The importance of "giving face" or avoiding "loss of face" is the first golden rule you will read in almost any handbook on doing business in China. Common attempts to explain the subtleties of face, or in Chinese mianzi, typically entail cases where face is given, recognized, saved, or lost.

Many of these cases tend to paint an image of Chinese people too preoccupied with face to be rational. While it is true that the Chinese people are sensitive about face, it is our belief the concept of face remains largely mystified among Western audiences.

In Arthur Smith's book Chinese Characteristics, mianzi is the first of the 26 characteristics studied. Smith wrote: "Once rightly apprehended, face will be found to be in itself a key to the combination lock of many of the most important characteristics of the Chinese."

He described face as a "compound noun of multitude, with more meaning than we shall be able to describe, or perhaps to comprehend."

Toward the end of the chapter, Smith relayed the story of a Chinese district magistrate who, "as a special favor, was allowed to be beheaded in his robes of office in order to save his face".

While it is difficult to understand how in the face of death the discussion of face was such an issue, knowing it was 120 years ago when Smith's book was published, such extremes can be imagined.

Delving deeper, we asked a Chinese colleague about the topic of face as it related to this story, who explained that face is fundamentally about dignity. That's why even a death row inmate is entitled to have face. Every human being has this right, regardless of wealth, status, or culture.

Face is also a cultural marker of respect - both the respect of others and of self. In this context, face refers to a person's image as perceived by community members including relatives, colleagues, neighbors and the authorities. In some ways face resembles the modern concept of a brand, whose value is largely determined by the perception of key stakeholders.

In today's China, dinner table conversations often mention several recurring themes: an exotic trip abroad, the purchase of a second car or home, or sending children abroad for higher education. These are the typical achievements that wealthy Chinese identify themselves with. Sharing them within their communities can gain face.

In addition to respect, face can also be interpreted as prestige. In a recent Ogilvy study of ultra-high-net-worth individuals in China, we discovered a huge demand among wealthy Chinese for exclusive membership clubs.

During a face-to-face interview with a highly successful Chinese CEO, we were told: "I can buy anything that money can buy; and such things are no longer attractive to me. But being accepted to an exclusive club of like-minded people is something that money cannot easily buy. And that membership gives me a lot of face."

In this context, face refers to a culture of prestige formed through one's associations. The physical embodiment of this culture - the clubhouse - has therefore become a symbol of "prestige". It is interesting to note how a recent boom in the number of self-proclaimed prestigious clubs both erodes and reinforces the social value of such membership, drawing even more scrutiny to the particular memberships enjoyed by aspiring leaders.

A Chinese proverb describes this trend vividly: "to hang up a goat's head and sell dog's meat."

A less interesting but more professional terminology would be "false advertising". The possible result, if prestige becomes a plain slogan used to gain publicity, may end up causing loss of face among social elite capable of identifying the differences between memberships.

While enough has been said about face at a personal level, there is another important dimension of face that is interpersonal. You can almost certainly pick up any business book on China and find a paragraph warning you about the consequences of causing others to lose face in public. Public loss of face could easily cause the loss of a painstakingly developed business deal.

When dealing with employees, both saving face and giving face are important in creating an internal culture of respect. In saving face, a seasoned manager would rarely scold an employee in public. Rather, they would find a quiet, private moment to explain to an employee what went wrong and how to improve.

In our view, this approach is neither Chinese nor Western; it represents good management where respect and dignity are taken into consideration. Giving face is of equal importance and it does not have its roots in either Western or Chinese management philosophy. Giving face relates to ensuring an employee or group of employees receive proper recognition for a job well done, and that is our view of building a strong culture.

Companies can also have "face". In the public relations business face can be viewed similar to reputation. And reputation relates to the actions a company takes to win favor among its constituencies.

Recently we had a client who entered into a conversation with us about whether or not they should include corporate social responsibility programs into their overall strategic plan for China. Our response was an unequivocal yes. We argued that companies of today and the future do not have a choice. The actions and decisions they take need to be embedded in what is best for the communities in which they operate.

By doing the right thing, they "give face" to their constituencies and improve their reputations at the same time. By avoiding such things they put their companies at risk.

Today, given the nature of risks that exist in the business environment daily, potential issues and crises can arise at any time. Handled properly, a company can save its reputation, or face, and even perhaps earn even greater respect in the process; handled clumsily, a company risks losing face in the community, and suffering a decline in brand and reputation value.

The concepts of dignity, respect and reputation in our view are neither Chinese nor Western. They are concepts that make for good business sense and the executive who recognizes this are the ones we believe will be first to the finish line.

Scott Kronick is president, North Asia, Ogilvy Public Relations Worldwide. Olivia Fang is the national knowledge manager, China, of Ogilvy. The views do not necessarily reflect those of China Daily.