factory was not an ideal job with tough working environment, it did provide away to support their family. Fears of losing their jobs often permeated their thoughts.Thus, it is important for them to maintain employment. As noted for the followingcomment by worker E16:

I don’t like to talk to others if it doesn’t relate to me. I believe others have their way of doingthings. As long as I perform my job well, that is enough. [. . .] They don’t need me to correctthem about what they should or should not do [. . .] This type of things needs to be addressedby team leaders and directors. If I confront, it may course a conflict, I don’t want to do that.

Worker E18 presented the same issue from a different perspective:

If it is my boss, I won’t even want to touch on it. Because I don’t have authority over it, I am notthe boss. It is the boss who is in charge of everything here. Besides, it is not my workresponsibility, if I do something about it, I might get revenged [. . .] I don’t want to hurtanybody’s feelings.

Theme 2: malleable ethical standardsMany stated that in their factory area it was always about production. Managers andsupervisors emphasized the importance of meeting production quotas when it wasdictated by the higher tier of management, it appeared that they were neither consultedon the production quotas nor explained why they were given the demands in any detail.There was very little relationship with the higher tier of management. Thus, intervieweesbelieved that most of the ethical issues related to defects rest with senior managementuntil it impacted consumers. They perceive it is the responsibility of the factory boss orthe government regulatory agencies, thus they are not responsible for it even if they wereinvolved in producing the defects. This was evident in the following quotes:

This [fake products] is the problem of the country; we have no right to interfere [M5].

The employees don’t know anything about it [the fake products], it is the boss’ problem [E12].

The notion of what consists of a right (ethical) decision for these employees wascomplex. In many ways it was a balance among guanxi, coworkers, personal values, anddealing with the superiors’ demands. The interviewees believed that they should notcheat, steal, hurt, or take advantage of others for personal gains. Many stated that anethical person should be honest and trustworthy. However, when situations developedthat forced one for an ethical decision, the tensions between wanting solidarity with theirpeers and their relationship with their bosses troubled them on multiple levels. Beingharmonious with peers, subordinates, and the boss was to maintain good guanxi; thusbending the rules or looking in the other direction was accepted as long as no one wasbeing held accountable. For them, ethical decision making appeared to be contextualizedand often dependent on whether it affected the harmony of the workplace guanxi.

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Subtheme 2.1: interpretations of ethical standards. Many of the interviewees hadlimited financial resources in terms of pay. As such, they felt that there were some ethicalstandards could be open for interpretations. It was widely accepted that because theyoften worked long hours and were paid low it would be appropriate to use resources inthe workplace. Thus, they would fix a cooking pot, use a few pieces of defective glass torepair a broken window at home, or wash their clothes in the workplace to reduce waterbills at home. As part of the guanxi network, employees exchanged favors by doingthings for one another with company resources. It was part of this interplays showinghow guanxi played out in the workplace. Therefore, employees straddled about howethical standards were interpreted in the workplace. It was expected and appropriate attimes to fix their cooking pots or take product from the factory if no one noticed. E13’sfollowing statement was representative of this finding:

If he doesn’t take it home, [I] should provide him with the help. If he takes it home, [I]shouldn’t help. For example, the tools we use at work, there are just here, so it is ok to use itfor personal needs, as long as you return it back after use.

This particular point is supported by the interpretation of Confucian ethic to act baseon the circumstances of the situation, refusing to act because one wants to keep one’scharacter unsullied does little to improve a bad situation (Koehn, 2001).

We also found that managers kept a blind eye to show benevolence in exchange foremployees’ loyalty. It was part of the workplace guanxi to maintain their informalinterpersonal relationships. Benevolence authority and loyalty to superiors are twoimportant Chinese values (Wang, 2011; CCC, 1987). Additionally, it was important fortheir social connections because refusing to help might cause employees to lose faceamong friends and their community. Owing to the aura of guanxi, their work andpersonal lives were closely intertwined (Li and Madsen, 2009, 2010). M7 articulated thisin the following way:

Of course in principle, it is not right to do so. But in the reality, it is ok if one needs it badly athome. Theoretically it is not allowed. However, in China, this is our basic condition, and it iscommon in state-owned company.

Subtheme 2.2: situational ethical standards. The interviewees expressed sentimentsthat they were to avoid interfering with others’ ethical responsibilities, especially whenit involved their superiors. Some noted they could lose their jobs if they questionedtheir “bosses” ethics. This may explain why Chinese employees were not “bold”enough to blow whistles when encountering unethical conduct. For example, allinterviewees believed it was illegitimate to produce defects for profit. However, theyindicated that it was often the case that management might use low-quality materialsto cut cost. None of the employees from the two SOEs spoke about being involvedin producing substandard products. However, they did believe that if they wereinstructed to do so, as front-line employees, they should not possibly be responsible forthat. The reasons were that:

. the employees would not know; and

. the employees were only accountable for the tasks assigned to them by themanagement.

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Hence fears of termination would promote silence, thus most would choose not to questionor challenge the management for wrong doings (Li and Madsen, 2009), as E15 stated:

You cannot blame us; we just follow the directions from the above, and it won’t be our fault. Ifyou want to blame, blame the people above us.

Another example of situational ethical standards was intellectual propertyinfringement. A majority of the interviewees were sympathetic toward companieswho infringed on others’ intellectual property. Some stated that to make a profiteveryone had the right to survive and to accumulate the start-up capital (Li and Madsen,2009). A similar case was shared by Zhang et al. (2009), when a criminal used the illegallyacquired capital to start a successful business venture that benefited the local economy.When the illegal activity was discovered, should this person be punished became asubject of national debate. Many interviewees agreed to the following statement by M2:

To survive, to reduce cost so the companies can survival, they may copy other brands andproduce pirate products to first maintain their financial solvency – survival. It is all aboutlivelihood priority.

Theme 3: submission to authorityChinese people often value their loyalty to superiors (CCC, 1987). The meaning of thisloyalty as expressed by the interviewees was obeying to the order of their supervisorswithout questioning even when in doubt. Particularly, when a decision was madeabove their ranks, the structure of guanxi would be no longer based on informalstructures or relationships such as they had with their peers. Many felt they shouldremain silent and not address their concerns about production and quality issues withtheir bosses. It was believed if you spoke out, you would lose your job. These findingsstressed the importance of employees being loyal to their superiors. In many ways thishas the greatest impact as most stated that loyalty to superiors takes precedent overthe daily operations in the workplace.

Managers considered that upper administration had uncontested power. Theybelieve it was the duty of subordinates to follow and obey to management directives.If they followed the upper administration, their subordinates were expected to do thesame (Li and Madsen, 2010). Because employees felt powerless and too far from uppermanagement, they would remain silent even when they disagreed to the conduct oftheir supervisors. Manager M8 responded in the following way when asked what if hiscoworkers behaved unethically:

No. I won’t do anything. If it is my subordinates, I will talk about it. My boss? Whatever hewants to do, I won’t say anything.

Some interviewees suggested that the current organizational structure allowed uppermanagement to wield their powers to their own advantages. Owing to the fact that allsalaries for all ranks of positions in SOEs were public information, many believed theirbosses possibly took bribes as their salaries would not be able to afford owning carsand living in spacious luxury apartments. They did not see how their superiors couldafford the type of lifestyle that they led (Li and Madsen, 2009). For example, M8 madethis comment during the interview:

Now the company is losing money and in financial deficit all the time. The bosses drive nicecars to work and smoke Zhonghua Cigarette [expensive cigarettes].

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On the other hand, they perceived it was necessary to follow the societal commonpractice to treat the bosses for nice meals or to present gifts to them from time to time.It was their way for trust building. Particularly when something went wrong withthem, the bosses would be willing to take care of them. Front-line employees in SOEshave limited opportunities to find jobs outside the system. Their personal life andfinancial support depended on the income from their current job; the risk is too high forthem to challenge their superiors (Li and Madsen, 2009). Thus, it was important forthem to establish interpersonal associations with their bosses. E12 summarized thephenomenon:

The whole nation knows that one needs to know how to please the boss, flatter the boss. Thisis for sure. This is what I think and what I feel.

DiscussionThe reasons behind the interviewed SOE employees’ invert looking on ethics, such asresponsible for oneself and unwillingness to interfere were complex. In a study ofwhistle blowing behavior in China, Zhang et al. (2009) concluded that many in Chinaare still under the pressure of maintaining harmony, especially, in the in-group guanxinetwork settings. To mind one’s own business and to conform to the norm is thecommon practice. The consequences of interfering are considered undesirable andoften unpredictable. Chinese culture is collective in nature, with high power distanceand high uncertainty avoidance (Hofstede, 1991). Workplace defines employee’s socialsphere which means they are embedded in their work environment and work providestheir social support systems (Li and Madsen, 2009, 2010). It would cost a huge price ifasked to leave their social network sphere because something they did unacceptable atthe factories. Simply strengthening legal support for whistle blowers may not beapplicable to these employees. The Chinese tradition of guanxi will prevail andcontinue to influence ethical decision makings of Chinese employees, and they willcontinue to experience the moral dilemmas of obedience (Snell, 1999).

The findings revealed that addressing the (un)ethical dimensions in the workplacejeopardized employees’ guanxi ties, causing them to lose face, and be reprimanded.This was quite evident when they would have to go against the boss as their actionswould be inconsistent with or violating Chinese values – loyalty to superiors, orderingrelationships by status, and harmony with others. That may explain the slow progressin fighting corruptions and so few whistle blowers in China. Few people are willing tointerfere and officially voice the concerns for fear of retaliation, not by a single personbut by a network of workplace guanxi (Zhang et al., 2009).

The findings further led to a three dimensional ethical profile of Chinese SOEemployees. Guanxi and culture values does affect SOE employees’ ethical decisionmaking. The concepts of an ethical self has implications for how employees applyChinese values of self-cultivation, keeping oneself disinterested and pure (Qinggao ),and maintain harmony with others (CCC, 1987). It was this mindset that preventedunpleasant experiences and maintained solidarity among the employees. Therefore, itwas this harmonized working environment and workplace guanxi that played asignificant role in employees’ ethical decision making. Consequently, employees werenot always willing to speak out regarding unethical conduct in the workplace, andsilence became the golden rule at these factories. If they were to address ethical issues ontheir bosses, they might lose as a result of retribution. They would be perceived as

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aggressive employees who cause conflict within the group, thus not eligible forpromotion. Instead, given the prevailing guanxi and Confucian values, employees werewilling to support the group orientation to insure their interpersonal associations.

The malleability of the ethical standards was a direct result of the invisible hand ofguanxi. Guanxi offered a way these employees could compromise their ethicalstandards to benefit their social network. Decisions are often made by balancing moralreasoning and personal interests according to guanxi. It is almost impossible toseparate work relationship from personal relationship because work and personal livesare so closely intertwined for the SOE employees (Li and Madsen, 2010). As suggestedby the findings, it is not uncommon that people trade a personal favor for a businessfavor, or vice versa. In reality, people may allow guanxi take precedent and return thefavor by bending moral and ethical standards.

Our findings confirmed that favoritism toward in-group members conflicts with thefundamental moral requirement of impartiality (Rachels, 2010). This explains why somehas determined that guanxi is the source of unethical behaviors in China (Fan, 2002).Guanxi is based on partiality because it requires one to treat in-group membersdifferently from out-group members (Chen et al., 2004). Given the current SOEenvironment and economic situations in China, if impartiality is reinforced, it means thatone cannot help a friend in need by bending a few rules, a manager cannot showbenevolence by taking care of employees’ personal needs, it may induce a hostileworking environment. Work provides these SOE employees with safety net, definestheir personal existence, and provides social support (Li and Madsen, 2009). Apparently,ethical decision making is a tricky balancing behavior between guanxi and ethicalstandards, and is often paradoxical.

Loyalty to superiors and following orders are laudable Chinese values. Hence,submission to authority may not be perceived as a negative attribute. Instead, goodrelationship with the boss is an important guanxi aspect in the workplace. SOEemployees often place their hope in the hand of the company and the bosses becausethey have the absolute power (Li and Madsen, 2010). Therefore, it is unlikely anemployee would speak up when observing unethical workplace behaviors by the boss.

Based on the findings of this study, a link can be made through the thematic analysis.As such, we propose a conceptual framework for understanding Chinese SOE employees’workplace ethical decision-making behavior (Figure 1). Formally, SOE employees areaware of what is considered an ethical person with a focus on the ethical self and areclearly able to differentiate ethical from unethical behaviors in the workplace. Meanwhile,the malleable ethical standards present a dilemma when guanxi is factored into the ethicaldecision making. These two constructs are clearly dominated by the third construct,submission to authority. The dynamics of these three constructs determines the(un)ethical business conducts in the SOE context. In the meantime, the interactions of thethree are subject to the length and strength of individual or groups’ workplace informalguanxi network. Overall, an employee’s ability and capability to navigate this frameworkmay determine an employee’s wellbeing, promotion, and other career-related aspects.

Managerial implicationsBy exploring the relational nature of SOE work environment, this study reveals thecomplexity of SOE workplace ethics through thematic analysis of qualitative data. Thisstudy offers important managerial implications for HRM practice in China. First, given

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the workplace guanxi and collectivist culture, organizations need to address businessethics issue with a group orientation. For example, SOEs may develop ethical standardsthat are effective in regulating group behaviors for front-line employees and managers.Second, it is important to create a safe net for employees to speak out in the in-groupenvironment. Third, managers, especially HRM managers need to grasp the intricacy ofworkplace guanxi to lead and manage successfully (Tan and Snell, 2002).

ConclusionThis study revealed the complex nature of Chinese SOE employee’s ethicaldecision-making behavior and how guanxi has made this process rather paradoxicalaccording to the rule of impartiality. It has extended the literature on Chinese businessethics by offering a conceptual framework. Understanding the impact of the invisiblehand of guanxi is curial to understand business ethical practices. This studydemonstrates that navigating through the muddy terrain of guanxi and unambiguousland of moral and ethics is no small task in the Chinese context.

As most studies, this study has its limitations. The samples of this study are limitedto two SOE organizations in the manufacturing industry. Future studies need to explorethe same phenomenon in different forms of organization such as private-ownedenterprises, foreign-owned enterprises to identify similarity and differences in businessethics. Studies may also explore the same topic for knowledge workers. Future researchon validation of the framework is also required to develop a Chinese theory of HRM onbusiness ethics.

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Figure 1.A conceptual frameworkfor SOE employees’business ethics

The Ethical Self

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The Invisible Hand of Guanxi

Ethical Standards

Submission toAuthority

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Corresponding authorJessica Li can be contacted at: jie_li_1999@yahoo.com

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