Individual case study: Kitchen Best Kitchen Best is the typical family owned SME, specialized in the Kitchen appliance production, with Headquarter in Hong Kong and manufacturing plant based in China, in the Guandong province. The main problems concerning the company, are all related with its managing and governance system. The company has been run for years by its founder, Cha Dong, who managed it in a paternalistic way, establishing very strong relationships with most of its senior Staff. His management style reflected the old business culture, characterized by high sense of belonging to the “family” and an high degree of acceptance of the practice of kickbacks, considered the normal way to run business in China. When Cha Dong, at the end off its career, left the management to its son, Henry Chan, all the governance shortcomings came to light. Henry Chan, who received a Western education, had a more international approach, less involved than its father in the operational activities of the company and more focused on its ambitious targets. He prospected to double the revenues of the company entering the US and EU market directly, while continuing to serve the Asian market, where its father focused until that day. Its expertise in the Western culture would have helped the enter in such markets, making the project ambitious but feasible, on the other side focusing in such a target would have meant ignoring the management aspects of its role, who are the basis for the success of a company. Furthermore Henry Chan lack of operational expertise, so he completely relies on Ma Luk, the company’s operations Director, to whom his father delegated the entire operational activities of the factory, during its lasts years of management. He had in that way a great independence and power, given by its expertise and close connection with clients and suppliers. He had also a low level of coordination with Henry Chan, to whom he formally reported, but still substantially referred to Chang Dong for important issues. In fact the Kitchen Best founder had still a strong managerial presence in the company, as all its employees trusted him completely, we can asses that the managerial transition did not happened in substantial terms.
The company’s culture reflects the old managerial style of the founder: the selection and training of employees is done on a familiar contact base, not relying on impartial standards of efficiency. The lack of standards in training and recruitment, the high degree of toleration of kickbacks, together with the high independence in the operational decisions, are all factors that contributed to the bad management of the Staff. To Ma Luk, too much power was delegated, with no substantial control, due to the lack of technical skills of Henry Chan. Moreover his strong ties with clients and suppliers were created through kickbacks, tolerated by the father and after by his son, partially to provide a certain continuation in management and partially for fear of losing most of the crucial contacts. Sze, on the other side, trained Macy Wei, Quality Control Manager, affecting so the impartiality required by her role. Looking at the Trust and Advice Network inside the company, we will surely underline a strong connection between Sze and Macy Wei, as between Ma Luk and Cha Dong, while the actual manager of the company will result isolated and not connected to the main key figures of Kitchen Best. The communication Network will also reveal important managerial considerations. The communication is formal, non effective and one-way: from the bottom to the top, with a total absence of feedback from Henry Chan. A radical change is so necessary in the company’s culture and governance system, starting with a zero tolerance approach toward facilitating payments. Kickbacks are reducing the competitiveness of the company and is severely punished by criminal laws both in China and Macao, where the company operates. This corruptive system is also exposing the company to many problems: one of its key customers, Honghua, has adopted a zero tolerance policy to kickbacks and the company is re-evaluating all its suppliers under standards of competitiveness.
To cope with these issues, Henry Chan should concentrate more in the operational part of the company, gaining expertise and position himself strongly at the head of the company. First of all, he should establish a code of ethics, as a first step to change the old and paternalistic company’s culture, by inserting Western elements such as standards and ethics principles. The Code of Ethics should be a formal statement, containing ethical principles related with employees responsibilities and Business integrity. On the other side, Standards should be settled and implemented, with a zero toleration of sub-standards, especially when Selecting, Hiring, Training and Promoting employees. Promotions should be based on performance and compliance with the Codes. Moreover an External Independent Auditor should be hired to control that all the members of the company, and also its suppliers are complying with standards and Codes. After all, Henry Chan should communicate in an effective way the radical measures adopted, explaining to the Stuff how fundamental is for the company to meet the standards established, to enhance its competitiveness in order to better serve its actual Asian clients and to enter the US and EU market.
Repeating past errors, such as the Shago or Haus de Metro Incidents, will be fatal for the future of the company: suppliers will be chosen according to their competitiveness and no more on family or friendship relationship base. For that reason a specific Code of behavior for Suppliers has to be implemented too. In conclusion, to make the corporate governance transformation of Kitchen Best feasible, Henry Chan should definitely strengthen its position and impose a more ethic behavior inside the company. To do so, he should enter into the Trust Network, establishing a trust relationship with its Stuff, not being afraid of scolding them when necessary and partially divesting their strength in the customer and suppliers relationships. He should Invest much more time in operational and managerial tasks, as the growth and success of the company depend on them. He should also implement a bi-side communication with its employees, reporting periodically their performances through Feedbacks. When Henry Chan will have adopted all these measures and implemented all the Standards and Codes, his father will be divested from its role, reducing so its influence in the company’s decisions, who reflected the old paternalistic culture, favorable to the unethical practice of facilitating payments.