How to identify, manage and warn corruption in European companies based in China

On March 27th, 2014 VVR International took part in a conference organized and co-animated by the Global Compact France on the following subject: how to identify, manage and warn corruption in European companies based in China.

Here’s a short resume of what has been said on this topic:
The corruption in companies in China is not a new matter. But, because of the increasing number of their implantation in China, more and more european companies have to face this issue. It concerns all the sectors and all kind of entities: IPO, Commercial offices, production units…

It is important to point out that corruption is not a question of nationality. The environment is the main driver. For example, the corruption opportunities are proportional with the country’s growth rate. In addition, the fact that there is no religion (even if there are thoughts) and no independence of justice is a strong contributor in creating a favorable environment for corruption in China.

The legal Chinese definition of corruption is quite similar with French one as it states that it is a private or public person who will take advantage of its power or position to grow rich. The main difference is in the application of penalties. In China the legal punishment is based on minimum sentences of imprisonment. For example, if a person is accused for bribery of 6000 Yuan (Around 1 000 USD), he can suffer from minimum 1 year of imprisonment. If the corruption amount exceeds 100 000 Yuan (Around 16 000 USD), the sentence is minimum 10 years and can be death penalty in very serious cases.

How to identify corruption in a company?

According to our experience, some clues can let you suspect the corruption of your team or of one person:

  • The prices of components or material bought, are much more higher compared to standard prices or sometimes even more expensive than European prices
  • Some suppliers complain about pressure received by the local team
  • The local team is reluctant to change suppliers or partners saying, for instance, that the current supplier or partner is the best one, without giving any good argument
  • Some big dysfunctions are observed: Impossibility to produce despite of big investment, high non conformity rates at the end of the production or at the reception, deadlines not respected…
  • No report is made by the local team and sometimes it is impossible to get any clear answer

It is interesting to note that the suspicion of corruption may sometimes be confused with some management and organizational dysfunctions in a company.

That is why, in case of doubt, it is essential to ask for the support of an external specialist who will make a diagnosis of the situation. This specialist shall be a Chinese, with rich experience in questioning people and reading between the lines during interviews.
Some solutions, such as launching a parallel sourcing, could also be decided to compare the sourcing results with current company’s prices.

How to manage a corruption case in China?

When a company has succeeded in collecting some proves of corruption, 3 possibilities appear:

  • Say nothing and choose status quo
  • Decide to fire the corrupted person or team
  • Beat the dog before the lion

Some companies will prefer to turn a blind eye because the corruption can be seen by the management as a good way to develop business, especially when it concerns commercial activity, as long as there is not any complaint from client.

Some other companies become prisoner of the corrupted team and are afraid to cut down their arms and come back to a situation of 2-3 years backward in terms of development and turnover.

To fire the corrupted person can be a solution but choosing this way may not eradicate the corruption in its team. Indeed, the rest of the employees will not understand this choice and will not consider it as a punishment, especially in a country, like China, where the fired people will easily find another job within a week. They will understand that, in fact, the risk is minimum for them and it may encourage the corruption.

That is why the 3rd way shall be preferred. Teaching a lesson is the best solution to fight against corruption in a team. Not only will it show the rest of the team that corruption is an important matter that will not be treated lightly by the company, but it will be a strong sign that the crime will not go unpunished as well. European companies often hesitate to go through the procedure of putting someone in jail because they think that it is difficult, long and that it may give a bad image of the company. This is a big mistake as the only way to solve that kind of problem is to be firm and severe.

How to mitigate the risk of corruption?

There is not only one solution and, mitigating the risk of corruption requires a constant oversight from the management. Speaking about corruption only the day of hiring an employee will not protect the company from future reprehensible behavior.

Technically, each employee would have to sign an ethical charter where they will be considered as fully responsible and where a financial counterpart will have to be paid to the company if the corruption is proven.

In cases where the company had to to split off from its corrupted employees, redefining the management processes and identifying clearly the responsibility of each employee by making detailed job descriptions and hiring people accordingly should become a priority. The aim of this approach is to prevent anyone from taking too much power in the company or in the relation with external partners (suppliers, clients, distributors…) in the future. Indeed, the corruption fact is often the result of a person who has become a key player and has therefore a feeling of impunity.

The company will have also to develop some technical tools that shall be frequently used in order to control the integrity of the team.
A permanent exchange will have to be maintained with all employees about this matter. It is important that people understand that they can freely explain their problem or share their experience of corruption attempt with their managers. The latter will have to listen and stay open-minded.

The corruption in Chinese companies is a real plague that can be found at any levels of an organization and is very difficult to eradicate. Being strict and severe by accepting to cut some heads to make an example (even if it is risky), is the only way to be respected by the rest of team and to show that managers do not take corruption lightly. On the other hand, the company must keep the doors open for discussion, don’t hesitate to frequently speak about this topic and keep always an eye on the behavior and feeling of its employees.



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