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Topics to be covered
Macro-social and micro-social contracts
NES Background and relations with China
The problem and ethical dilemma
Steps taken so far and deadlock

Implication and alternative solutions

Hypernorms and bounded rationality

principles fundamental to human existence
Identification - convergence of religious, philosophical, and cultural beliefs
Example attitude towards murder, deceit

Bounded Rationality
Rationality in economic ethics is bounded by:
finite human capacity to assess facts

limited capacity of ethical theory to capture moral truth

by the plastic or artifactual nature of economic systems and practices.

Macrosocial contracts, Moral Relativism and Moral Free Space

Macrosocial Contract
What general principles, if any, would contractors who are aware of the strongly
bounded nature of moral rationality in economic affairs choose to govern economic
Moral Relativism

Differences in moral judgments across different people, time and cultures

Moral Free Space
The freedom represented by the ability to endorse micro-social contracts

Micro-social contracts
The desire :
(a) to enhance efficiency by reducing uncertainty (rice and rubber) and
(b) to maintain freedom of cultural, ideological, or religious interpretation (Muslim
managers teachings of Mohammed ; HP creative chaos)
imply that contractors will choose terms of the macro-social contract that allow the
generation of specific community-level moral norms regulating economic activity
Claim that a particular practice may be ethically permissible because "everyone is
doing it" is common in business ethics

Founded in Germany in 1881, one of the largest industrial group, sales revenue of
$14b in 1997
Products : steel tubes and pipes, heavy machinery, automotive systems and
components, hydraulic, pneumatic and electrical drives, telecommunications
Holding company: NES AG , 11 subsidiaries , 4 business segments
Business operations in more than 100 countries with 1.2 lac employees and
decentralized subsidiaries worldwide
Committed to move along with globalization and internationalization

Responsible towards not only to shareholders, employees and customers but also
to society and to the countries it operates

Business relation with China

More than 100 years of business relation

Follows a code of high personal and business ethics in dealing with government
officials and customers
Relies on advanced technology and top quality rather than tendering immediate
favors or rewards to individual Chinese officials
Provided training to Chinese engineers, craftsmen, technicians and scholarship
program for young Chinese academics to study in Germany
Currently doing business through representative offices

Faces heavy regulations and restrictions


Decision to establish a holding company
If approved by the Chinese government, it could engage in direct business activities,
co-ordinate many important business functions and unite NES profile in China
However, the approval was still outstanding despite multiple revisions.
Skeptical about approving holding companies
Central Department continued to delay the approval
Pressure from company headquarters to the representative office to obtain approval
within a month

Suggestion to invite the officials to dinners and give gifts to help accelerate the
application process
Jochen Steinmann and Dr.Jean Perrins belief :
Gift-giving is equivalent to bribery and would potentially damage NES high
standards of business and personal ethics
Preference of a formal negotiation with the officials
Chen felt that NES has limited bargaining power in this scenario
Thus, dilemma is whether to allow gift giving or not to the Chinese officials so that
NES AGs application for a holding company in China could finally move forward


In July 1997,the first meeting of Chen with the officials in Beijing
In August 1997,the Vice-President of NES AG led a delegation to visit China
In November 1997, Steinmann and Dr. Perrin met the two officials in the hopes of

In February 1998,again the questions were raised on its considerations

In April 1998,resubmission of the latest version of the application

Cultivation of personal guanxi in Chinese business culture

Consideration of gift or guanxi as a deterrent and illegal in western culture

Contradiction between the ideologies of Chen, Steinmann and Dr Perrin

The ethical difference in western and Chinese culture

NES had a strong code of ethics that clearly outlined that bribes or gifts were not to
be given to government officials

Chinas culture required that guanxi be established with officials of the Central

Second negotiations with officials after revising the application

A separate business code of conduct for China region

Give the contract to a third party for successfully approving the application