Business Driven Technology 6th Edition by Paige Baltzan

Exercise 158

Global Governance
Tarun Khanna, a Harvard professor, states that Indian companies exhibit corporate governance superior to their Chinese rivals. Khanna has just released a new book, Billions of Entrepreneurs: How China and India Are Reshaping Their Future and Yours. However, Khanna believes that Chinese organizations might not require world-class governance to emerge as fierce competitors. Here are edited excerpts from a recent conversation between Khanna and BusinessWeek 's William J. Holstein:
Much as their societies and political systems are different, are Indian and Chinese companies complete opposites when it comes to corporate governance
Absolutely. Indian companies are so much better governed. India is sort of a noisier version of the U.S. system, which is that you have to be accountable to shareholders and all the other stakeholders. The principles are the same, but the information acquisition is a little bit more problematic in India compared to the U.S. It's not so easy to figure out everything you need to. But there's a very vibrant, credible business media. No opinion is forbidden to be expressed. Information is noisy and unbiased-no one is willfully distorting the truth.
China is the opposite-it is noise-free but biased. You get a clean story but the story is not always right. There are views that cannot be expressed.
Which country has more independent boards of directors
In India, there is a spectrum of companies, such as Infosys, which on some dimensions is better governed than companies in the West in terms of how quickly it discloses things and how quickly it complies with Nasdaq norms. At the other end of the spectrum you have companies that are still the fiefdoms of families, many of which are badly governed. But even those companies are accountable to the market. Market pressures will force them to clean up their act to some extent. The equity markets function so well that it's hard to believe you could be a continuous violator of norms of good governance and still have access to the equity markets.
In China, none of that matters because the financial markets still do not work in the sense that we think of them working in the U.S. In China, all stock prices move together. They move up on a given day or they move down. There is no company-specific information embodied in the stock price. You cannot possibly decide that a company is good or bad because the market isn't working in that sense. What you see is aggregate enthusiasm, or lack thereof, for China Inc. The market is not putting pressure on managers to behave in ways that approximate corporate governance in the West.
Are companies in India and China making progress in developing talent in the same way that Western multinationals do
They are both making progress. But Indian companies are significantly further along, partly because India never had a Cultural Revolution as China did, which wiped out much of the business class. It had a residue of corporations already in existence. Some companies are 100 or 150 years old and they have an established way of doing things.
Where are the Chinese when it comes to managing multiculturally
Utterly zero. It is hard to blame them because there is a language barrier also. A lot of the internal tensions were about language and cultural barriers, and questions like, Can a Frenchman report to a Chinese And what if the French guy makes more than the Chinese guy
How do companies of the two countries compare when it comes to corruption
Here, I am not positive on India at all. Transparency International puts out these indices, and India and China are both close to the bottom of that list. China does a little bit better than India. In China, there is corruption, but it is constructive corruption. You, as a bureaucrat, get to be corrupt but only after you generate some value for society. You get a piece of it.
In India, there is corruption but it is not constructive. You are not fostering new bridges or highways. It is just shuffling stuff back and forth. I do not think we have cracked that in India at all. I am very sorry about that.
In the final analysis, does it matter that Indian companies, on the whole, have an edge over the Chinese in reaching international standards of governance The Chinese have huge capital at their disposal because of their $1.5 trillion in foreign exchange reserves. Could not they still be fearsome competitors
I think that is right. Corporate governance matters because you want to reassure the providers of inputs-whether it is time and talent, or ideas, or capital-that their rights will be respected and they will get a return on it. But if you are already sitting on hundreds of billions of dollars of capital, and you do not need to reassure anybody else because you already have your capital, why have good corporate governance
The reason the Chinese feel less pressured to do something about it is not because they do not know how to do it-far from it, they have the best technical help from Hong Kong and other places. It is because they make a reasoned judgment that it is not worth their while.
What types of ethical dilemmas might an organization face when dealing with IT governance in India or China