Cathay, The Case For The Defence

On 16 August, Cathay Pacific CEO, Rupert Hogg, resigned on a point of principle: he thought it improper that Cathay staff should be dismissed for activities such as support for or participation in the widespread Hong Kong protests that occur outside working hours and are reflective of private convictions.

It was clear that Beijing was holding the company responsible for such staff behavior, a concept alien to international corporate ethics, and, further, was insisting that staff spy on their colleagues.

Hogg was widely praised for his resistance to Beijing’s demands. The subsequent acquiescence of the Cathay and Swire boards to these demands was equally widely condemned.  

It was suggested that Cathay should have called Beijing’s bluff and refused to discipline or dismiss staff. Other suggestions were that corporate Hong Kong should collectively stand firm and present a united front against Beijing.

Such remedies will either never happen or be wholly ineffective if attempted.

As pointed out by some of Cathay’s critics, the coercion of international corporate boards is not without downsides for China.

First, if widespread implementation is sought it is likely to have a significant impact on investment in Hong Kong and other parts of China.

Secondly, not all corporates are equal. Some have powerful governments to defend them. The US Administration has already demonstrated its ability – Huawei and ZTE – to threaten the profits, even the viability, of targeted Chinese corporations. To further complicate the US/China trade war with demands that US companies and the White House would strongly resist would be a counterproductive initiative. Retaliation by the US could be very painful.

Differences between companies ensure a united front will never be achieved.

Boards of those not presently pressured by Beijing will consider it imprudent, indeed exceeding their fiduciary duties, to put their businesses at risk by publicly criticizing Cathay or joining in potential defiance.

Rather than united we stand, the view will prevail that those who put their heads above the parapet will have their heads chopped off.

And the US corporations may well believe they don’t have a dog in the fight.

But the boards of Swire and Cathay most certainly do have a dog in the fight and no powerful government to protect them.

Some Cathay staff members have publicly protested about the dismissals and expressed fear for their own futures. This is entirely understandable and one can only sympathize with them.

They clearly have a right to seek the protection of the board. But the board cannot protect those who are not employed. There has been no announcement as yet of Cathay staff resigning on principle and as a protest against the board’s new policies. They value their jobs. The admirable Mr. Hogg is a singular example.

The only effective way the board can protect the future employment of staff is to protect the future of their businesses and presently the future of those businesses depends on the goodwill of Beijing.

It is highly improbable that any attack on Cathay would have taken the form of a ban on flights over China but there are myriad ways a company can be undermined and comprised over time.

The downside risks of defying China, calling their bluff, would have been vastly greater for Cathay than the risks for China associated with their insistence on the new policies. The boards of Swire and Cathay had no option but to make the decisions they did.

Cathay can only hope the protests and demonstrations, the cause of their current dilemma, will disappear soon. One wishes them well but hope is a poor corporate strategy. The new policies may run for a long time.


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