Kitchen Best Appliance Company must immediately address the ethical, cultural, legal and poor business practices in order for the company to remain in business. If the company continues to turn a blind eye to such behaviors as bribes, nepotism, illegal behavior and reckless endangerment to customer the company will only continue to find itself in a position that leaves it vulnerable to law suits, criminal charges, fines and incarceration of personnel. The case study provides a clear picture of what can happen to company that does not communicate, enforces and support policies and procedures established to have a competitive, compliant, safe and ethical workplace.
The major social, ethical and legal challenges that Kitchen Best and other small-and-medium-sized enterprises (SMEs) face doing cross border business will be determined below. Social challenges are most easily identified in cultural differences among regions. For instance language barriers can create social challenges as well as differences in cultural beliefs and behaviors. Businesses must be prepared to face language differences by having staff available that can speak and write in languages other than their native tongue. Also the companies must be prepared to investigate and study the cultural differences for the countries that they wish to conduct business with. This is not only to determine if the designated area is a good place to conduct business, but also to acquire the necessary knowledge needed to successfully conduct business.
Ethical challenges are even more difficult for companies when dealing with two different sets of ethical standards, which usually are influenced by cultural standards. It is fully possible that in business dealings that a company has opposing ethical standards to operate within the two countries. In some cultures such activities as bribes, kickbacks, and nepotism are encouraged whereas other countries frown upon such practices. This is where research plays an important role for companies interested in expanding their business globally.
Legal challenges just like ethical and social challenges have a major impact of SMEs who conduct cross border business. There are many forms of governments as well as numerous forms of legal systems that vary among countries. While diversity is accepted, diversity can make business interaction difficult as well as legally impossible. An example of legal challenges can be seen in tax regulation, employee pay regulations, employee working condition regulations, safety regulations and environmental impact regulations. If a SME is found in violation of a particular law or regulation it could face extreme penalties as well as sanctions from agencies as the World Trade Organization.
Kitchen Best has long since participated in offering entertainment and kickbacks to potential clients and business partners, which upper management has turned a blind eye to. Such actions have led Kitchen Best to be susceptible to legal risks. China, Macao and Hong Kong have active laws against such actions which are punishable by imprisonment and fines. Since Kitchen Best employees participated in such actions, with the knowledge of upper management, in both jurisdictions the company is liable along with the employees.
The management and overall governance system of Kitchen Best is below par. While the list of shortcomings is long the company can improve the situation by changing the method in which it operates and creating effective policies. One of the biggest shortcomings of management is the practice of turning a blind eye to corruption and inappropriate business practices. By turning a blind eye to such behaviors and activities management is essentially condoning the employee’s actions. This is obviously a shortcoming that has led Kitchen Best management to knowingly participate in unethical behavior such as bribes and kickbacks. Along with the practice of turning a blind eye to the previous mentioned behaviors and activities management also exhibited a shortcoming by not leading by example. In addition management did not create, maintain and enforce policies and procedures for employees to follow. This could have prevented the shortcoming of non-governance of competitive practices and safety regulations as in the case of Haus de Metro.
Kitchen Best must utilize mechanisms such as effective compliance programs, risk assessments, accessible access of for employees to code of conduct and compliance policies and procedures. As well as the mechanisms mentioned above Kitchen Best must also use continual training for all staff including management on policies, procedures and current legislation. Use of weekly meetings and communication tools such as video conferencing will enable the company to improve communication between all facets of the company. Technology overall will enhance the job performance of employees, but can also be used to create checks and balances within the company. For instance a system of web based approval could be used for the payment of invoices that would allow the company to approve of deny any invoices including those for entertainment. With the advancement of technology companies have the ability to be “big brother” while also enhancing employee performance.
Henry Chan can learn a lot from the U.S. Foreign Corrupt Practices Act (U.S. FCPA) or the U.K. Bribery Act. Chan can see the penalties that have been established for corrupted behavior as well as ways to prevent such actions. Since both are from Western democracies Chan can compare to corruption acts from China. This will enable Chan to view a variety of guidelines that will assist in creating his own policies and procedures for Kitchen Best. Another advantage to Chan is that he will be better prepared for international business and the cultures of in which they exists.
The problems at Kitchen Best are related to Horatio Sze and Ma Luk. Through the years the company has made missteps in regards to managing staff. Without checks and balances or enforcements of policies staff had free reign with no consequences. Without direct supervision or accountability the management staff allowed the behavior to occur. The company allowed the inappropriate behavior of Sze and Luk by turning a blind eye to their actions. If the company had taken direct action such as disciplinary actions or even termination of either employee when their indiscretions became apparent the problems would have been prevented.
Top managers are responsible when corruption is afoot, especially when top management has knowledge of the corruption. It is the responsibility of top managers to be aware of what is happening within their business. There is also a necessity for top managers to actively participate in business operations and to investigate any alleged corruptions within the company. In the case of Kitchen Best top management ignored allegations of corruptions. Another responsibility of top management is to take and creative preventative measures against corruption.
It is imperative that SMEs practice ethical management locally and internationally. In order for global business to expand along with the actual companies ethical management must be enforced. Ethical management not only assists in creating a fair and competitive business atmosphere, but it also enables progressive business relations with countries. Henry Chan can enhance his role in this regard by participating and enforcing ethical business practices. He can also benefit from exposure to companies similar to Honghua who have transitioned from an unethical management to an ethical management system.
When faced with local expectations of “payoffs” or “referral money” staff should be advised to approach top management. Staff should consult policies and procedures before taking any action, but in this case the seriousness of the situation requires management’s attention. Once management is notified of the situation the employee should then work with management to determine the best course of actions. It must also be stated that if the company has researched the business atmosphere the expectations of “payoffs” or “referral money” should not come as a surprise. Therefore the company can be prepared when the situation arises and will not have to make a snap decision.
Guidance can be sought through numerous channels that include literature, educational classes, expert knowledge, legislation and other professionals. All of the resources could provide guide or research on business management and international business. The internet could also be utilized for information regarding business policies, procedures and desired business behaviors locally and internationally. The World Trade Organization is also a good resources as well as looking at such education facilities as Harvard School of Business. Both previously mentioned offer limitless information via their websites.
There are specific steps and methods that Henry Chan can use to help build Kitchen Best’s corporate culture for the long term benefit of the company. As mentioned before the creation, maintaining and implementation of policies and procedures that include compliance program. When creating and updating the policies and procedures of the company Henry Chan should consult legal counsel as well as other professionals who can provide expert knowledge. Henry Chan himself needs to improve his management skills as well as his ability to interact within different cultures. Another step to improve corporate culture is to remove employees that previously participated in unethical behavior. It is imperative that management lead by example and eliminate those who do not wish to contribute to a positive corporate culture. By creating a culture of compliance the company can successfully perform in a positive manner. This can also be accomplished by providing training to employees, continuing to guide employees in the proper way in business processes, having incentives for employees to reward positive acts and disciplinary measures for non-compliance to policies and procedures. Each of the steps mentioned above will resolve the issues of bribery, kickbacks, safety violations and uncompetitive contracting awarding. Not only will the steps above stop the current issues of Kitchen Best, but also establish preventative measures against such behaviors.
Henry Chan and Kitchen Best can resolve their current business issues and improve the business operations of the company. While the Chan family’s intentions were to create and maintain a company their lackluster attitude towards corruption has made the company liable. With the suggestions provided in this analysis Kitchen Best’s business operations can improve and eliminate the corruption within the company. The scope of improvements necessary for Kitchen Best is vast, which will take a significant amount of time that will in the end prove worth wild.
DRS: Daniels, J. D., Radebaugh, L. H. & Sullivan, D. P. International business. (14th ed.) U. S. Dept. of Justice (2012, November). A resource guide to the U. S. Foreign Corrupt Practices Act. http://www.justice.gov/criminal/fraud/fcpa/guide.pdf Goo, S. & Loo, G. (2011). Kitchen Best: Ethics when doing cross-boundary business in Southern China (Product No. HKU948-PDF-ENG). Retrieved from http://hbsp.harvard.edu