China IIChina is now the world’s second economy and is beginning to show its confidence as it takes the West on at its own games, flexing its economic muscles on the world stage. During my three months in China this summer, the Chinese President and the Premier both indulged in what seemed like ‘investment tourism’ in Africa, the Middle East, South America and Europe – even including a spot of lunch at Windsor Castle. The outcome? Access to resources, technology, new markets and a heightened world profile. Growth has to come from somewhere when you have to provide employment for 20% of the world’s population.

Most of us see China as a fantastic market – and it is – but it’s a slow burn. Relationships must be established and trust built before any serious business can be done. “Relationship is the most important factor in Chinese society” I was told by a senior European ex-pat in a major joint-venture. “Ours is a useful alliance as our partners have connections with the government that we could never develop.” This was echoed by another ex-pat from Asia who was involved in Mergers & Acquisitions. “There are multiple levels of relationships as local companies often have a complex network of stakeholders of their own and when you buy a Chinese company you buy their social baggage as well as their financial liabilities. The power is usually with the seller, there is little information for due diligence and it can get political, even in private companies, because of Government involvement – and you need the ‘blessing’ of all involved”. A Chinese director of a public institution explained: “Everything is done through relationship. You must have connections. You must be invited and be seen to build your relationship reputation” then he added ruefully “that can be more important than the content of what you say”.

Government officials run all of the big infrastructure industries, the media, transportation and banking. Its members also make all the rules, control the judiciary and exercise personal discretion. Many of them are surprisingly wealthy and allegedly hold foreign passports and investments. Nothing is transparent. There are veiled comments about corruption, but such talk is dangerous. The current Government is genuinely attacking corruption at the highest levels despite its vested interests. Much is at stake. In business, bribery is described as “rampant” in the pharmaceutical industry.1 The plight of Mark Reilly, Head of GlaxoSmithKline in China, is a case in point.2 Described by friends as “an innocent abroad” Reilly is being charged with authorising a bribery network and is currently unable to leave China. Theories abound as to the motivation for his arrest – it’s more than halved GSKs sales. Does this demonstrate a shift towards greater corporate governance or is it simply, in the words of a Chinese saying, “killing a chicken to frighten the monkey.”? Either way, as one insider reported “the game is changing and foreigners are collateral damage” or at least, the opportunities for foreigners are.

How does a cool leader handle all this? What if you discover corrupt practices are commonplace in your organization?

  1. Be absolutely resolute in upholding the organisation’s policies regarding corruption even though they emanate from another culture.
  2. Be the whistle-blower yourself and pursue an agreed clean-up campaign engaging both corporate HQ and any local regulators. Yes, competitors will benefit and sales targets will suffer. What price is your organisation prepared to pay? By engaging in that discussion with them they become complicit in the decisions made and the consequences suffered.
  3. Be prepared to be unpopular with your own staff and everyone in the chain who currently benefits – get adequate protection – there is a lot of money at stake. You will also be establishing new long-term relationships and a reputation for fair play but you probably won’t be around to benefit from them. But it could be your legacy.

Late-breaking news: Mark Reilly’s one-day trail, held in private at the request of GSK, has taken place. Reilly pleaded guilty, GKN fired him, overhauled their incentive program, and issued an apology to the Chinese government, doctors, patients and hospitals, deeply regretting everything they could and committing themselves to further investment in the country. The Chinese Government graciously gave GSK the opportunity “to rebuild trust” with them. Reilly received a lenient 3-year suspended sentence and a 4-year probation period. Four of his Chinese staff also received 2-3 year suspended sentences and lost their jobs. Reilly was deported. GSK was fined £300m, the highest fine ever levied against a company, but just a little less than the price of all those bribes to doctors and “non-government officials” in order to keep the price of drugs at a high level.

The price of Western pharma products is excessively high in China. They and Fortnam’s tea were the two most requested gifts for us to take out to our Chinese friends! The SFO in the UK and the US Department of Justice are now investigating similar claims against GSK in Poland, Iraq, Syria, Jordan and Lebanon.

1 Chemistry World 6 Aug 2014
2 Carrie Gracie, BBC China 1 July 2014

Part 2 of 3

Jacquie Drake

Jacquie Drake

Dr Jacquie Drake is Founder of and Editor of the cool-leadership newsletter.

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