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Amitava Chattopadhyay


Amitava Chattopadhyay
Emerging Market Multinationals - Amitava Chattopadhyay


corruption

Reputable global giants like Danone and GSK face bribery charges. What happened? What can they do?

First GSK and now Danone, the Chinese government has leveled bribery charges against both these organizations.  Indeed, according to Reuters the Chinese Security Ministry has stated that “Executives of British drug maker GlaxoSmithKline PLC in China have confessed to charges of bribery and tax law violations after initial questioning by Chinese police” while CCTV has claimed that “an unidentified former Dumex sales manager as saying the company had paid medical staff at a city hospital in Tianjin to promote its products.” 

Conversations with senior managers familiar with China and the spate of corruption charges suggests that, in many cases, the companies accused of corruption are equally the victims of corruption.  One example of how some of this was happening is quite informative.  Consider for example the following typical example: A sales representative claims s/he wants to host a sales event in a relatively remote part of the country to boost sales there, for say hospital nurses. The event is claimed to be held and the sponsoring company receives a bill for the venue, the expenses for getting all the nurses to the venue, for the food and beverages, the fee and expenses for the expert who has been brought in to speak, etc., etc. In other words, all the typical expenses that one might expect for such an event.  The company accepts and pays the bills in good faith as it is difficult to monitor each event, particularly those in more remote locales.

 In reality, no event is held!  Receipts are issued by the travel agents for air tickets, by the caterer for the food and beverages, by the expert for their fee, and so on.  All the hypothetical participants gain because the money is shared. The event sponsoring company does gain in as much as the product does get promoted in the hospital from where the nurses supposedly came, but it loses because it is oblivious to the fact that no event ever took place, and no brand gets built up. The next fake event by a competitor will eliminate whatever sales are achieved. 

Given that moneys changed hands, bribes have technically been given, and the involved companies are liable for the charges that are now being leveled against them! The sales representatives, travel agents, hotels, caterers, etc. however, are laughing all the way to the bank! Well, perhaps not all as some will pay for their behavior as a result of the current investigations, but the vast many are.

So, is there a solution?  One interesting cause of the problem is the ubiquitously accepted sales compensation model.  That is the sales person receives some 50% of their compensation as salary and the balance 50% for meeting targets.  Importantly, the targets are revenue sales targets. This sows the seeds for tempting sales people to undertake the illegal practices that the companies are now accused of.  Given that most companies, including the likes of GSK and Danone that we reference above, require their sales representatives to invest a significant amount in educating the channel partners, one solution could be to, on the one hand, reduce the level of bonuses compared to fixed salary and, on the other, offer the bonuses more on the education and other services that they are to provide.  In effect, I am suggesting a process based bonus rather than an outcome based bonus, along with a significant reduction in the proportion that is variable. 

A second possibility which could go hand in hand with the first suggestion is that the companies could start looking at a new breed of salespeople.  Instead of the typical young person they could perhaps look at an older group of individuals that may have fewer job prospects and thus will have less of an incentive to jeopardize their current jobs particularly given a stable job that provides a long term and stable income potential.

These are some thoughts and I am sure there are many other ways for dealing with the problem.  However, what is clear is that companies in China, and indeed elsewhere in the world, need to think about compensation models that are less vulnerable to being gamed by less scrupulous employees which may cause companies with impeccable reputations and the best of intentions to have their names dragged through the mud and sullied.


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