20050402【CVCHEN@NTU/Harvard】-Becoming A World-Class Business- A Lawyer's Perspective

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Becoming A World-class Business A Lawyers Perspective

C. V. Chen Managing Partner

Lee and Li, Attorneys-at-LawTaipei, Taiwan, R.O.C.

2005 The Harvard in Asia Project Spring Conference at NTU

2 April 2005


Outline Enterprises & Law Impact of Domestic Laws and Intl Laws on Business Management What Is A World-class Business? Chinese Enterprises vs. World-class businesses from top 100 Brands Corporate Culture of Chinese Enterprises

(1) Historical Overview;(2) li () vs. fa ();(3) The Great Yasa New Model of World-class Business

(1) Promoting the Strengths of Traditions (2) Maintaining High Self-discipline and Adherence to Law(3) Taking Legal Advice into Account in Decision-making Process

Conclusion


Enterprises & Law How can an enterprise, not being a natural person, have the capacity to own/act? How can an enterprise engage in activities or own properties in other country

How can an enterprise claim ownership of its money in banks? What gives value to stocks being merely a piece of paper? Factories and land do not recognize an enterprise. How can an enterprise claim ownership of factories and land?

Why can patenting reward enterprises for their past efforts? The brand Coca-Cola is valued at US$68.9 billion (NT$0.24 trillion). Why can a brand, being intangible, have such an astronomical value?

The Answer: by the operation of Law


(ROC) Impact of Domestic Laws on Business Management

6 Functions of

Enterprises

Production

Marketing

Finance & Investment

Human Resources

R&D Information Management

Laws on Environmental Protection, Waste Disposal, Pollution, etc.

Laws on Banking, Securities, Accounting, Insurance, Offshore Listing, etc.

Laws on Protection and Confidentiality of Personal / Corporate Data, etc.

Patent Law, Trademark Law, Copyright Law, etc.

Labor Law, Employment Act, etc.

Consumer Protection Law, Fair Trade Law, etc.

Thoughts of the

Management

Establishment and Governance of Enterprises

Company Act, M&A Act, etc.

Sound Knowledge of Domestic Law


Impact of Domestic Laws on Business Management

An enterprises should have sound knowledge of the domestic laws of a country when doing business in that country

Think globally and act locally - understanding the regulations related to corporate governance and the

6 major functions of business management of the country concerned.


Impact of International Laws (Treaties) on Business Management(By Way of Examples)

EnvironmentThe 1987 Montreal Protocol on Substances that Deplete the Ozone LayerThe Kyoto Protocol to the Convention on Climate Change that comes into force in February 2005 as a result of Russian ratification in late 2004

Labor Protection: various international labor treaties Services & Trade: WTO Treaties on Aviation, Air Transport, Tele-communication, etc.


What Is A World-class Business?

Chaos & Disasters

Benchmark of Enterprise Value

Separation

Utility

Convergence

New Model of World-class Business

Enhanced by Law

Enhanced by Self-discipline

Consumer Consciousness

Profit

Utility Profit


Chinese Enterprises vs. World-class Business From top 100 Brands

USA, 58 Europe, 34

Asia, 8

Note: Out of the 8 Asian companies, 7 are Japanese and 1 is Korean, the Samsung group

Source: Business Week (August 2004)


Chinese Enterprises vs. World-class Business From top 100 Brands

Points to Ponder Chinas Haier was on the chart last year. What is the implication of the absence of enterprises from Chinese-speaking regions this year? Sony is the only company not treating their in-house legal departmentas general affairs department, said the General Manager of Sonys legal department.

Brand Value the benchmark to measure an enterprises performance? the benchmark to identify a world-class business? much room for improvement by Chinese (Taiwan) enterprises


Corporate Culture of Chinese Enterprises (1) Historical Overview

Shang C.1750-C.1040 B.C.

Xia C.2200-C.1750 B.C. Wang Hai (ancestor of founder of Shang Dynasty) 1st businessman in China

Ended Xia Dynasty by outperforming in trade

Sping & Autumn Period Warring States Period

Western Zhou C, 1100-771B.C.

Many famous businessmen: Tse-Gung, Confucius's disciple; Fan Li, officer-turned-business tycoon of the state of Yue; Bai Kuei, a politician and business tycoon of the Warring States Period

From Qin (221-206 B.C.) onwards

Inferiority of businessmen in the social hierarchy of scholars, farmers, craftsmen and businessmen

Late Qing Dyansty to the early Republic Break through of capitalism; rise of commercialism

Establishment of P.R.C.

Surpression of private business Relocation of

the Republic Government to Taiwan

Planned economy

Free economy

Policy reforms/ liberalization rising social status of businessmen

Rising Social Status of business-men


Corporate Culture of Chinese Enterprises (2) Li vs. Law

External Constraints

Internal Constraints

Emphasis on morals and "li"

Emphasis on legal norms

Characteristics of Western societies

Characteristics of Chinese societies


Corporate Culture of Chinese Enterprises (3) Revelation of the Great Yasa

According to Genghis Khans Great Yasa Code, whoever that brought bad news would be beheaded. Some Mongolian heralds were thus killed.

To most Chinese managers, legal advice form in-house counsels= bad news from heralds ???


New Model of World-class Business (1) -Promoting of Strengths of Traditions

doing righteousness as if making profit (echoing the concept of convergence of utility and profit, as discussed earlier)

According to Hofheinz and Calder in their book Eastasia Edge,Eastasians, deeply influenced by Confucianism, are diligent and frugal, value education and familism, etc., and all these have formed a common source of economic drive


New Model of World-class Business (2) Maintaining High Self-discipline and Adherence to Law Law vs. Morals law is the minimum standard of moralityAdherence to law and corporate mission under utility maximizationon achievement in life for the welfare of people

Adherence to law and corporate mission under profit maximization Return on goodwill Avoidance of loss due to violation of law

Probability of violating the law by going through between the loopholes of law or maintaining high self-discipline

Adaptation in advanceTodays ethics, tomorrows laws ---important for companies doing global business (Examples, environmental, labor regulations)


New Model of World-class Business (3) Seeking Legal Advice as Mandatory Process of Business Judgment

World-class business: taking legal advice as a decision factor to secure a proper business judgment OR a misjudgment will incur loss to the company or personal liabilities of the management

In-house Legal Counsel

Outside Legal Counsel

Providing Legal Consultation Providing Legal Consultation

Providing Legal Consultation

Convergence of legal advice and business judgment

Duty

Set up support system for regular information

Set up international support system for special information

Role

Normal situation Decision-making process

Emergency Crisis Management process

Business Judgment

Business Managers (Operators)

Role


Conclusion (1): Legal Environment and Challenges Challenges and Suggestions

the original sin in law? Common problem of Chinese-speakingregions?

enterprises should use their power and resources to help the government set up a legal environment ideal for businessoperation & mankind

corporate governanceMckinsey: Most investors are willing to pay 20% premiumto invest in well-governed enterprise


Conclusion (2): Earning Capability vs. Social Responsibility

World-class Business not just a matter of earning capability, but more of a matter of social responsibility as well

ignoring laborers rights and environmental protection, etc.MAY boost profit by saving cost in the short runBUT will be penalized by law and spurned by public

in the long run


Conclusion (3): Become a World-class Business Through Proper Advice of Law

YES

Negative: Avoidance of loss due to law violation

crisis prevention and reaction

Positive: Citing relevant laws to protect companys interest

Planning and creating managements competitive edges

NO

Corporate: Causing corporate loss due to law violation

Threatening corporate survival and development

Individual: Incurring personal liabilities of the business executives

(responsible persons)

Should we value legal advice and enhance therole of in-houselegal counsel?


Dr. C. V. Chen Lee and Li, Attorneys-at-Law7th Fl., 201 Tun Hua North RoadTaipei 105, TaiwanTel: (02) 2715-3300Fax: (02) 2713-3966E-mail: [email protected]://www.leeandli.com

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20050402【CVCHEN@NTU/Harvard】-Becoming A World-Class Business- A Lawyer's Perspective