by Katherine Xin and Heather Wang for Harvard Business Review, June 20th, 2011.
Editors’ Note: This fictionalized case study will appear in a forthcoming issue of Harvard Business Review, along with commentary from experts and readers. If you’d like your comment to be considered for publication, please be sure to include your full name, company or university affiliation and email address.
The room was already packed when Liu Peijin walked in. His flight from Shanghai to Chongqing had been delayed, and he’d fretted about missing the training. But fortunately he’d gotten there in time. Liu knew his presence was important. As the president of Almond China, he wanted to show his Chongqing colleagues how much he cared about the topic under discussion: ethical business practices.
Taking his seat, Liu nodded at the head of HR, who was running the training. The two went way back: Both had been with their German parent company, Almond Chemical, since 1999, when it first established operations in China. Since then Almond China had set up two joint ventures with local partners — the only way foreigners could do chemical business in the country. One was a majority ownership — Almond controlled 70% of the stock. The other was the Chongqing business, in which Almond had a 51% stake and the Chinese directors, representing Chongqing No. 2 Chemical Company, were very active.
Liu sat next to Wang Zhibao, the vice president in charge of sales for the joint venture. Wang had a skeptical look on his face. He was good at his job, having closed several key deals that had kept the business afloat during its early years. But he was also at the center of a conflict between the joint-venture partners: The Chongqing executives were increasingly vocal about how difficult it was to operate according to European standards, particularly the rules against gifts and commissions. Such incentives were commonly accepted in China and routinely employed by Almond’s competitors. Trying to do business without them, Wang argued, was foolhardy. “This is China, not Europe,” was his refrain.
But the line between these practices and breaking the law was a fine one. As a company headquartered in Munich and listed on both the Frankfurt Stock Exchange and the New York Stock Exchange, Almond was required to adhere to the U.S. government’s Foreign Corrupt Practices Act (FCPA), which specifically forbade the bribing of foreign government officials by U.S.-listed companies. (continue reading… )