Chinese language - The rightful criteria for a good company

Opinion / Liang Hongfu

The rightful criteria for a good company
By Hong Liang (China Daily)
Updated: 2006-08-22 06:21

Ask a mainland business leader what his biggest ambition is, and he is
likely to say, at least in public, that he wants his company to make it
into one of those world-wide corporate ranking lists.

Other than bragging rights, inclusion in those listings obviously has its
privileges. As a business reporter, I have received frequent calls from
public relations people who suggest that I owe it to my professional
integrity to interview their clients simply because they are executives
of Fortune 500 companies.

We really shouldn't be taking those surveys too seriously. Most of them
rank companies for their profitability. For instance, Forbes China's Top
100 Most Outstanding Companies survey is based on returns on total and
net assets, the rates of sales and profit growth, and the profit margin.

This is not to question the validity of the surveys, which, I am sure,
were compiled with the greatest care and transparency. But at a time when
building a harmonious society is taking precedence over the blind pursuit
of economic growth, it may not be sufficiently enlightening to rank
companies solely on how well they have done for their shareholders.

If profitability is the only criterion, the handful of property companies
in Hong Kong will surely rank high in many surveys. This is because these
companies have consistently produced huge profits year after year by
securing a stranglehold on the supply of apartments in land-scarce Hong
Kong.

But hardly any property company in Hong Kong has ever been held up as an
example of good corporate citizenship. Aside from a few property
developers, who have been lionized in the popular press for their
extravagant lifestyle and occasional high-profile amorous exploits, the
property oligarchy has never endeared itself to the public.

The business tactics of this property oligarchy were widely seen to have
contributed significantly to the explosive surge in property prices
throughout most of the 1990s, allegedly by manipulating the supply. In
the several years before the bubble burst in the winter of 1997, property
prices shot up to levels few prospective home-buyers in Hong Kong could
afford. Many Hong Kong families were forced to squeeze into tiny
apartments averaging no more than 50 square metres in size.

Nevertheless, these companies consistently win praise and garner the
support of stock analysts, who routinely give them high ratings based on
criteria that are not dissimilar to those in the Forbes survey. For these
stock market darlings, winning a place in the survey of any international
business publication is undoubtedly a delightful icing on the cake.

Large businesses have long maintained that in the process of making
money, they have made huge contributions to society by creating
employment, promoting economic growth while satisfying consumers' needs.
This is undoubtedly true in a perfect market that is transparent and
fair. But markets are never perfect. The Hong Kong property market has
forcefully demonstrated that what is good for the oligarchy may not be
good for the economy or the general public.

A truly outstanding company, I believe, should be one that has made
significant contributions to raising people's standard of living and
improving their quality of life. Making profit is, of course, a given.

Based on these criteria, a company that keeps hacking down trees,
levelling hills and filling up the sea to build monstrous tenement blocks
that are a discomfort to live in and a pain to look at would never
qualify. Nor would a company that distinguishes itself solely by its
capacity for squeezing the production cost.

To their credit, some Hong Kong property companies are known to have made
substantial donations to education, healthcare and other charities.
Perhaps the mainland companies that owe their high profits to the hard
work of migrant workers should spare a thought for the welfare of those
employees who are not seen to be sharing their due piece of the economic
pie.

Email: jamesleung@chinadaily.com.cn

(China Daily 08/22/2006 page4)

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