By Ward Chartier

In the six countries in which I’ve worked, I’ve experienced in my operations or witnessed instances of theft, graft, drug dealing, or false accusations of serious malfeasance.  These occurred in all but one of the countries.  The frequency of such acts was at least twice as great in China, I’m sad to say.  I will relate four stories in which people in positions of trust acted with significant ill will, even treacherously, with no other object than to seriously disrupt business operations.  The actors did not benefit in any way other than to reap the dubious satisfaction of vengeance.

 

The Disgruntled Supplier

My factory made industrial automation equipment.  The most significant of the products was a family of machines that used a combination of electrical, pneumatic, and hydraulic power.  One significant cost component was pneumatic valves and controls of various kinds.  The engineers specified pneumatic components from a particular company located elsewhere in Asia.

In the early years of producing the machines, the engineers established a strong relationship with one of a number of Shanghai distributors for the pneumatic components.  Over close to 15 years the distributor developed deep relations with the engineers and enjoyed their confidence.  When I joined the company the distributor had already been a supplier for over a decade.  Due to a succession of materials managers, my company had never developed a comprehensive professional materials management function.  I hired an outstanding materials director to change that.  One major initiative was to drive down material cost through rigorous vendor selection and competitive bidding.

The new materials director and the purchasing manager he hired started to energetically negotiate with suppliers and sought capable alternate suppliers.  The existing distributor of pneumatic components resisted yielding on price even though his direct competitors in Shanghai offered the very same devices at 20% to 30% less cost.  The materials director and purchasing manager started to buy pneumatic components from other local distributors and eventually cut out the original distributor entirely.

The distributor became incensed at losing the business that he believed he owned.  Business with my operation represented about 35% of his revenue.  The distributor threated my director and manager, and they did not yield.  He attempted to leverage his relationships with the engineers, which had no effect.  Then he contacted my parent corporation’s ethics hotline accusing my director and manager of unethical and unprofessional conduct.

My employer takes professional ethics very seriously and ordered an internal investigation.  My operation had to pay the travel expenses for the team to conduct their investigation at my factory, and I had to deal with the disruption in the materials and finance groups.  In the end, the investigators found no sign of unethical or unprofessional behavior on the part of my director and manager.  The previous distributor wanted to cause us serious trouble; he succeeded, but gained no benefit, financial or otherwise, from doing so.

 

False Accusation of Sexual Impropriety

One morning when reading my e-mail I encountered a message that clearly came through a service that allows people to send untraceable and anonymous e-mails.  The sender accused my plant manager of having an illicit relationship with the saleswoman of a minor supplier, and suggested that money was passing under the table to the plant manager.  To me, these kinds of accusations are extremely serious, deserve rapid and thorough investigation, and must endeavor to diligently protect the accused and the accuser until the investigation is complete.

I immediately notified the human resources director at the division headquarters about the accusation.  We decided to first try to collect specific facts from the accuser.  I replied to the accuser asking for more information.  In spite of repeated attempts, I never heard anything else.

Next, I had very private conversations with both the plant manager and later with the regional sales director who was the boss of the accused saleswoman.  All were shocked at the accusation.  The sales director requested a meeting with the plant manager, the saleswoman, my HR manager, himself, and me.

At the meeting, the sales director explained that he, too, met privately with his employee and was convinced that she was completely innocent.  Watching both the saleswoman and the plant manager, I could see that both were exceedingly uncomfortable and horrified by the accusation.  It was clear to all in the meeting that the accusation had absolutely no merit.  I told the sales director that my company would continue doing business with him and his staff.

Since I kept the investigation and subsequent meeting secret, it is unclear to me what satisfaction the accuser gained.  It was, however, very disruptive to conduct the investigation, and terribly humiliating to the saleswoman and plant manager to be falsely accused.

 

Theft of Computer Components

My factory had 24-hour on-site security.  Two security guards were on duty overnight.  Every hour, one of the guards walked a route through the three buildings on the site while the other stood watch in the guardhouse at the front gate.  After a 3-day holiday weekend, the workforce returned to the factory and discovered that the motherboards and several hard drives were missing from 11 computers used on the factory floor and in the engineering offices.

There was no financial information on any of the hard drives, and the technical and supervisory information would be of limited use to competitors.  The hard drives and motherboards were relatively recent technology, but were by no means cutting edge.  Their resale value would have been minimal.

The facilities manager, also in charge of security, notified the security company and called in the police to investigate.  Suspecting inside collusion, the police publically fingerprinted every employee, including all managers, the security guards, and me.  Unfortunately, the police investigation yielded no results.  The security guards who were on duty over the holiday weekend all abruptly resigned, and could not later be found.

The managers and I could find no reason for there to be a disgruntled guard.  There was no recent history of sleeping on the job, petty thievery, or any other excursion from the guards doing their jobs as they should.  Security guard companies in China are often subsidiaries of the local public security bureau (police force) or other government organization.  The managers of the security guard company said they knew of no reason for the guards to suddenly resign, and could not suggest a reason that the guards might have been in cahoots with the thief or thieves.

 

Accusation of Smuggling

Wise companies in China scrupulously follow all Customs Bureau laws, regulations, and advisories when importing or exporting goods.  It is also very wise to keep detailed records of all relevant transactions in excess of the minimum required by the Customs Bureau.  During audits, if Customs Bureau officers find any discrepancy, the automatic assumption is that someone is attempting to avoid paying Customs duties or is smuggling, both of which are exceedingly serious offenses.  A company engaging in import or export is responsible for its own actions as well as those of any of its customs brokers or freight forwarders involved in a shipment.

My company had an employee of many years who eventually became the import/export supervisor.  Before joining the company, he was with the People’s Liberation Army for several years.  One of the reasons why the company’s imports and exports went smoothly through Customs was because of the employee’s relations with a former PLA comrade who worked in the Customs Bureau.

In China, the usual retirement age for men is 60.  My predecessors offered the employee a series of 1-year contracts to keep him on the job on account of his historical knowledge and his good relations with Customs Bureau officers.  The new materials director successfully negotiated with the employee that after the fifth and current contract extension, the employee would retire.  He did, and he enjoyed a warm parting dinner and celebration.

Several months later, the materials director was shocked to learn that our company was under investigation for smuggling.  The usual process if Customs Bureau officers notice a discrepancy is to pay a serious visit to the company to discuss the matter with the objective of achieving rapid resolution.  This did not happen.  Somehow, the Customs Bureau decided to immediately launch a deep smuggling investigation.

The cause of the investigation is that over a year earlier, a new clerk at my company’s customs broker used an incorrect tariff code for a particular shipment.  The result was that we paid about $2000 less in duties than was required.  Imports of the item in question took place about once each month.  With that one exception, all other imports used the correct tariff code.

Once I realized we were under investigation, I notified my bosses who, in turn, notified the corporate legal department.  The lawyers engaged a team of external auditors to who spent about two weeks examining many months of import and export transactions, and the records of the customs broker and freight forwarder.

Simultaneous with internal audit, the materials director, with help from the corporate office, assisted the Customs Bureau with their investigation.   The Customs Bureau and the external auditors arrived at the same conclusion that it was just the one import for which the tariff code was incorrect, and that there was no pattern of behavior suggesting that any employee of my company was trying to avoid Customs duties or smuggle.  After my company paying a large fine, the Customs Bureau closed their investigation.

How did the investigation even start?  It seems that the former import/export supervisor really did not want to retire and wanted to exact revenge on my company.  He was aware of the tariff code discrepancy due to error made by the customs broker’s clerk but did nothing about it while he was the import/export supervisor.  After retiring, he told his PLA buddy about this error and the dissatisfaction with not having the contract renewed.  Operating within the Customs Bureau, the Army buddy was able to bypass the usual procedures and escalate the situation to the Smuggling Bureau.  Revenge complete.

The cost to my company was well over a thousand hours of effort to deal with the Customs Bureau’s investigation and the external audit, tens of thousands of dollars in direct expense for the fee for the external auditors and the fine, and quite a few sleepless nights.

After all was done, the only advice we received from the Customs Bureau and Smuggling Bureau was to be kinder to our retiring employees.  There do not seem to have been any sanctions leveled by the government against the Army buddy in the Customs Bureau, but we did hear that he retired shortly after the Smuggling Bureau launched their investigation.

 

Conclusion

At various times I reviewed these events with executives in my divisions and companies, and with people having deep experience working in China.  My key question was always the same, “As a leader, how can I prevent these kinds of events?” and there were no strong, actionable answers.  I also asked what my managers and I could have done better to respond to these events.  In each case, the managers and I dropped what we were doing, escalated immediately, and devoted all effort to our own investigations and assisting other auditors and investigators.  The people I worked for said we promptly and energetically did all that we should have done.

For me, the advice to myself is to continuously watch everything with a skeptical eye using every tool at my disposal, and be obvious about it.  Not spying, but very openly checking this and that.  This approach keeps honest people honest but really cannot defend against people acting treacherously with malice poisoning their hearts.

 

 

Ward Chartier worked in high-tech manufacturing operations in 6 Ward Chartier portraitcountries for 31 years, with over 10 years as general manager.  He is presently a principal with TechZecs, a consultancy based in San Francisco.  Ward is also a frequent guest lecturer at universities, and mentors high-potential managers.