Managers in the PRC

Historically, under the Confucian order of Chinese society, “business was ranked at the lowest level” (Whitcomb et al., 1998: 840), and the managerial class was looked down upon. During the brief Republican area (1911–1930), a Chinese business and management class came to power that mixed business and politics and took advantage of the considerable human resources offered by the country’s large eastern cities, especially Shanghai. The Soong family is a famous example of what was then a new social class. Under the political system of the PRC from 1949 to the late 1970s, “the whole nation became one firm, and managers had to passively receive instructions from the top” (Yang, 2012: 172). Managers were appointed based more on their political reliability than on their professional expertise. The centralised decision-making processes of the system “effectively put managers under the control of the Communist

party cadres in the enterprises” (Smith and Wang, 1996). During the economic reform period of the 1980s, Chinese managers became more powerful within their organisations. While earlier studies showed that Chinese managers preferred

‘command-style’ behaviour, more recent research has demonstrated that Chinese managers have adjusted their leadership styles, adapting modern western patterns of organisational leadership instead.

Since the Communist Party of China was rooted in the agrarian tradition of China, the party leadership, inexperienced in managing industrial organisations, was rather suspicious of the managerial class. This attitude was reflected in the appointment process for enterprise executives in the PRC until the 1980s: “Managerial personnel were appointed or selected from among those workers who were considered both ‘red’

(that is, politically sound) and ‘expert’ (that is, technically competent). This was done through recommendation and discussion by fellow workers, Party Committee members, and managerial personnel in the enterprises concerned” (Tung, 1988: 157). The Chinese government quickly came to the realisation that, in order to achieve its economic growth targets, it needed to adjust the system, and “thus decided to transform managers from party cadres into ‘hired hands’ to make managers work” (Zang, 1995: 99). At the same time, “the government attempted to raise industrial production by depending on the manager job responsibility system […]” (Zang, 1995:97). “[B]y the end of June 1987, […] approximately 64 per cent of all large- and medium-sized state enterprises […]

already had carried out the manager job responsibility system for some time” (Zang, 1995: 90).

The system had 16 variations (Zang, 1995: 99). Under one form, SOEs were auctioned off to the highest bidder, who then became company director. In return, “the successful bidder had to pledge all his/her personal belongs […]” (Zang, 1995: 90).

After the changes of the 1980s, the management structure of surviving enterprises consisted of a Party Committee and a Working Committee (consisting of senior management) (Tung, 1988). “Each Party Committee [was] headed by a party secretary […], [each] Working Committee [was] headed by the factory director and made up of deputy directors and responsible technical and administrative cadres” (Tung, 1988:

147).

The leadership structure in Chinese SOEs evolved from the “three-man leadership system” established during the 1930s in the areas then under Communist control (Smith and Wang, 1996). Under this system, the executive team of an enterprise consisted of the factory director, the Party secretary and the trade union leader. “In the 1940s, this system was replaced by the Factory Committee, which was comprised of the factory director, Party secretary, and trade union leader, plus [appointed] representatives of technicians and workers” (Smith and Wang, 1996: 323).

In their thorough analysis of the changing structures of enterprise management in the PRC, Smith and Wang (1996) described how the Communist Party at first experimented with a Soviet-style one-man leadership model immediately after 1949, which was replaced with factory director management under party committee leadership by the late 1950s and early 1960s. Chinese enterprises were now jointly managed by the party organisation, the administrative team and the trade unions, while “the party secretary played a decisive role” (Smith and Wang, 1996: 323). This, of course, is hardly surprising: At the time, basically all leadership representatives were members of the CPC besides their administrative roles. After 1978, management power was greatly decentralised, and managers were given “authority to run their enterprises” (Smith and Wang, 1996: 323), including the right “to hire and fire” (Ding et al., 2002: 433).

Executives in state-owned companies were by definition “top organizational leaders”

(Granrose et al., 2000: 488). While managers before the 1980 reform process were in most respects seen as equal to their employees, after the restructuring of the 1980s, management in Chinese SOEs became dissociated from the general workforce.

Recognising this growing gap, employees from different state-owned firms in the Liu (2003: 409) study expressed “a desire for more equality”. But employee “desires” were often ignored. As a consequence, Chinese employees started to take to the shop floors to fight for their rights (Chan et al., 2006b; Hille and Jacob, 2013). Between 1992 and 1997, the PRC registered two million labour disputes (Chen, 2003: 1006).

Rowley and Warner (2013: 622), on the other hand, came to the conclusion that many senior Chinese executives rely on ideas “from Buddhism, Confucianism, and Daoism to instil mutual respect, social responsibility and an ethical code in the workforce”.

Historically, the Chinese have preferred family-owned business set-ups. In these entities, the head of the in-group was essentially the “top executive”, and his brothers, sons, nephews and other blood relatives became managers and employees. Today, top as well as lower positions are open to women as well, and executive managers in private companies in China, metaphorically speaking the head of the clan and his or her kinsmen, enjoy a great deal of authority and power (Boisot and Child, 1996). As explained above, based on traditional Confucian values, the positions in these clan structures are static and clearly regulated. The executive leader cares for the followers, who in turn show loyalty and dedicate their knowledge, time and energy to the leader and the organisation.

In the current environment of the PRC, however, this type of structural set-up is almost inevitably problematic. Chinese families are being limited in their reproduction of talent by government regulations on birth control. Only trusting one’s own family members for management positions will almost inevitably limit organisational growth (Fukuyama, 1995; Ralston et al., 2006b). Besides, limiting trust and employment to family members makes it difficult for hired professional managers to establish the same level of confidence in the in-group leader. Yet without such an ‘account’ of trust (xìnyòng) (Wang, 2007), the employed manager cannot make decisions that might be necessary, the family business cannot benefit from the manager’s professional skills, and consequently both parties cannot be successful. What is more, most of these private firms are still relatively small (Boisot and Child, 1996), with few levels of management and correspondingly limited career opportunities for management talent. Moreover, private domestic firms are often confronted with a lack of financial resources, leaving them unable to compete with state-owned companies and foreign-controlled organisations on, for example, pension schemes or affordable housing programmes (Tsang, 1994; Ralston et al., 2006b).

Given such obvious limitations, it does not come as a surprise that private companies are still “not popular employers” (Gong et al., 2006: 265) for many Chinese managers.

A perceived lower social status of people working for privately owned domestic firms, as well as high pressure to perform on the job, contribute further to this attitude. As outlined above, private domestic firms try to compensate some of their disadvantages by caring better for their management and employees than state-run employers (Chuang et al., 2012).

In summary, it was shown that managers in the PRC only became a relevant societal subgroup in the wake of the introduction of economic reforms in the late 1970s.

Traditionally looked down upon, managers are well respected today, enjoying social prestige, personal wealth and often tremendous power. Top executives in private Chinese companies are still mostly members or very close friends of the family who founded or owns the business. The relationships between executives and employees are often described as still being regulated by Confucian value concepts. Since “the flight of human capital and the retention of local staff is the biggest challenge” faced by all employers in today’s China (Fu and Deshpande, 2012: 305), private organisations have to compete for suitable candidates against state-owned or foreign-financed companies, and in general find themselves in a position of disadvantage.