Podcast The Anatomy of Corporate Hijacking presented by Chet Scheltema
Country of Origin: United States
Title: International Business Advisory Director
Office: Hong Kong Office
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.