Corporate social responsibilities in the context of Confucianism

Abstract

Abstract Corporate social responsibilities in the context of Confucianism: According to managerialist theory, much like in agency theory, corporate officers may benefit themselves at the expense of the shareholders. Thus there are legal rules and regulations to ensure accountability and to regulate the behaviour of the officers. Whilst different jurisdictions may use different wording for these rules, they typically include the duties to act honestly, to exercise care and diligence, not to make improper use of information acquired by virtue of being an officer of the company, and not to make improper use of a position as an officer of the company. But the drawback of this theory is the over-reliance on the rules and regulations and the subsequent compliance cost involved. At best, the directors will eventually be more interested in finding ways to comply with the new regulation rather than focusing on the business of the company. Attention will shift from corporate well-being to directors’ employment security. At worst, directors will be finding ways to evade the rules. This is because there are always bad apples in any organisation. The contractual theory, in contrast, emphasises freedom of contract and the role of market forces. If the directors run the company inefficiently, share price will go down and the company may be subject to takeover and, consequently, they will lose their jobs. Therefore, by relying on the market forces, there is no need to have substantial rules and regulations. The most important thing is to provide a good free market environment for officers to self-regulate, though, of course, there would still need to be some rules to ensure the free market functions well. This is where Confucianism can play an important role in providing a good ethical environment for the directors to have some guiding principles to help run their business. If only managerialist theory were relied upon, this would create unnecessary rules and regulations, thereby causing high compliance costs. However, the pendulum would swing to the other extreme if market forces were solely relied upon. There would simply be no clear direction for directors and they would be completely lost with no guiding principles to provide direction. Therefore, the authors suggest a middle way that allows Confucianism to provide guidance on good corporate governance and to be the ethical compass for the line of business navigation. The teachings of Confucianism emphasise the importance of advancing desirable personal qualities and integrity. Using these teachings it may be possible to regulate the top officers of the company by teaching them ethical concepts. In China, to improve the bad apples, it is more effective to apply Confucian teachings in the corporate world than using western rules; this is because these are the teachings that people are used to and have grown up with. A director who appreciates the intrinsic value of Confucianism would simply act with high degree of integrity and honesty, and would not engage in fraudulent or illegal transactions. In this article, the authors will examine the relationship between corporate social responsibilities and Confucianism by analysing two important stakeholders in a company, that is, employees and shareholders. Ultimately, the authors argue that the law of minority shareholders’ protection is too technical and not readily accessible by shareholders, whilst Confucianism can fill the gap where common law cannot reach and be the ethical compass for directors in dealing with the minority。