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Continued from Previous……
Confucius said that every human relationship is a balancing act, and the one between child and parents is the most demanding yet the most deserving of attention and patience. He did not want children to be acquiescent is situations that called for judgment, at the same time, he discouraged confrontation even when the parents were clearly in the wrong.
He emphasized on the appropriateness and finesse in speech, and therefore, asked his son to learn the Odes – the earliest collection of Chinese poetry. Confucius said that learning the Odes “can give the spirit exhortation, the mind keener eyes, and they can make us better adjusted in a group and more articulate when voicing a complaint” (Analects, 17:9).
The music Confucius loved best was the ancient music known as shao. When he first heard it, he said, “I never imagined that music could be this beautiful, and for the next three months, he did not notice the taste of meat” (Analects, 7:14).
Confucius professed humaneness and explained it to his disciples in detail. Humaneness, he said, “is beautiful and most people are drawn to it, yet few will choose to pursue it” (Analects, 4:1, 4:6).
Studying Confucius is a long road, so we choose to focus on the ones that can influence corporate culture. There are five basic virtues of Confucianism: benevolence (Ren), righteousness (Yi), courteousness (Li), wisdom (Zhi), and trustworthiness (Xin). The study found that stronger Confucianism was associated with greater profitability and growth. The study published by ECGI (link at the end) is based on the influence of these virtues.
It has long been believed that the economic activities are shaped by culture. Literature supports that there are systematic differences among people with distinct cultural backgrounds in their decision making, even in the same environment, due to their different preferences and beliefs. It has been shown is studies that the investors and employees who make financial decisions are shaped by their cultures.
The present study goes beyond corporate culture and looks at the influence of societal culture. Societal culture influences both the adoption and functioning of formal institutions, such as legal rules, and the decision making of corporate executives and employees, which shape the activities of firms. Firms must maintain a level of societal approval to recruit employees and access resources, and they gain legitimacy for their operations by conforming to societal values and norms. Although the correlation between societal culture and corporate culture is very well studied, however, it remains unclear how this process happens.
To examine the effect of Confucianism on corporations, the study researchers mapped five virtues mentioned above into five major firm-level behaviors that best represented the five core values: social contribution (benevolence – ren), employee protection (righteousness – yi), entertainment expenses (courteousness – li), patenting (wisdom – zhi), and trade credits (trustworthiness – xin). They then examined whether and how the intensity of a firm’s exposure to Confucianism is systematically associated with these firms’ behaviors. They found that listed firms with greater exposure to Confucianism made more social contributions, provided greater employee protection, had higher entertainment expenses, got more patents, and offered more trade credits. The researchers say that “their results hold after employing an alternative measure of Confucianism and controlling for cultural traits, including Taoism, Buddhism, and foreign values.
The 73-page study presents lot of details which may not be relevant for us, but a short discussion on five basic virtues in the corporate context is in order.
Benevolence – Ren – refers to compassion and mostly concerns a person’s caring and love for others, even at the cost of their own wellbeing. A benevolent firm will care about the welfare of its society and various stakeholders, even at a cost to itself. It would therefore make greater social contributions.
Righteousness – Yi – is being mentioned together with benevolence in the ancient Chinese literature. It is about respecting and helping others, especially the virtuous, friends, and the weak in the society. A righteous firm would protect its internal and external stakeholders. These may include greater safety measures for employees and fair competition among suppliers.
Courteousness – Li – refers to common courtesy in daily life, representing etiquette, norms and protocols that influence interactions with others. Inspired by the Analects, which considers courtesy as “the lubricant of the societal harmony”, Chinese society takes pride in itself as being a “state of etiquette”. A firm that is more exposed to a courteous culture would spend more on entertaining stakeholders and business partners.
Wisdom – Zhi – refers to one’s intellectual development and quality, and is about the use of knowledge in a prudent way. A firm that is more exposed to a culture that values intellectual capital will also commit resources to the development of intellectual property, which may be measured by their innovative outputs, such as patents.
Trustworthiness – Xin – is about one’s credibility and the extent to which one keeps his/her promise in interpersonal relations. In business, a firm with a high level of trust will be viewed as credible and trustworthy by its external stakeholders, such as customers and suppliers. Consequently, they may be more willing to offer more trade credits.[Quote] We find significant and positive coefficients of Confucianism in all five columns. This consistent result supports our hypothesis that a firm’s exposure to Confucianism is strongly correlated with corporate behavior. The economic magnitudes of these effects are nontrivial.
In summary, the above baseline regressions support our hypothesis that firms with a greater exposure to Confucian culture make greater social contributions, protect employees, spend more on entertainment, and have more intellectual output and trade credits. In other words, these firms have more robust stakeholder relationships. [Unquote]
To be Continued…….
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