A China Compliance Diary
Updated: Aug 19, 2021
When my supervision (probation) ended in January 2017, the US District Court in DC released my passport, and I could once again travel internationally. And with that milestone, a note of thanks to all the international event organizers, from London to Shanghai, that have been so patient and cooperative in bringing in my experience and perspective, over the past three years, to events via satellite uplinks and live studio feeds. As to my first international trip in what’s been about seven years, it was to China, with visits to Beijing and Shanghai, addressing law firms, multinationals, and cross-industry compliance groups. And before taking that flight, I tried to study up on current compliance challenges in China, while getting briefed on the culture, the economic environment, and of course, issues pertaining to local customs. Having not been to either Beijing or Shanghai during my work in the defense field, I wanted to immerse myself in what to expect as much as possible.
And for that, a special thanks to Dan Harris, www.chinalawblog.com, who was incredibly generous in sharing his viewpoint and experience in getting me up to speed on what to expect when it was wheels down in Beijing.
While in today’s compliance environment, we see a very robust debate on what the new administration might mean for anti-bribery compliance, the new ISO standard, and the recent DOJ “Evaluation of Corporate Compliance Programs” memo, those weren’t on anyone’s “what keeps me up at night” moments in China. Yes, those are all meaningful topics for the field of practitioners, but from conversations at graceful Buddhist restaurants (with thanks to my hosts for indulging my vegan preferences) to live engagements and panels, much of the focus was on the “what happens when local customs conflict with the rules” dilemma. And that’s not to say that there’s an inherent conflict in China between ethical business practices and commercial success, but in an emerging market environment, with a young, dynamic and engaged workforce, the challenge is daunting, and not to be ignored.
The Importance of Defining Success
Compliance programs in China, like anywhere else, address the importance of lawful and ethical conduct, but during my seven days in-country, I saw a profound focus around “how to execute on both values and objectives,” in an environment where people are extremely focused on success, and the rewards of success. This desire to succeed manifests itself in a way that’s much different in an emerging economy than in a developed one. Employment with western based brands are coveted jobs, and commercial teams are anxious to demonstrate their ability to execute on financial objectives – in other words, to succeed. But that goal driven model often widens what’s a cultural and operational disconnect between the support functions at HQ and those forward based teams which are deployed in less supervised locales. And you can’t bridge those gaps with compliance paperwork and contracts.
So, it’s often left to the compliance team to work as partners with commercial leaders in order to define and embed success in a way that’s deeper than quantifiable commercial objectives, and to do so without ambiguity. If that sounds easy, it isn’t. It also becomes more complex in cultures where people might feel more reserved and apprehensive about speaking up where there’s tension between objectives and ethics. Encouraging commercial and compliance teams to talk about those tensions together was one of my goals.
As one leader paraphrased, “apply your values to business goals,” and if there’s a conflict “talk about it so we can come up with a solution.” I witnessed an inspiring leadership recognition that from the field, compliance, ethics and commercial objectives can be confusing, with an incredibly humbling message of “we understand that, so let’s untangle it together.” And much of the messaging was geared towards middle level management, where leaders were tasked to create and sustain an environment where they could support their teams to be successful by operationalizing ethics and values.
One executive called on mid-level leadership to be “servant leaders.” That really captured my attention, as he empowered his executive teams to push power down into the organization instead of up. As defined in The Center for Servant Leadership, a “servant-leader focuses primarily on the growth and well-being of people and the communities to which they belong. While traditional leadership generally involves the accumulation and exercise of power by one at the “top of the pyramid,” servant leadership is different. The servant-leader shares power, puts the needs of others first and helps people develop and perform as highly as possible.” Yet another reminder as to why it’s so exciting to be back in the field- these are the business practices that one can only learn via immersion, and you don’t get that from the home office.
As to some more of the challenges, yes, anti-corruption was a big part of it, but not the only part. In China, corruption can intersect a work-force in both directions, as bribe payers as well as receivers. Commercial personnel who are responsible for dealer, intermediary and distributor networks might be subjected to requests for bribes, passed through those third parties to government officials- a set-up that’s familiar. But in China, employees are also exposed to the receiving side of corruption, as dealers might want to curry favor with respect to discounts, product allocations or marketing allowances through corrupt offers.
In an environment which is based on relationships and hierarchy, that’s a complexity that might be hard to appreciate it unless you are in front of it. It’s much more than anti-corruption compliance, it’s about ethical conduct in a broader sense, on hours and off. And those offers don’t come, or they don’t start, with brown bags of cash or numbered off-shore accounts. A dealer offering his beach flat for a holiday weekend to an employee might seem innocent enough, until a situation arises where that dealer might need a special allowance or discount. It’s a peril that often hides under the radar of friendship and association. It’s part of what I called on the FCPA Blog as the “dangerous charm” of third parties. After all, who likes to say no to a friend?
What I saw was an appreciation and focus on how to develop a commercial workforce free of conflict of interest, and how to inspire commercial leaders to embrace their roles as brand ambassadors. And those efforts were backed up, including my own experience, with a “you can’t hide bad conduct behind your third parties,” and “what you don’t know can hurt all of us.” We spent a lot of time sharing with the workforce how they have an obligation to know the values and integrity of the people they do business with, and not to switch their ethical radar “off” after the third-party vetting process. In China, with state investment and divestment in industry and commercial entities, risk can quickly change over the life of a relationship.
In sum, those are just a few of the elements to which I was honored to engage. Having spent the better part of ten years living and working overseas 250 days a year, this was my first visit to mainland China. It left me wanting more, to return, and to read more about China’s role in today’s global economy along with their internal struggles as to how that gets implemented. China’s experiencing what I heard called the “new normal” where the period of exponential growth is slowing down, creating yet new challenges for commercial teams to succeed in a tightening marketplace. It’s a fascinating place, I found it personally contagious, and privileged to play some role in how to engage and inspire commercial and compliance leaders to work together as each other’s ambassadors.
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