Eight Signs Your Man in China Might be on the Take (5 of 8)

This is the fifth in a series of eight real world examples of how western companies, some of them my clients, learned that their ‘man in China’ was on the take.

In this series of “Eight Signs,” I suggest that you keep an eye out for behaviors and circumstances that could indicate that something is amiss in your organization.

Please treat these items as signs of potential trouble, not proof of wrongdoing.  If you notice several signs adding up, you should begin to be even more vigilant, giving everything a second look.

In the beginning…

Again, this is something that tends to grow out of the rush of market entry and then is lives on without too much thought until…something blows up.   You’ll say this is piddling stuff, the sort that little companies get into, that big sophisticated companies have plenty of safeguards and crosschecks against this.  Sorry.  Size doesn’t matter.

 Think again

This example comes from a friend, author and former executive recruiter at Heidrick & Struggles, Lawrence Allen, from his experience that led to writing his book, Chocolate Fortunes:  “What it doesn’t say in the book is that the new team RAPED the company. The Marketing Director & Finance Director set up dummy companies and paid money into them, then got it out of the country. They falsified sales…including VAT reporting. Changed product date codes to show expired product as fresh. The Marketing Manager alone was reported to have run off with $ 500,000 or so to the UK where he and his wife completed their Masters degrees.

“A manager from US headquarters was sent out to clean up the mess.  We had lunch in Shanghai one day, and he told me all about it — distributors and marketing service companies, suppliers, ripped off for hundreds of thousands of dollars of unpaid marketing obligations (unpaid promoter fees, ads, etc.), with no way of verifying a thing.

“It took the company two years to clean it all up. In the meantime, their products disappeared from shelves 2004-2005. Literally disappeared.”

Precautions you can take

So. Have you hired an entire team or drawn several key management members from the same company?  Be extremely careful if you have!  Do you know exactly where loyalties lie in your operations among these managers?  Well, you may think you do but you can’t possibly really know, and therein lies the danger.  Half the problem in China is not knowing what you don’t know.  Hence this checklist.

What can you do?  Simple.  Never ever take an entire team no matter how tempting or convenient.  Hire one person at a time, each independently vetted.  If you’ve already hired several executives from the same company, take precautionary steps by ensuring that their reporting lines don’t foster collusion (another checklist item, see blog post 3).

Sorry to say, you must at this point assume something is already amiss, begin internal audits, and put in place extraordinary approval, reporting, and other internal structures to protect yourself and your company against malicious activity by a group, not just an individual.

In my experience, western senior managers tend to underestimate the potential for misbehavior in China (reread the example above).

If you answered yes to this question, put a tick in the box and quickly move on to the next item.  This one item alone should begin to make you quite uneasy…

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