August 5, 2008 - In a conversation with a few friends today, I was reminded of how large the challenge of managing internal corruption is for home country-based managers operating in China. I heard two stories that dismayed me. Each involves household name multinational companies in China.
In the first, the story comes from a commercial real estate agent who works for one of the largest real estate firms in the world. He recently leased an enormous space (8,000 m2 / 85,000 ft2) to one of the largest companies in the world. The gross commission on the deal was understandably large. However, the agent only received a small portion of the commission. A series of kickbacks was paid up the line. The largest single kickback went to the China head of the multinational. Again, this is a household name company.
In the situation with the second household name multinational, the China manager appears to have engineered an office move for the sole purpose of lining his pockets. This manager is actually not from Mainland – he’s an overseas Chinese. He proposed a move from one of Shanghai’s best office buildings to a sub-par space elsewhere. His pretext for the move was to “save money.” He then billed his employer RMB 2,000,000 (approx. US$ 300,000) for moving and renovation expenses. The problem is that the expenses really only amounted to RMB 1,000,000. The rest of course went into his pocket. The sad thing is I can imagine his bosses overseas beaming with pride at how cost conscious their China manager is to propose a move to sub-par offices in order to save money.
If you presently have, or plan to have, China operations, it is crucial that you take the lead in all transactions involving large amounts of money. In the examples above, the multinationals should have sent someone senior to China to select the renovation companies, movers, real estate agents, and oversee the property selection processes. If you don’t speak Chinese, bring an interpreter from home to help you.