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Becoming A World-class Business

A Lawyers Perspective
2005 The Harvard in Asia Project
Spring Conference at NTU
2 April 2005
C. V. Chen
Managing Partner
Lee and Li, Attorneys-at-Law
Taipei, Taiwan, R.O.C.
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Outline








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Enterprises & Law


Impact of Domestic Laws and Intl Laws on Business Management
What Is A World-class Business?
Chinese Enterprises vs. World-class businesses from top 100 Brands
Corporate Culture of Chinese Enterprises
(1) Historical Overview;(2) li () vs. fa ();(3) The Great Yasa
New Model of World-class Business
(1) Promoting the Strengths of Traditions
(2) Maintaining High Self-discipline and Adherence to Law
(3) Taking Legal Advice into Account in Decision-making Process
Conclusion

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Enterprises & Law


 How can an enterprise, not being a natural person, have the
capacity to own/act? How can an enterprise engage in activities
or own properties in other country
 How can an enterprise claim ownership of its money in banks?
 What gives value to stocks being merely a piece of paper?
 Factories and land do not recognize an enterprise. How can an
enterprise claim ownership of factories and land?
 Why can patenting reward enterprises for their past efforts?
 The brand Coca-Cola is valued at US$68.9 billion (NT$0.24
trillion). Why can a brand, being intangible, have such an
astronomical value?
 The Answer: by the operation of Law
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(ROC) Impact of Domestic Laws on Business Management


Thoughts
of the
Management

Sound Knowledge of
Domestic Law

Laws on Environmental
Protection, Waste
Disposal, Pollution, etc. Production
Consumer
Protection
Law, Fair
Trade Law, Marketing
etc.

Patent Law, Trademark


Law, Copyright Law,
etc.
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Company Act, M&A Act, etc.

Finance &
Investment

6 Functions
of
Enterprises

R&D

Establishment and Governance


of Enterprises

Laws on Banking,
Securities, Accounting,
Insurance, Offshore
Listing, etc.

Human
Resources

Labor Law,
Employment
Act, etc.

Laws on Protection and


Information
Confidentiality of
Management
Personal / Corporate
Data, etc.

Impact of Domestic Laws on Business Management


An enterprises should have sound knowledge of the domestic
laws of a country when doing business in that country

Think globally and act locally


- understanding the regulations related to corporate governance and the
6 major functions of business management of the country concerned.

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Impact of International Laws (Treaties) on Business Management


(By Way of Examples)
 Environment

The 1987 Montreal Protocol on Substances that Deplete the Ozone Layer
The Kyoto Protocol to the Convention on Climate Change that comes
into force in February 2005 as a result of Russian ratification in late 2004

 Labor Protection: various international labor treaties


 Services & Trade: WTO
 Treaties on Aviation, Air Transport, Tele-communication, etc.

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What Is A World-class Business?


Consumer
Consciousness

New Model of World-class Business

Enhanced by
Self-discipline

Enhanced by
Law

Convergence

Utility

Profit

Benchmark of Enterprise Value

Utility
Separation
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Profit
Chaos & Disasters

Chinese Enterprises vs. World-class Business From top 100 Brands

Europe, 34

USA, 58

Source: Business Week (August 2004)

Asia, 8

Note: Out of the 8 Asian companies, 7 are Japanese and 1


is Korean, the Samsung group
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Chinese Enterprises vs. World-class Business From top 100 Brands


 Points to Ponder
 Chinas Haier was on the chart last year. What is the implication

of the absence of enterprises from Chinese-speaking regions this year?


 Sony is the only company not treating their in-house legal department
as general affairs department, said the General Manager of Sonys
legal department.

 Brand Value

 the benchmark to measure an enterprises performance?


 the benchmark to identify a world-class business?
 much room for improvement by Chinese (Taiwan) enterprises

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Corporate Culture of Chinese Enterprises (1) Historical Overview


Xia
C.2200-C.1750 B.C.

Wang Hai (ancestor of founder of Shang


Dynasty) 1st businessman in China

Shang
C.1750-C.1040 B.C.

Ended Xia Dynasty by outperforming in trade

Western Zhou
C, 1100-771B.C.

Many famous businessmen: Tse-Gung, Confucius's


disciple; Fan Li, officer-turned-business tycoon of the
state of Yue; Bai Kuei, a politician and business tycoon
of the Warring States Period

Sping & Autumn Period


Warring States Period

From Qin (221-206 B.C.)


onwards

Inferiority of businessmen in the social


hierarchy of scholars, farmers, craftsmen and
businessmen

Late Qing Dyansty to the early


Republic

Break through of capitalism; rise of


commercialism

Rising
Social
Status
of
business
-men

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Planned
economy
Free
economy

Relocation of
the Republic
Government
to Taiwan

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Surpression of
Establishment
of P.R.C.

private business

Policy reforms/
liberalization rising
social status of
businessmen

Corporate Culture of Chinese Enterprises (2) Li vs. Law


Emphasis on legal norms
Characteristics
of Western
societies
Characteristics
of Chinese
societies

Emphasis on morals and


"li"
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External
Constraints

Internal
Constraints

Corporate Culture of Chinese Enterprises (3) Revelation of the Great Yasa

 According to Genghis Khans Great Yasa Code, whoever that brought


bad news would be beheaded. Some Mongolian heralds were thus
killed.

 To most Chinese managers, legal advice form in-house counsels


= bad news from heralds ???

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New Model of World-class Business (1) -Promoting of Strengths of Traditions

 doing righteousness as if making profit (echoing the concept


of convergence of utility and profit, as discussed earlier)

 According to Hofheinz and Calder in their book Eastasia Edge,


Eastasians, deeply influenced by Confucianism, are diligent and
frugal, value education and familism, etc., and all these have

formed a common source of economic drive

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New Model of World-class Business (2)


Maintaining High Self-discipline and Adherence to Law
 Law vs. Morals law is the minimum standard of morality
 Adherence to law and corporate mission under utility maximization
on achievement in life for the welfare of people
 Adherence to law and corporate mission under profit maximization
Return on goodwill
Avoidance of loss due to violation of law
Probability of violating the law by going through between the
loopholes of law or maintaining high self-discipline

Adaptation in advance

Todays ethics, tomorrows laws ---important for companies doing


global business (Examples, environmental, labor regulations)

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New Model of World-class Business (3)

Seeking Legal Advice as Mandatory Process of Business Judgment


Business
Managers
(Operators)
Duty

Providing Legal Consultation

Providing Legal
Consultation

Convergence of legal
advice and business
judgment

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Role

Normal situation

Emergency

Decision-making
process

Crisis
Management
process

Business
Judgment

In-house Legal
Counsel

Outside
Legal Counsel

Providing Legal
Consultation

Set up support
system for regular
information

Role
Set up
international
support system
for special
information

World-class business: taking legal advice as a decision


factor to secure a proper business judgment
OR a misjudgment will incur loss to the company or
personal liabilities of the management

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Conclusion (1): Legal Environment and Challenges


 Challenges and Suggestions
 the original sin in law? Common problem of Chinese-speaking
regions?
 enterprises should use their power and resources to help the
government set up a legal environment ideal for business
operation & mankind
 corporate governance
Mckinsey: Most investors are willing to pay 20% premium
to invest in well-governed enterprise

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Conclusion (2): Earning Capability vs. Social Responsibility


 World-class Business
 not just a matter of earning capability, but more of a matter
of social responsibility as well
 ignoring laborers rights and environmental protection, etc.
MAY boost profit by saving cost in the short run
BUT will be penalized by law and spurned by public
in the long run

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Conclusion (3): Become a World-class Business Through Proper Advice of Law

Should we value legal advice and enhance the


role of in-house legal counsel?

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Negative:

Avoidance of loss due to law violation


crisis prevention and reaction

YES

Positive:

Citing relevant laws to protect companys interest

Planning and creating managements competitive edges

Corporate:

Causing corporate loss due to law violation


Threatening corporate survival and development

NO

Individual:

Incurring personal liabilities of the business executives


(responsible persons)

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Dr. C. V. Chen
Lee and Li, Attorneys-at-Law
7th Fl., 201 Tun Hua North Road
Taipei 105, Taiwan
Tel: (02) 2715-3300
Fax: (02) 2713-3966
E-mail: cvchen@leeandli.com
http://www.leeandli.com
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