Do Confucian Principled Businesses Exist in Asia?

By Prof Dr Murray Hunter
University Malaysia Perlis

Confucius was born with the name K’ung Ch’iu in the Lũ Kingdom of China in 551 BC, and was in later life called K’ung Fu-Tzu (Master Kung) by his followers. He is probably the most famous Chinese moralist, intellectual, philosopher and educationalist known outside China and his teachings have had great influence on China’s social and political thought over the last 2500 years, as well as spreading to East and South-East Asia. Confucius developed a system that saw man as a social being, interconnected to society through a system of moral and social ethics, concerned with perfecting human character to create a virtuous social order.

While the traditions of Confucianism have historical and regional variations, there are certain central ideas and values which are common. These values have constituted the key elements of the traditions of societies which have endured history and political upheavals. The basic Confucian concepts embrace a dynamic cosmological worldview for promoting harmony amidst change, where individuals exist in concentric circles of relationships with ethical responsibilities that place importance on the family, within a hierarchical social system, where loyalty to elders is paramount and a generational concept of gratitude and respect for earlier ancestors exists. Education is the mechanism where individuals are cultured and developed as a means to enrich society and create a social and political order. History is valued as continuality and a basis for moral reflection and learning.

The worldview purported by Confucius is characterized by four key elements;

1. An anthrop cosmic perspective of the great triad of heaven (a guiding force), earth and humans,
2. An organic holism where the universe is seen as unified, interconnected and interpenetrating, where everything interacts and affects everything else,
3. A dynamic vitalism of underlying units of reality which is constituted of the material energy force of the universe (chi), the natural force of the universe, which creates reciprocity between man and nature and is the substance of life responsible for continuing process of change in the universe, and
4. Ethics embracing man and nature.

Within this context, Confucian thought sees the person in relation to others and not as an isolated individual. Thus, in Confucian society, the common good is more important than individual good. In this view, self interest and altruism for a common cause is not always mutually exclusive.

Confucius was more concerned about the process of human development, rather than theological concepts and ends. He believed the principles of relationships could be extended from that of running a family to the governing of a kingdom or nation; “Those who want to be a leader or ruler have to have their own house in order”. Through education and rituals which signified respect, man would develop five inner virtues; integrity, righteousness, loyalty, reciprocity and human-heartedness, which once developed would radiate externally from the individual, so that society could be governed by man, rather than rules of law. To this end, Confucius defines five primary relationships that will achieve this; ruler and subject, parent and child, elder and younger brother, husband and wife, and friend and friend. As a child develops and learns, he or she will first learn to love and respect the parents, then brothers and sisters, then relatives, and later all of humanity. This piety is called Hsiao, which is considered the root of all humanity.

This philosophy was able to change the family in agrarian China from a unit of production to a collective moral dimension, with a social code for each rank of the family hierarchy, very different from the Western concept of individualism. This led to the concept of guanxi, much written about in Western literature, “a focus on relationships with a shared history, respect for the past, a value that many – not all – Chinese cherish”.

Two other concepts in Confucianism are Tao, the way of life and Te, potency and self-sacrificial generosity with humility, with the moral power of attraction and transformation, associated with these qualities. The humanistic attribute required to achieve the above is through Ren, which means love, kindness and goodness, qualities of the perfect individual. This is the essence of what makes humans different from other members of the animal kingdom. Failure to develop Ren would lead an individual to quickly develop foregone conclusions, dogmatism, obstinacy and egotism, which would block wisdomand prevent people from making new insights and discoveries, as one’s mind must remain open to become wiser. Li is the expression of Ren in a social context through norms, rites and rituals governing ceremonies according to one’s social position. Through Li, the individual expresses his respect and reverence for others.

Another important aspect of Confucian thought mentioned above is Yi or righteousness. This is where self interest is subservient to organizational interest. Yi is practiced through cultivating ritual and etiquette and eventually becomes second nature. Zhi or wisdom is the ability to apply the above virtues into life situations which implies an understanding of the Confucian worldview above. Zhi is therefore much more than knowledge. Finally one must possess Xin or trustworthiness to safeguard the mission of the organization. Romar suggested that Confucian ethics are very similar to the ideas developed by Peter Drucker.

Confucius was not influential in government during his time, serving only in minor positions, and wondering around China giving advice to those few that listened. However, he attracted a number of followers, who later held office in government, advised by Confucius on matters of ethics and piety. However he became quickly disillusioned as they didn’t take his counsel. Confucius spent most of his last years working on his classics.

After his death, Confucianism had to contend with other philosophies of Taoism and Buddhism during the 3^rd to 7^th Centuries, creating a blend of philosophies creating Neo-Confucianism, dominating philosophical thought in China during the Tsang Dynasty (618-906 AD), the Sung Dynasty (960-1279 AD) and later during the Ming Dynasty (1472-1529 AD). Confucian institutions in China slowly disintegrated after the overthrow of the Last Emperor in 1911, although it survived in practice in Taiwan, Hong Kong, Macao and parts of South-East Asia after that time.

Confucianism has been examined and debated about its significance to Asian Economic development by Western scholars, over the last few decades. Confucianism is often misunderstood, as to its real interpretations. Most have believed that Confucianism is completely worldly and humanistic, lacking any divinity. However Confucius last book The Annals of Spring and Autumn (chũnqĭu) is full of references to the divinity of heaven and its influence upon man and reason for existence. Some scholars have criticized Confucian works as being nothing more than a reaffirmation of earlier thoughts, with no originality, although Confucius himself stated the need to look back to learn history as examples of models and acts of piety. Many misunderstand the concept of holism, not necessarily meaning holism of society, but holism of the worldview from a family perspective.

During the 1980’s and 1990’s many academics became interested in the connections between Confucianism and the spectacular rise of the Asian Tigers. Some argued that Confucius was opposed to modernization as it didn’t advocate individualism, common to the Western characteristics of entrepreneurship, was too dependent on guidance, emphasized an all round development of personality to harmonise with the environment, which discouraged aggressiveness and encouraged traditionalism, rather than modernisation. However Tu suggested that individualism is a Western mode of capitalism and East Asian had developed another model based on relationships to develop change through consensus and networks, with a sense of personal discipline. Confucianism was criticized for lack of profit motive, as his philosophies discouraged self-motivation and that merchants were not included in Confucius set of key relationships. However, through responsibility and obligation to family, other motives exist, such as their well-being, and treatment of those inside and outside an individual’s universe of relationships will be different, i.e., outsiders treated with respect but caution, more adversarial, rather than brotherly relationship. Confucianism is also criticized for its lack of innovation, whereas the reality of Chinese business has been to seek ways to control an existing market, rather than create new value through innovation.

The tremendous economic growth in Asia after the Second World War was labelled as ‘Confucian capitalism”. Hofstede postulated that culture is a prime determinant of performance and Confucianism dictates hierarchical organizational structure, preserving values, and thrift, which were all seen as organizational drivers of economic growth. One of the side effects of Confucianism is nepotism and thus the creation of lack of transparency, corruption, and inefficiency. Some scholars labelled this as one of the prime reasons of the 1997 Asian financial crisis.

Perhaps one area where Confucian concepts can be superficially seen is in the Chinese family business around Southeast Asia. Chinese family businesses are usually run by a patriarchal leader who installs direction and morals through the exercise of Confucian virtues. However this often degenerates into crude authoritarianism. The hierarchy usually follows a kinship structure where one’s position depends upon relationship with the leader, rather than on any professional merit. Subordinates know their roles and operate within a certain degree of autonomy, although most organizational knowledge is monopolized by the leader and shared at his discretion. Personal relationships are thus very much part of the decision making process and organizational performance is very subjective. Performance of these enterprises is often sub-optimal because of the nepotistic nature of organizations. In addition, one of the major objectives is to maintain harmony and avoid conflict within the organization as a means to maintain stability.

Human relationships are built upon trust based on the principles of personalization and quanxi. This was necessary in developing Southeast Asia when legal codes and contractual enforcement were still in their infancy. The effect of these arrangements was to slow down the state of progress and limit the incorporation of newcomers to an industry. This also restricted the input of new ideas and technology into firms within the region. The overview of a traditional Chinese family enterprise is depicted in figure 1.

Figure 1. The Traditional Chinese family Business

In theory the centralization of decision making increases the ability to make quick decisions and adapt to a changing environment. However leadership in these organizations seem to take on a conservative disposition and be averse to change. Firm flexibility and technology sophistication almost wholly depends upon the competencies of the patriarchal leader.

To the contrary, it can also be argued that Confucianism actually has little influence on the way Chinese business is operated, at least in South-East Asian countries like Malaysia. Although Chinese business sustains and nurtures family members and maintains a paternalistic and hierarchical nature of authority within the enterprise, there is little evidence that Malaysian Chinese businesses rely on guanxi networks for growth and development, have little interest in long term sustainability and little adherence to the Chinese philosophies associated with Confucianism. It is also unlikely that many contemporary Chinese have a thorough understanding of the Confucius philosophy or the will or want to fulfil the piety and wisdom defined by Confucius in everyday life. One of Confucius followers Mèngzî warned, Ren is a concept not easily achieved by man. However modern life and business may tend to be judged by old values, creating a complexity of behaviour that is often hard to understand, especially by the older generation that is Chinese educated. With the new generation returning to their family businesses after overseas study there is great pressure for patriarchal leaders to step aside and/or allow the introduction of ‘more professional’ management. Perhaps the greatest influence of Confucianism is in the governance of the State of Singapore, rather than in business.

Finally, John Naisbitt in his prophecy book Megatrends Asia predicted that the unique strengths of Chinese business networks, able to make speedy decisions and able to obtain resources through connecting people would make the Chinese business model the ideal flexible form of social organization for the globally connected world of the future. However this would assume that harmony doesn’t exhibit restriction on individuals from criticism of strategy, even though it may be constructive, as the practice of authority in Chinese companies means obedience rather than careful questioning of the status quo.