Podcast The Anatomy of Corporate Hijacking presented by Chet Scheltema

Presenter(s):

  • Chet Scheltema

    Country of Origin: United States
    Title: International Business Advisory Director
    Office: Hong Kong Office

  • Title: Podcast The Anatomy of Corporate Hijacking presented by Chet Scheltema
  • Date: July 10th, 2014

Chet Scheltema,International Business Advisory Manager, introduces the concept of corporate hijacking and how foreign business can prevent this from happening to their operations in China.

Transcript:

  • Corporate Hijacking
    1. What factors you need to pay attention to about corporate hijacking in china
    — The Key to understanding how a company can be so easily hijacked by local employees is to understand the administrative details of how a Chinese corporation is managed, including:
    how authority and power are dispersed and the company’s points of managerial vulnerability, and also to understand the leverage that local employees have under Chinese labor law.
    — Corporate Seals
    * The authority to manage and direct the resources of a Chinese enterprise is dispersed very differently than in a western enterprise.
    * Authority in a Chinese company resides in fact primarily in the hands of the person who currently holds the company’s corporate seals or “chops.”
    * Everything from accessing the company’s bank accounts to entering into commercial contracts to making regulatory filings requires the use of the corporate seal or “chop.”
    * Yet there is no legal or practical restriction on who may physical control or use these chops
    * Further complicating the situation is the fact that the corporate seals are not easily canceled or replaced when lost.
    — Legal Representative or Chief Representative
    * Authority in a Chinese enterprise also rests with the person who is officially registered with the Administration of Industry and Commerce (AIC) as the Legal Representative of the enterprise, or in some cases a Chief Representative.
    * Legal Representatives carry almost unlimited authority and decision-making power.
    * unlike the situation in western corporations where a decision of the board of directors to dismiss an executive (or “legal representative”) is effective immediately, it may take months to update the records of the AIC and thereby replace a Legal Representative
    * Meanwhile, the individual currently registered with the AIC as the Legal Representative will continue to act with the apparent, full authority of the company and board of directors and shareholders.
    — Terminating an Employee in China
    * Chinese law does not allow an employer to freely fire an employee.
    * The employer must have good cause to terminate an employee or otherwise must pay potentially significant severance salary (roughly two times a capped monthly salary for each year of employment) and may even be required to reinstate the employee.
    * the expense of a legal defense may be high and usually the employer will fail to successfully defend itself.
    — Other Vulnerabilities
    * The control and sustainability of corporate operations in China is also vulnerable to employee abuse in other ways.
    * Access to and control of the company’s financial records and bank “tokens” is one obvious example.
    * Access to and control of key assets is another.

    2. How to prevent
    — "Don’t put all your eggs in one basket"
    * Practically, proverbial advice to not “put all your eggs in one basket” is highly apropos at this moment.
    * Designing a hijack-proof Chinese company involves dispersing the points of power and authority and also dispersing responsibility for the points of vulnerability of a company in such a way as to prevent their abuse by any one person or group of persons.

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