Episode 156      22 min 10 sec
Guanxi: Telling apart gifts from bribes when doing business in Asia

Associate Professor Peter Verhezen explains how cultural understandings of gift giving practices differs across regions, and that Western companies and people doing business in Asian countries need to be aware of the grey area that lies between the offering of gifts and the offering of bribes.

"Unilateral gifts, which are quite unique and hard to find in real life, can never turn into a bribe; only the more common reciprocal gifts which can possibly turn into a bribe." -- Associate Professor Peter Verhezen





           



Assoc Prof Peter Verhezen
Dr Peter Verhezen

Peter Verhezen is a Visiting Associate Professor and Principal Fellow (in the field of Governance and international Business) at the Graduate School of Business and Economics (University of Melbourne) and Associate at the Melbourne Business School. He is also Adjunct Professor (of Decision Making and Governance-Ethics) at the Vlerick Leuven Gent Management School (Belgium). Recently he has been appointed as Fellow at the Ash Institute for Asian Studies and Governance at the Harvard Kennedy School (USA). He has been a management consultant for financial institutions and an entrepreneur in information technology for more than 20 years, mainly in Southeast Asia. Currently, he advises companies on Governance, Compliance and Risk Management (with a focus on Asia).

Credits

Host: Jennifer Cook
Producers: Kelvin Param, Eric van Bemmel
Audio Engineer: Gavin Nebauer
Voiceover: Nerissa Hannink
Series Creators: Eric van Bemmel and Kelvin Param

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VOICEOVER
Welcome to Up Close, the research, opinion and analysis podcast from the University of Melbourne, Australia.

JENNIFER COOK
I’m Jennifer Cook, thanks for joining us.  A gift, an expression of gratitude and appreciation that is accepted with grace and thankfulness.  What could be simpler?  But, as anyone who has ever had to suffer the indignity of an inappropriate present or agonised about what to buy for a person in business, a token of appreciation can sometimes backfire.  Add to this the variable of cultural difference and how unclear intentions or expectations behind the giving or accepting of gifts can too often lead to misunderstanding.  In this episode of Up Close we’re examining the fine line between gift giving and bribery in Asia.  With us to discuss the art of guanxi is Peter Verhezen, joining us over Skype from Belgium.  Peter is Visiting Associate Professor and Principal Fellow at the Graduate School of Management at the University of Melbourne, and Associate at the Melbourne Business School.  He is also Adjunct Professor at the Vlerick Leuven Gent Management School in Belgium.  He has recently been appointed as Fellow at the Ash Institute for Asian Studies and Governance at the Harvard Kennedy School.  Peter has been a management consultant for financial institutions and an entrepreneur in information technology for more than 20 years, mainly in Southeast Asia.  Currently he advises companies on governance, compliance and risk management with a focus on Asia.  Peter, thanks so much for joining us.

PETER VERHEZEN
The honour is mine.

JENNIFER COOK
Now, I’d like to begin by reading you the quote by Peter Deunov at the beginning of your book which is “Gifts, Corruption, Philanthropy - the Ambiguity of Gift Practices in Business” which was published by Peter Lang in 2009.  Do you mind?

PETER VERHEZEN
Sure, go ahead.

JENNIFER COOK
This is the quote:  “Use kindness as the basis of your life, justice as balance, wisdom as its limit, love as delight and truth as light.”.  Now, why this quote, Peter?

PETER VERHEZEN
Well, I wanted to make it a more spiritual journey, not purely economical analysis of what gifts and bribes could be, but put into a broader framework and emphasising the context in which gift practices take place.  Moreover, I believe that the intellect indeed can define what gifts are but somehow you will need also the emotions involved, as it is in guanxi, emotions which refer to empathy, sympathy and warmth.  On top of that, you also have the strength and the power of the will to establish something in a practical life.  So together I wanted to reflect upon what gift practice could be and it’s just not a straightforward concept.  In fact, the under-title of the book you were referring to is indeed “the Ambiguity of Gift Practices in Business”, hence why I wanted to combine it a little bit.

JENNIFER COOK
Speaking of ambiguities, could you perhaps lead us through an explanation of the very word guanxi.

PETER VERHEZEN
Yes, guanxi in fact can be translated - not necessarily literally - as relationships.  Those relationships are quite often established through gift practices, both in a social environment as well as in a business context.  Hence why guanxi, in our Western context, is often seen as something negative related to corruption, but the word itself, guanxi, is not necessarily negative at all.  In fact, you could argue that any community is based on networks and true gift practices as a form of appreciation and to be acknowledged.

JENNIFER COOK
Now, why do we give gifts and then, taking it a little bit further, when do they cross the line and become a bribe?

PETER VERHEZEN
Well, from an anthropological point of view, if you're looking to any society, you will see that if people get in touch with each traditionally - or even in our contemporary society - it’s quite a habit that you bring something, that you gift something to somebody else, because it forms a kind of relationship.  In fact, Marcel Mauss, anthropologist of the early 19th century, he would have argued that gifts constitute any society based on the fundamental principle of reciprocity and that gift practices inherently refer to three obligations: The obligations to give in order to establish relationships and in order to establish a community; (2) the obligation of receiving; and (3) the obligation to reciprocate or return that gift.

JENNIFER COOK
You've actually answered my next question, which was why is it such a gray area?  You know, it sets up these webs of obligation that can entangle us, can't it?

PETER VERHEZEN
Yeah, but it’s even more complicated because I like to compare gifts to what we call a pharmakon or a medicine; I got that from Plato and Derrida, a French philosopher who referred to the gifts as a pharmakon.  Now, a medicine can help a person to heal or to recover, but if you take too much of it, it becomes like a poison.  So it can be a potion and it can be a poison, hence why the ambiguity of gifts; it is not a straightforward concept.  But what I believe is gifts can be quite what I call unilateral or free as having an element of gratuity, whereas it leads quite often and easy to what we call reciprocal gifts, which are quite common, and it’s only our reciprocal gifts which can turn into bribery.  So unilateral gifts, which are quite unique and hard to find in real life, can never turn into a bribe; they’re only the more common reciprocal gifts which can possibly turn into a bribe because of the commonalities between gifts and bribes.

JENNIFER COOK
Peter, could you give me an example of the unilateral gift that is so rare, you're saying.

PETER VERHEZEN
It is very rare to find gifts which are completely altruistic and generous.  Once could think of the love of a mother towards her child - that could be possibly seen as a very generous gift.  The example I like to give is giving time to someone - and, in fact, love is somehow giving your time because time can never come back, that's gone forever.  So giving time is to me a quite beautiful way to express your gratitude and give up some of that to somebody else; that could be seen as a generous gift.  Whereas giving a bottle of wine, if you go to a party, or a gift when you go to the anniversary party of somebody, well, that is something which could be returned at a later stage because you can receive a similar gift present from that person when it’s your turn, it’s your anniversary or whenever you give a party.

JENNIFER COOK
This is Up Close and we’re coming to you from the University of Melbourne, Australia.  I’m Jennifer Cook and our guest today is Peter Verhezen and we’re talking about the art of gift giving and bribery. Now Peter, I’d like to now ask you about gift giving across cultures.  Is it as simple as a bribe in a developed Western economy is just a gift in China or, say, Indonesia, or is that too broad brush strokes there?

PETER VERHEZEN
I think in Asia, Latin America and Africa - the non-Western societies which are more traditional - you see that relationships are really based on the informal mechanisms.  Whereas in our Western society, which is much more transactional - and if you refer to corporate governance, for example, we call it rule-based governance - those transactions are based on formal legal mechanisms, which is very different.  So in our society that distinction between both is very clear, which is not the case in Asia.  Lee Kuan Yew from Singapore, the founder and the senior minister, he even admitted that guanxi and networks and gift practices is nothing more as a way to survive in an environment where the justice system and the legal system doesn't function very well, so for the Asians it was a way to survive in that kind of environment.  But even in Asia, or in Africa for that matter, most societies legally have forbidden bribes; so universally bribery has not been accepted by any society.  The reality, of course, shows that gift practices which somehow, sometimes can turn into a bribe is more often accepted in those societies than it is in our legal environment in the west.  So it is still a practice because the interpretation and the enforcement of law, unfortunately in the east is less adamant and less clear than in our society, in the Western societies, I should say.

JENNIFER COOK
So Peter, what does this mean for Western global corporations doing business in Asia, and the converse, Asian global corporations doing business in the west?

PETER VERHEZEN
Because of the interdependency of the east-west global economy, more and more you will see that corporations will have to follow what I call the rules of the game, and the rules of the game prohibit bribery.  In fact, if you look to the legal implications of the Foreign Corrupt Practices Act in the United States since 1977 or the OECD Convention since 1998, 1997, both clearly forbid bribery with the exception of what is called facilitating payments, which are small payments to allow administration to take place but they are small payments.  So, generally speaking, American and Western companies are forbidden to bribe their way out in an Asian environment, so they have no choice legally.  Now morally speaking, I still believe that particular gifts are okay but, because it’s so ambiguous, corporations understood that and have imposed, through their code of conduct, kind of way of how to live with those gifts by saying, listen, any gift above let’s say €50 or €100 or US dollar is forbidden.  So they put a brake on it, those gift practices by saying a particular amount of money.  Now, I believe that if a corporation goes to Asia, whether it’s an Australian, a European or an American corporation, you will see that they will need to take their time in order to develop those relationships. Now again, as I said, giving time is somehow a gift; you do not have to give a lot of previous gifts to businesses in Asia, but as long as people feel that you're not getting in and just want to get a deal within the next 24 hours - which wouldn't work, anyway - that would allow the other party, in this case the Asians, to see that you're serious about building a relationship. They need to feel that because if you go back to guanxi and the confusing context of that, it’s really about respect and trust.  In Chinese they call it renqing, which is translated into empathy, sympathy, which are similar concepts which you find in Adam Smith’s writing or Hume or any of the other enlightenment philosophers.  So I believe that Western companies will need to follow the rules of the game, which is their own in a sense, but still give time to develop those relationships in Asia.

JENNIFER COOK
Now Peter, what about Chinese mining companies in Australia and Canada?

PETER VERHEZEN
Well, that's again quite ambiguous, isn't it?

JENNIFER COOK
Yes.

PETER VERHEZEN
Not just because of the gift practices but I would say nationalistic feelings.  Australians or Americans - or Europeans, for that matter - are a little bit worried that their industries are going to be taken over the Chinese and the Indians.  I guess, that's a trend which will not stop for the next 10, 20 years.  The question is, how open are our societies, how open is our economy, as we claim it is, and I guess that's going to be seen.  But my feeling is, applying what I call international best corporate governance practices, will define those rules of the game which will be the yardstick for doing business in a global interdependent economy.  That's going to be very well understood by both the Asians as well as the Westerners.

JENNIFER COOK
I’m Jennifer Cook and on Up Close this episode we’re speaking with Peter Verhezen about gift giving in Asia and the fine line between gift giving and bribery.  Peter, could you explain to us how does this function of bribery and gift giving, say in a poorer emerging economy compared to a more wealthy established economy?  Is there a difference in the way this all works?

PETER VERHEZEN
Yes, I think it is.  In a developed context like we do know in our society, the west, the legal system is functioning pretty well and bribery is forbidden.  Now in a developing country like Indonesia, Thailand or other countries - or even China - for example, a policeman in Jakarta, Manila, Bangkok or Shanghai will have to live on a monthly salary of about $200 or $300.  That's not a lot and if you have two, three, four kids I can almost guarantee you, you won't survive with that kind of salary.  So what’s happening is that they’re quite often involved in bribery, unfortunately; that's what we call petty bribery.  What I’m really arguing against is the big shots, the leadership of those countries, who are wealthy enough but keep on being involved in bribery and so on and so on, and that is giving a bad reputation to the society as such.  Now, answering the question is there a turning point where you move from a developing context to a developing context, it seems that USD15,000 per capita on a yearly basis seems to be that turning point.  So once you reach that amount it looks like bribery and corruption will slowly fade away and that’s also the point where people believe that justice will be more enforced.  Now the question is, is there a correlation, is it causal, that’s not very clear at this point in time.

JENNIFER COOK
So Peter, what does it mean for those Western companies coming into developing economies and how do they reconcile what’s expected by the leaders of those countries, the people in those communities and in those organisations, and in their own Western very strong laws against bribery and gift giving?  How do they get the job done?

PETER VERHEZEN
Well, you do have Western companies who get the job done and, moreover, I would add Eastern companies, Asian companies, similarly get the job done by applying best corporate governance standards and practices.  Let me give you just one example.  Unilever, they are very successful in India, Indonesia, and they have a zero tolerance policy towards bribery and corruption to that extent that the tax officers in Indonesia, for example - unfortunately known to be quite corrupt - those people know that there is no way they’re going to be able to bargain with Unilever.  Now Unilever pays about 0.5%, 0.6% per annum in global taxes in Indonesia, which is quite a bit.  Unilever is also a very successful company in Indonesia; any manager who gets caught for corruption will be fired without any hesitation, so what you see is Unilever is able to attract the best talent to their company enabling to get great results.

JENNIFER COOK
Peter, looking in the context of China’s power and influence rising over the coming decades, is there a chance of the scales tipping so that the Western idea of no bribery - very, very firm on what’s a gift and what’s not - could that perhaps tip the other way back towards Eastern sensibilities?

PETER VERHEZEN
I believe with the increase in power of the Eastern economies, more particularly China, you will see that relationships will come to the forefront, but that does not mean that bribery will become an accepted social fact engrained without our economy, and I don't think it should.  That doesn’t mean that relationships are not important; relationships may play a role.  But then let’s not forget the University of Melbourne or Harvard or any of the good universities in the world - if you come from that kind of an institution with a good reputation, that in itself will give you access to particular networks.  So it’s not just an Eastern concept, it’s also predominant in our society, although maybe less clear, whereas in the east it’s a very clear thing; you build relationships.

JENNIFER COOK
So Peter, just to conclude, I wonder if you could tell me, how do I know as a Westerner when I visit an Asian country, whether or not I’m giving a gift or making a bribe?

PETER VERHEZEN
I usually apply a very simple rule, I call it my litmus test, and it’s threefold.  One, if you're able to share with your beloved ones how you make money, even if you think that would be a bribe, well you pass rule number one.  I guess nobody, no father or mother or lover would like to feel that he becomes a wealthy person through bribery.  So that's one.  The second more subtle is that if you don’t have nightmares, meaning you're not woken up by guilt feelings, then I guess you're all right.  Now guilt usually refers to your personal conscience where you hear somebody telling you that this was wrong.  So that’s the second test.  The third is what I call the shame test, meaning if you are willing to explain the story to a potential journalist and that story appears in the newspaper front page the day after and you can live with that, I guess you pass the shame test; shame referring to the feeling that you are seen viewed by others in the society.  If you pass those three tests I guess you're doing pretty all right and, indeed, you are on the right side; meaning you are giving something and you're not trying to bribe somebody.

JENNIFER COOK
Peter, as you so beautifully put to us, if the greatest gift if time, I’d like to thank you very much for sharing yours with us today.  Thank you so much.

PETER VERHEZEN
Well, I thank you.

JENNIFER COOK
That was Peter Verhezen, Visiting Associate Professor and Principal Fellow at the Graduate School of Management at the University of Melbourne, and Associate at the Melbourne Business School.  He’s been speaking with us today about the fine art of gift giving and bribery in Asia.  Relevant links, a full transcript and more info on this episode can be found at our website at upclose.unimelb.edu.au.  Up Close is a production of the University of Melbourne Australia.  This episode was recorded on 8 August 2011 and our producers were Kelvin Param and Eric van Bemmel.  Audio engineering by Gavin Nebauer.  Up Close is created by Eric van Bemmel and Kelvin Param.  I’m Jennifer Cook and until next time, goodbye.

VOICEOVER
You've been listening to Up Close.  For more information visit upclose.unimelb.edu.au.  Copyright 2011 the University of Melbourne.


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