Wherefore Bribery and Corruption: Another GSK Post

August 28, 2013

A lot of folks are talking about the spectacle of expat investigators Peter Humphrey and Yu Yinzeng, who have been caught up in the GSK bribery scandal:

On Tuesday, the couple appeared on China’s central broadcaster CNTV handcuffed and wearing orange prison vests, their faces blurred, admitting to “buying and selling” information in the course of various fraud investigations.

“The information that we had on individuals was sometimes obtained by illegal means,” said Humphrey, holding his handcuffed wrists before the camera. “I’m extremely repentant for this, and want to apologise to the Chinese government.” (Guardian)

Yikes. There but for the grace of God go I. Sort of.

I’m not going to spend time talking about Humphrey’s case, partially because it scares the crap out of me. I would like to point out, however, that I’ve dealt with several “investigation” companies over the years on behalf of clients. Every one of them who claimed that they could do things like perform background checks on individuals (including stuff like police records) were doing so illegally. To be blunt, private companies, and definitely foreign ones, simply can’t offer those services in China. ‘Nuff said.

On to GSK. The fireworks are over for the moment. Some folks are in jail pending adjudication, fines will be levied, and other pharma companies are scrambling around doing internal investigations, hoping that they get their shit together before they hear the knock on the door.

So children, what have we learned? I would like to agree with my friend Dan Harris, who recently suggested in a blog post that the GSK case drives home the point that foreign companies “must abide by the law in China.” I suppose the GSK case does make it much easier for a lawyer to argue that his client better get their house in order (or else). But I’m not so sure this case will make much of a difference.

Why? Human monkey beings love rationalization. For example, I could give you at least 47 excellent reasons why I haven’t written a blog post in a week, but it would all be bullshit. Similarly, I bet your average MNC corporate type out there could give you an extensive list of distinguishing characteristics between her business and that of GSK.

  1. GSK sells drugs, and pharma is a corrupt industry. We, on the other hand, sell widgets.
  2. GSK is a huge organization whose left hand didn’t know what the right hand was doing. Our company is smaller, and we know everything that is going on at all times.
  3. GSK’s internal anti-corruption program was obviously sub-par. Ours is much better.
  4. GSK had some rogue local executives. Our internal audit and HR policies make this impossible.

You get the idea. And don’t think for a second that all those VPs, CFOs and CEOs out there are too smart to fall into those rationalizations. Trust me on this one – I’ve had a lot of clients over the years whose capacity for self-delusion was startling. For a lot of these guys, they will continue with business as usual until the guy in the office tower next to them who is their major competitor is jailed, and even then a change of practice is a 50/50 proposition at best.

My point here is that GSK et al is one data point. We’ve had many others over the years, yet there are still a lot of bad actors out there. In my opinion, MNCs have cleaned up their act quite a bit in the past decade, but it hasn’t been because of periodic China-based crackdowns. If I had to name one thing, it would be FCPA enforcement by the US government. China enforcement campaigns come and go, and private companies (domestic or foreign) will take advantage of the system whenever they can – human nature being what it is.

After all, why do we have corruption in the first place? The same reason people watch porn on the Internet: (let’s all say it together now) because they can. These pharma investigations, or even the unrelated anti-trust/pricing actions that have hit a lot of MNCs, may not signal much of anything, and a year from now, things might be back to “normal.” Me, I’m going to wait and see.

GSK is not at all a watershed moment for foreign investors in China, just another dot on the anti-corruption line that is generally going in the right direction.

One thought on “Wherefore Bribery and Corruption: Another GSK Post

  1. Dee

    Sorry Stan, but I need to say it: Peter Humphrey and Yu Yinzeng and heroes. Yes, some of the services they perform such as helping companies do due diligence by conducting background checks is not legal in China, but those laws (or lack of laws) that disallow background searches are wrong. Yes, they probably had to bribe some people to get that information, but since when is bribery not condoned in China — go down the client lists at BMW or Benz in China and I’m sure a very large percentage of the purchased vehicles were purchased by cash gained via uncomfortable means. Chinese police should be stopping every Benz on the road rather than stopping heroes like Peter Humphrey and Yu Yinzeng.

    Bloomberg.com is blocked in China because reporters were investigating Chinese leaders’ wealth, and now other people along the food chain are being detained and arrested. These are mafioso tactics, but being waged by a sovereign nation — reminds me of the corrupt warlords of ancient China sometimes.

    Previously it was only Chinese lawyers who vouched for transparency who were detained and arrested. But now foreigners are arrested too. This is definitely a scare tactic. And thus, foreign companies should be very very afraid in this type of climate. There is a great instability here and companies are worried. I talked to the China head of sales for a large European marketing firm last week, and they are planning to close down their 150+ person operations in China in January 2014 because costs, risk, and environment are going downhill and the future is hazy.

    These are very unstable times in China. The bubble will not pop, but rather it will cave-in.