ACCUFORM: ETHICAL LEADERSHIP AND ITS CHALLENGES IN THE ERA OF

GLOBALISATION

By:
Nicole Chin

September 2nd, 2010

MACC 402 – Professional Issues in Accounting: Ethics
EXECUTIVE SUMMARY

Raymond Kim, the general manager of AccuForm, is dealing with a serious crisis. Eight children
in China have been hospitalized for severe skin rashes caused by clothing treated with untested,
illegally released material coatings, advertised as AccuForm products. Moreover, the recent
catastrophe has unveiled extensive questionable activity taking place within the company. While
there are future remedial actions that Kim needs to take, the disaster could have been prevented
by dealing with the following underlying issues that will be discussed in this paper:
 The Misaligned Value Perceptions: DynaCoat & CreaseFree
 Raymond Kim’s Leadership Style
 Ignoring Red Flags
 Disregard for Applicable Laws

MISALIGNED VALUE PERCEPTIONS: DYNACOAT & CREASEFREE

A fundamental problem with AccuForm, an equal joint venture between DynaCoat and
CreaseFree, is the fact that its two parent entities have conflicting corporate cultures that have
not been reconciled. Headquartered in Hong Kong, AccuForm leveraged the production
capabilities of both its originators, but failed to merge their distinctive value sets.

DynaCoat, a German textile-coating producer, believes in holding its employees to strict codes
of conduct. The company places value on ensuring the professional integrity of its workforce and
is dedicated to safety and environmental protection. Producing high quality, standardized
chemical coatings worldwide, DynaCoat is the ideal corporate citizen. In contrast, CreaseFree, a
Hong Kong OEM of wrinkle-free clothing, has values that are at odds with DynaCoat’s. The
companies mission is low cost leadership, by any means within the law. While DynaCoat strives
to exceed social expectations, CreaseFree only does what it must to meet legal requirements.
Like many other traditional Chinese businesses, CreaseFree disregards formal control systems
and depends on guanxi—familial and other personal connections—to accomplish tasks. This
means that excessive gift giving, favors, kickbacks, and bribes all fall within the range of regular
and acceptable business activity at CreaseFree. The company has no concern for corporate
stewardship.

As AccuForm’s business activity progressed, CreaseFree’s culture became prominent. The

majority of Kim’s employees have been transferred from CreaseFree or are locals from China,
thus bringing their already instilled values and business culture with them. Lacking moral
courage, Kim has allowed them to continue working in the manner that they choose. A large part
of this problem stems from the fact that Kim’s performance goals are all focused on the short
term—increasing market share, patent generation, and sales revenue. He essentially adopts a
cultural relativist attitude, abandoning all of DynaCoat’s ethical values, because his success at
meeting the quantitative benchmarks depends on the performance of the Chinese workers. In
retrospect, it may have been most effective to establish strict, formal standards that combined the
values of both companies in mutually respectful ways.

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RAYMOND KIM’S LEADERSHIP STYLE

As mentioned briefly above, another contributing factor in the downfall of AccuForm is

Raymond Kim’s lack of moral courage and his laissez-faire management style. While Kim is
clearly competent and has the managerial experience to lead at AccuForm, his style is too
passive for the particular situation. This problem is connected to the corporate culture
differences. Kim blatantly overlooked the conflicting “value perceptions” even though he
disagreed with CreaseFree’s informal practices. Leaking through the ranks at AccuForm, this
resulted in unethical behavior as his silence was taken as a sign of acceptance. Emphasizing this,
Donaldson’s piece, Values in Tension, states that, “If senior managers act as though ethics don’t
matter, the rest of the company’s employees won’t think they do, either.” Kim’s passivity led
others, like Ching, to exploit his weakness and to take risks because there were no repercussions.
There is also another issue, as Kim devalued his own intrinsic worth as he put aside his own
moral values and took the easy route of just accommodating the CreaseFree employees.

Kim also placed an unwarrantable amount of trust in AccuForm staff. Trust and honestly was
assumed without justification. For instance, Kim was an engineer himself and therefore thought
that R&D personnel should be given additional privileges and greater authority. He allowed open
admission to the research labs, unrestricted access to the company chemicals and gave R&D
managers, like Ching, power over spending decisions. Regardless of his years of experience, he
overlooked the basic business lesson of segregation of duties and thus the internal control
weaknesses were abused. Ching took it upon himself to oversee waste disposal, spent his own
money entertaining clients, and put in long overtimes. Kim naively interpreted these typically
questionable actions as signs of determination and progress.

Finally, Kim’s emphasized end goals but never expressed the means by which one should obtain
those goals, beyond the “minimal critical specifications”. This easily allowed for unethical
activity because right and wrong were never defined. For instance, R&D teams’ performance
was measured by quantitative metrics and rewarded with money. Combining this with the
increased authority given to them, it was easy to default to using traditional Chinese business
practices like guanxi and bribes, since this was what they were accustomed to. Essentially, Kim
was instigating such behavior by rewarding those who met the goals but never investigating how
exactly they were accomplished. Overall, taking such a hands-off approach would have only
been fine provided that ethical standards and general processes were established and taken
seriously at AccuForm.

IGNORING RED FLAGS

Several warnings signs of ethical trouble were buried within AccuForm’s day-to-day operations,
many of which followed the traditional Chinese business methods and the cultural practice of
guanxi. Had Kim investigated how work was being accomplished, he would have seen that both
were being taken out of context.

First and foremost, Kim failed to understand the general culture in which he was working.
Chinese culture is very collectivist and has always emphasized respect for one’s elders and for
societal ranks. These factors, when combined in the workplace, are the perfect breeding ground
for the bureaucratic ethic. Ching was able to leverage these characteristics to his own personal

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advantage as depicted by the apprehension of the whistleblower, who submitted to his superior’s
unethical orders. Most likely a lower ranking R&D worker, the whistleblower knew that it was
wrong to accept bribes but ended up accepting based on the high pressure to conform. Given the
conditions in rural China, it is quite possible that the worker had to surrender in order to
“survive”, especially when being threatened with his job. Ching disregarded the core human
value of respect for human dignity and used lower ranking employees as a means to an end. The
lack of a code of conduct or whistleblower hotline made it impossible for this worker to fight off
the evils existing in AccuForm.

Following the last point made, the general absence of a set of core business values at AccuForm
suggested that problems would occur. Kim saw early on that the CreaseFree employees felt that
they had no commitment to society or to the environment—two things that all ethical businesses
should feel dedicated to. The simple statement of how the ISO standard certificates were just
window dressing hinted at the harsh disregard the employees had for human dignity. Projected
forward, this disrespect for human rights led to unsafe products being leaked into the market,
ultimately putting children in harms way. While Ching tries to argue that the products are still
better than what is available within their means, he is still breaking the universal human right of
protecting people’s health, safety, and standard of living. These core values were never
expressed in the company, so he is not completely at fault, but still they define what is
considered an ethical course of action.

DISREGARD FOR APPLICABLE LAWS

While many of the actions taking place within AccuForm are unethical on the basis that they
impede upon the three human core values, some of the activities may also be illegal. For
instance, the misappropriation of assets by Ching, based on an example in the Donaldon’s article,
can result in his execution. Likewise, China has trademark laws protecting trade and service
marks and other intellectual property. Trademark infringement has long been an issue in China
and amendments to the law in 2001 have made it a serious crime that can result in both fines and
imprisonment.

The biggest issue with regard to the law though is that AccuForm may be held to the U.S.
Foreign Corrupt Practices Act, even though it is not a US firm. Raymond Kim is an American-
born Korean, making him a domestic concern under the act. While Kim has not directly made
any bribes or other corrupt payments, Ching has and he is under Kim’s supervision. According to
the article, One Rogue Worker Can Take an Entire Company Down, companies can be held
criminally liable for the acts of even its low-level employees based on the concept of respondeat
superiori. Translated from Latin, the legal jargon literally means, “Let the master answer” and is
a doctrine that holds the company responsible for employees working under their scope of
employment. Overall, Kim should seek legal counsel to ensure that he and AccuForm aren’t
accused and held accountable for Ching’s actions.

MOVING FORWARD

What has already taken place at AccuForm cannot be undone, therefore Kim must move forward
and take remedial actions to prevent it from occurring again in the future. While Kim would like
to safeguard the reputation of his company, it would be in his best interest to take a stand and

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make an example of Ching. By taking a chance and letting the Ching debacle into the limelight,
perhaps other employees will learn that taking similar courses of actions will result in the same
societal ridicule and embarrassment. Again, being a collectivist country, one of the worst things
that could happen would be to bring embarrassment to one’s family, which is what Ching would
do by being indicted. Perhaps public disclosure of this incident would also instill an ethical
perspective into the culture at AccuForm. Employees might begin to think about their actions in
the context of what would happen if it were disclosed.

In addition, this disaster puts AccuForms products and their overall reputation at risk. It is quite
possible that the public would consider the company as a whole to be unethical if the actual
perpetrator isn’t disclosed. Admitting to the issues within the company and promising for a better
future, AccuForm may be able to change the negative into a positive. For one, it gives the
company a chance to change, which will be discussed later. It also provides an opportunity for
AccuForm to start giving back to the community. Ching states that many poor children in local
communities can’t afford AccuForm products. Perhaps AccuForm can aid their potential poor
public image by donating clothing to these communities or instilling initiatives for R&D
development of cheaper alternative coatings. Overall, the company should put a positive spin on
the weaknesses that have been exposed.

Overall, Kim’s passivity and lack of moral courage thus far has allowed the workers to take
advantage of him. Unless he proves that he is willing to take risks and stand up for what is right,
they will continue doing so. It is important that a set of ethical standards is adopted and followed
if AccuForm is to remain doing business. The code should not take the form of DynaCoat’s set
of values or CreaseFree’s lack thereof, but instead should strike a balance between the two. For
instance, outright bribery should not be permissible; however, gift giving within tolerable limits
and with the right intention should be okay. To recultivate the corporate culture, people must be
willing to adhere to the rules and understand where their own judgment will come into play. An
ethical tone must start with management integrity and Kim taking initiative and having moral
courage is the first step.

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i
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Down." Nat i onal Law Journal (2009). Web. 1 S ep 2010.
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