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Research Paper

Profile In Ethical Leadership: A Look At Huang Guangyu

Profile In Ethical Leadership: A Look At Huang Guangyu

The unethical conduct of business founders usually results in negative publicity that significantly impact positive company image. The cases of negative publicity linked to business founder’s unethical conduct are on the rose in the period of online social media in China. The case of Huang Guangyu involving stock price manipulation. Guanyin’s unethical behavior was likely caused by greed and need to remain China’s richest person. Had Guangyu’s behavior incorporated utilitarianism principle, which emphasizes that actions are right in so far as they promote happiness and wrong as they produce unhappiness or pain.

Overview of the Issue/Actions of the Individual

Guangyu is the founder of Gome Electrical Appliances in China, and his wealth was valued at around $5 billion. Guangyu was born into a poor farming family hence his success story was a rags-to-riches story and this promoted admiration as well as envy in China. In 2008, he topped the Hurun rich list but was shortly detained and charged with manipulation of stock prices. He was also accused of bribing government officials to ensure favorable treatment in tax disputes. On 15 May 2010, a Beijing court sentenced Guangyu to 14 years in prison for insider trading, illegal business dealings and corporate bribery (Dean, 2010). Guangyu was also fined $88 million and property worth 200 million yuan confiscated (Dean, 2010).

Guangyu’s actions exemplify the teleological theories, particularly the act utilitarianism.  Act utilitarianism views morally right actions as the acts that produce the best possible results in a particular situation (Kar, 2010). While there is no doubt that company founders need to focus on wealth maximization, they need to do so legally, and ethically that will ensure the long-term success of the company. The teleological theory has an important place in business and in the process of pursuing profits, it is imperative that corporate leaders maintain the moral bottom line (Ciulla, 2014). This is because a leader’s personal behavior not only affects their career development but also affects the prospects of the company (Joseph, 2016). For instance, after Guangyu’s imprisonment, the retailing giant started to do down, and the company lost a substantial market share in China’s electrical sector.

Current Issues/Cultural/Environment at the Time of the Situation

At the time of Guangyu’s arrest, insider trading, illegal business dealings, and corporate bribery were nothing new. During the time of his arrest, China’s economy was experiencing rapid growth and companies were largely unchecked. Teen (2012) asserts that Guangyu’s case showed that loopholes that China had overlooked while focusing on economic growth and cementing its position as a crucial global player. The period saw those well connected to government officials using bribes to obtain strategic favors from government officials. The China Securities Regulatory Commission was not proactive in controlling the activities of listed companies, and greedy business people exploited the loopholes in its regulatory framework for personal gains. Teen (2012) posits that Guangyu’s case perhaps received public attention despite other similar circumstances because he was once China’s richest man.

Perceived Motivation

The motivation for Guangyu insider trading, bribery, and illegal business were potentially fueled by greed. Guangyu was found guilty of engaging in insider trading from April to September 2007, involving shares in Technologies Holding Company Limited and Beijing Eagle Investment Co Ltd where he was a major shareholder (Teen, 2012). His profits from insider trading were estimated to be RMD 309 million (Teen, 2012). Guangyu’s rags-to-riches story entered his head, and greed soon became an important part of his business decisions probably to amass more wealth to remain China’s richest person.  

Moreover, according to utilitarianism theory, inherent fraudulent nature of Guangyu’s character could be a cause of his unethical behavior. Guangyu used material information to make investment decisions that would improve his fortunes. According to Badaracco (2016), a company director should be free from conflict of interest and act for the best benefit of shareholders. For instance, Guangyu bought shares of Centergate through an offshore company when he was tipped that the company was restructuring and profited once the news was made public (Teen, 2012). His tenure at the helm of GOME was characterized by breach of fiduciary duty and numerous instances of conflict of interest. Whenever an opportunity presented itself, Guangyu committed fraud to maximize his fortunes. For instance, Guangyu misappropriated information in connection to trading in securities by initiating a massive illegal share repurchase. Despite the court’s ruling that Guangyu acted illegally and unethically, he appears unapologetic and still uses his influence to control GOME even in prison.

Effect of His Actions and/or Consequences

Guangyu was on 18 May 2010 sentenced to 14 years in jail for insider trading, illegal business, and bribery. The prison sentence marked a huge fall for one of China’s richest men. Also, the conviction dented his rags-to-riches story. After founding an electrical company that sold goods at the lowest price, Guangyu was regarded as “Sam Walton of China” and “Price Butcher (Teen, 2012). Another consequence OF Guangyu’s unethical behavior was a fine of $88 million and property worth 200 million yuan confiscated (Dean, 2010). Also, GOME’s stock plunged after the news went public and it took a relatively long time for the company’s shares to recover.

Conclusion

Guangyu was greedy, and all he was interested in maximizing his fortunes and remain the wealthiest person in China. Guangyu knew from the start that his behavior was illegal but used bribes to have his way. However, when the law finally caught up with him in 2008, it marked his downfall which saw him sentenced to 14 years in prison. As a result, his rags-to-riches story was forever dented, and the case served a warning for other greedy business leaders. Ultimately, it will be interesting to see how Guangyu will do business after the end of his prison term given that he will be only 55 years old.

 

References

Badaracco, J. L. (2016). How to tackle your toughest decisions. Harvard Business Review, 94(7), 104-140.

Ciulla, J. B. (2014). Ethics, the heart of leadership (3 ed.).

Dean, J. (2010, 5 19). Huang Guangyu: From tycoon to prison. China Daily. Retrieved 1 20, 2019, from http://www.chinadaily.com.cn/china/2010-05/19/content_9869559.htm

Joseph, L. (2016). Defining moments: When managers must choose between right and right. Harvard Business Review Press.

Kar, S. (2010). Ethical Leadership: Best Practice for Success. Journal of Business and Management.

Teen, M. Y. (2012). Corporate Governance Case Studies. CPA Australia .

 

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