Article Review

article: Alex W. H. Chan., Hoi Yan Cheung.,
“Cultural Dimensions, Ethical Sensitivity, and Corporate Governance” (2011).

Introduction and brief summary of the paper
Corporate Governance has become an essential tool for improving corporate performance and advancing the development of market-oriented democracies. Good governance practice maintain the integrity of business transactions and in so doing strengthen the rule of law and democratic governance.
Chan and Cheung’s study determines mutual relationship among cultural dimensions, ethical sensitivity and corporate governance across different countries. The researchers submitted four hypotheses based on Hofstede’s cultural dimension theory. The hypotheses were that one society tends to have a high quality of CG when it has comparatively low PDI(Power Distance Index), high IDV(Individuality), low MAS(Masculinity), and low UAI(Uncertainty Avoidance Index), respectively. To examine this correlation, the authors picked up six macroeconomic factors as well as those above four cultural dimensions as variables to be supposed to impact on CG score. While this is a good approach, the problem of this research lied with the range of CG dataset. The CG data they obtained from CLSA (2001) contained only 271 observations from 12 countries. A larger sample would have aided in the data analysis, particularly when looking for the way firm-specific factors determine the differences in CG practices. The results of the research showed that three of the four cultural dimensions (IDV, MAS, UAI) and another three of six control variables (Log(GDP per capita), common-law dummy and market-to-book ratio) had significant explanatory power in predicting CG scores for firms across different countries.

Strengths of the article
This article gives an in-depth discussion of CG practices by introducing various studies about Corporate Governance. It gives a definition, possible outputs, benefits of CG and also a reason why it’s difficult to conduct CG for the firms, etc. Therefore, readers of this paper can understand without any difficulty what the CG is and how it affects the management even if they have never encountered the concept of CG.
As mentioned in the paper, the study ‘demonstrated that CG scores rely heavily on cultural factors as well as economics/legal factors’ (p.55). To prove this proposition, the authors were attempting to explain the hypothesis clearly one by one. This part was significantly helpful for readers to set the obvious connection relation between the cultural dimensions/macroeconomic factors and CG score.

Weaknesses of the article
Although there are several strengths in this article as above, it also has some weaknesses. The study of Hofstede, which this article is mainly based on, has been criticized by several authors and researchers for several reasons (Baskerville, 2003; Jones, 2007; Nakata, 2009 etc.). The main critical point against Hofstede is the reliability and validity of his methodology. Apart from the controversy about whether culture is observable, measurable and therefore captured by a questionnaire (Baskerville, 2003; McSweeny, 2002), the representativeness of Hofstede’s result has been questioned due to unequal and small respond rates. Hofstede et al.(2008) claim that 50 respondents is assumed to be reliable result, but McSweeny (2002) and even I doubt the representativeness of 50 respondents for a whole nation. Since this research was built on the study facing many criticisms, the main results run a risk of being discredited.
Moreover, this paper only focused on identifying which factors are related to CG scores. It would have been much more valuable if they had suggested some specific solutions that can improve CG score given certain cultural background or some performing procedures that help let all the firms informed the importance of upgrading CG. This paper did mention that ‘careful strategic planning is needed to communicate CG to everyone in an organization’ (p. 46) , however, this is too vague and this part took simply a half of one short paragraph in the introduction part. They could have provided more concrete codes of conduct as in the following paragraph.
They could have made an additional remark to one of the possible solutions, ‘development and training for staff’ (p.46). For the training, it could be either regular one from experts for managerial/functional managers, or a one-off intensive program for new recruits. For the managers, the firm can hold a breakfast meeting once a week and ask celebrities who have influential social forces to the meeting. Persistent exposure to the speeches about proper governance can make the managers recognize ethical issues easily. When the new employees are hired, they are usually highly motivated, ready to absorb lots of information about the company in the affirmative way and dedicate themselves to the work. The company can provide the newcomers with concentrating educational programs about the benefits of good CG practice, various actual cases regarding ethical dilemmas, and the firm’s punishment policy for unethical issues.
These concrete possible suggestions would have attracted more attention to the result of the study. With regard to making a counter-offer, this paper left much to be desired.

Comparison to the thoughts of other authors
Much previous research also claims that culture has a significant role to improve firms’ corporate governance (Vitell, Nwachukwu, Barnes, 1993). Drew, Kelly, Kendrick (2006) stated that effective cultures align well with business needs and therefore they support governance competencies. The authors also mentioned effective cultures are dedicated to openness, transparency, high ethical standards, and fair competition, so that they engage in effective corporate governance. As Schein (1996) notes, culture is one of the most powerful influences on organizational decision-making and strategy. From these previous researches it can be deduced that people can barely deny the relationship between culture and corporate governance.
However, the way researchers define culture varies from paper to paper. While Chan and Cheung’s study was entirely based on Hofstede’s cultural dimensions to illustrate cultural factors that affect CG, Schein (1996) demonstrate that the founder’s personality can both create and shape organizational culture. The author observes that culture is formed by historical events and can be reinforced by systems, particularly when management can manipulate incentive systems to reinforce specific behaviors. Other researchers have countenanced the validity of Schein’s work. For instance, Baucus and Near (1991) developed and tested a model of illegal behavior in organizations. Studying Fortune 500 corporations over a ten-year period, they identified 141 violations that resulted in convictions in 88 firms; in fact, some firms had multiple convictions. The author’s analysis provides practical evidence that a past history of corruption inclines firms to repeat such behavior. They comment (p. 31):
“A corporation’s culture can predispose its members to behave illegally. As the relationship between prior violations and illegal behavior appears to indicate, some firms have a culture that reinforces illegal activity. Firms may also socialize employees to engage in illegal acts as a part of their normal job duties.”
This can be a critical argument against Chan and Cheung’s paper because their study tacitly assumes that firms in the same cultural dimension keep highly similar CG scores. According to Schein (1996) Baucus and Near (1991), however, even though some corporations are in the same cultural dimension, their CG marks can be greatly varied due to the founder’s personality or corporate history.

My standpoint
Overall, I found the article interesting. The article gave a substantial amount of data based on previous studies, some helpful charts. However, it was obvious that the article was written based on only one point of view: Hofstede’s cultural dimensions. As a critical thinker, I was disappointed that more cultural factors were not included so that the reader could form an integrated opinion. Every author writes to promote his own agenda; however, this article could have been greatly enhanced by discussing more diversified factors of culture, and giving the reader an opportunity to apply this study to her/his work environment.

Conclusion
Chen and Cheung’s findings provide definite correlation among cultural dimensions, ethical sensitivity, and corporate governance by conducting structural research. They found high
IDV, low MAS, UAI scores are related to high CG scores. This study is meaningful because it is obvious that good CG performance has strong relationship with financial performance, therefore finding factors that affect good CG can mean finding key figures for companies’ economics benefits. It is highly valuable that they combined cultural dimensions and macroeconomic factors to identify the connection, even though it left much to be desired regarding small sample size and the partial selection of cultural features.

References
Baskerville R. F., (2003). Hofstede never studied culture. Accounting, Organizations and Society, 28, 1-14
Baucus M. S., Near J. P. (1991). Can illegal corporate behavior be predicted? An event history analysis. Academy of Management Journal, 34(1), 9-36.
Credit Lyonnais Securities Asia (CLSA). (2001). Saints and sinners: Who’s got religion. CG Watch.
Drew S. A., Kelly P. C., Kendrick T. (2006). CLASS: Five elements of corporate governance to manage strategic risk. Business horizons, 49, 127-138.
Jones M. L. (2007). Hofstede-Culturally questionable?. Oxford Business&Economics Conference.
Labovitz, G. (2005). Well aligned: Using alignment to achieve extraordinary results. Builders and leaders, Boston University School of Management, 24–25.

Mcsweeney B. (2002). Hofstede’s model of national cultural differences and their consequences: A triumph of faith- a failure of analysis. Human Relations, 55(1), 89-118.
Nakata C. (2009). Beyond Hofstede: Culture Frameworks for Global Marketing and Management. Palgrave Macmillan.
Schein, E. H. (1996). Organizational culture and leadership. San Francisco: Jossey-Bass.
Vitell, S. J., Nwachukwu, S. L., Barnes, J. H. (1993). The effects of culture on ethical decision-making: An application of Hofstede’s typology. Journal of Business Ethics, 12, 753-760.

References: Baskerville R. F., (2003). Hofstede never studied culture. Accounting, Organizations and Society, 28, 1-14 Baucus M. S., Near J. P. (1991). Can illegal corporate behavior be predicted? An event history analysis. Academy of Management Journal, 34(1), 9-36. Credit Lyonnais Securities Asia (CLSA). (2001). Saints and sinners: Who’s got religion. CG Watch. Drew S. A., Kelly P. C., Kendrick T. (2006). CLASS: Five elements of corporate governance to manage strategic risk. Business horizons, 49, 127-138. Jones M. L. (2007). Hofstede-Culturally questionable?. Oxford Business&Economics Conference. Labovitz, G. (2005). Well aligned: Using alignment to achieve extraordinary results. Builders and leaders, Boston University School of Management, 24–25. Mcsweeney B. (2002). Hofstede’s model of national cultural differences and their consequences: A triumph of faith- a failure of analysis. Human Relations, 55(1), 89-118. Nakata C. (2009). Beyond Hofstede: Culture Frameworks for Global Marketing and Management. Palgrave Macmillan. Schein, E. H. (1996). Organizational culture and leadership. San Francisco: Jossey-Bass. Vitell, S. J., Nwachukwu, S. L., Barnes, J. H. (1993). The effects of culture on ethical decision-making: An application of Hofstede’s typology. Journal of Business Ethics, 12, 753-760.