Loyalty, Fear, and Laziness

As the economy cools down, resist the urge to retain employees who stay out of fear, and increase your proportion of loyalists.

It’s no secret that modern corporate America owes no allegiance to employees (save executives) but what’s been a bit slower to sink in is that the new worker feels the same way right back at them. In fact, some corporate moves, such as elimination of training, use the results as justification to exasperate the cause. Gamification and other ‘measurable methods’, such as personality testing, etc… are trying to make up for what could be achieved through transparency, leadership, and development of soft skills.

Here’s where China’s otherness can play to your advantage: while China has its own HR rules, you’re likely not bound in the same way as you are domestically at the corporate level. So rather than rely on the fad-derived opinion of some disproportionally powerful director with no hard skills or sense of your business, you can just do what works. Of course if you have an HR superstar, take advantage of it, but my experience is that field is still lagging even at otherwise progressive companies, to say nothing of application in a foreign culture.

A lot has been made of high turnover in China. However at companies doing it right turnover is remarkably low, and was even during the most frenzied growth. I’ve failed more than succeeded at poaching some top performers, despite promises of promotions and massive raises.

Let’s get one thing out of the way: you have to pay competitively. There’s no employee you want who will stay at 30% below market. There’s no trick, no combination of benefits, that can statistically bridge this gap.

Of the three, I’d rather keep the loyal and lazy over the scared. Why? Because workers who are afraid are unpredictable, and here I think I’m in line with modern thinking that can value reliability over even short-term incremental gains. Things scared employees do: take another job on the side (maybe even with a competitor), put up even higher barriers to communications, sabotage morale, steal, lie, disengage.

To clarify, by lazy I mean those who may have a malaise on the job, but don’t feel enough pain to either rock the boat or look for other work. I don’t mean those who can’t show up on time. And by afraid, I mean those who feel their position, status, prestige, or income are in jeopardy.

One advantage of a slowing economy is it gives the ambitious a wider tolerance band to wait for you to get your act together, and it gives the scared more willingness to listen to your overtures. Even the loyalists will appreciate the relationship more as they see the hardships their friends endure. The point is, you have to do what it takes to earn their loyalty. I’ve posted on how before, but this is carried on best by your local champions, supported by corporate.

Because China had a massive skills gap similar to our post-WWII boom, you have a situation a lot of near-retirees (should) appreciate: many hold jobs they’re essentially unqualified for. And like in the US, the good ones rose to the challenge. On both sides of the Pacific these people have something in their hearts you can’t buy: they recognize they were raised up by the grace of their employer.

They, unlike most of the new workforce, will tend to consider the company’s long-term needs ahead of their immediate bonus. They will organically create an environment that attempts to pass on the same ethic. The magic is that in China, these people could be in their 30’s, and you could get another 20-30 years out of them. If you don’t have any, now is also a good time to develop some.

The key is not to turn that loyalty into fear as you strive to apply your modern management theory. Just like they learned whatever hard skills they needed 10 years ago, they need to approach it like a problem to be solved and skill to be learned, not an attack on their position, ability or character. ‘Matrix organization with Chinese characteristics’ may be  order of the day, as they color things for local application, dynamically adding value so they’re not being 100% dictated to.

And in turn, giving them freedom, whether that’s for payroll, training, or team building, will allow them to take advantage of the slowdown to swell your ranks with the people you want, which will inevitably show up in whatever metrics you’d like to apply.

New leadership

Cultural change will never be more possible than just after firing your GM

The most common problems that need addressing under poor leadership are typically:
– establishing a collaborative performance culture
– encouraging initiative and eliminating fear
– professional development
– addressing other needs of employees

This is quite similar to issues in the West, but interestingly enough, you can manifest change far quicker in China if you have the right program and rapport established. I would say this is due to a pragmatic, younger workforce serving their self interest with less baggage and more optimism on tap. It’s not Confucianism.

Much will ultimately be accomplished via your new GM, but I encourage you to prioritize the EQ and human element ahead of functional expertise, which can ultimately be bought.

Establishing a collaborative performance culture

For all the rhetoric and stereotype of Chinese working well together, you may find after a little digging that this is far from true. In my experience the most common reason is the same as anywhere else: they’re too busy rushing through their own job to appreciate anyone else’s point of view. What’s frustrating is that even at the manager level, there can be little capacity for the big picture, and so it becomes the function of a few senior managers or your foreign team.

Rather than sit everyone down in a meeting, it’s more efficient to have your foreign/senior team map your processes, analyze what’s best, then walk the managers through your findings and thought process. Even if it’s glaringly obvious all the problems are in a few holes, unless you plan on firing those department heads, you can’t communicate it as such. Further, the departments will also not appreciate being made out as stupid even if it’s entirely their leader’s fault. Remember to resource the departments correctly as workflow changes.

For staff functions, you can probably call it a day at this point. For line functions, you need to tie their fates together while preserving individual motivation.

A huge issue with sales is a lack of information sharing. This true everywhere in the world, but when commissions affect not how often you go out to eat, but whether you can buy meat this week, it takes on a different character. It’s going to drive finance and those who are used to managing by data crazy, but the easiest solution is to raise commissions when multiple sales staff are involved so no one feels cut into. Though they understand all boats rise through cooperation, nothing will change their behaviour faster than seeing it in their daily transactional life. Only after the culture has really changed and they see the benefits through the year-end bonus should you think of going to a more standard model.

Related to this is making sure your own team is sharing information across the Pacific. China can be an afterthought even if they are half your revenue. Every time you wish your Chinese team were more proactive in communication, think about how much they are kept in the dark in turn.

By the way, don’t forget the sales support staff in incentives. Whether that’s upselling, keeping complaints down, throughput, what have you, nominal bonuses and recognition go a long way in reducing their hatred of what the sales guy is promising. Even better, often their performance is quite measurable.

You may be having problems with CRM use. It’s its own issue issue, but I tend to tie this with expense reports. Trip/visit reports, CRM logs, whatever your sales discipline is, nothing will get these filled out faster than expenses paid pending completion. BTW I’d recommend paying expenses out bi-weekly at the slowest. It’s just a huge cash flow burden that they can’t absorb the way your US employees may be able to.

Encouraging initiative and eliminating fear

By now you think you’re a genius with all the issues you’ve uncovered and resolved. What no one has told you is many of your staff have the same or better recommendations, but are used to keeping their mouth shut out of fear of their supervisor’s wrath. Even when your supervisors are good, there is still a cultural propensity to keep their mouth shut. It has to be actively encouraged. And nothing is more encouraging than a red envelope full of cash. The key here is to make it come from the supervisor. Reward her and the employee. Make her look like the magnanimous visionary. She’ll find she wants to match the reality to the image.

Ever never get to the bottom of exactly who screwed up? That closing of ranks can be managed, but the issue is there’s no path to improvement. You have to absorb a lot of mistakes without consequence before people start taking risks and speaking up. That can be hard to do especially in lock down mode, but look at it this way: it’s been going on the whole time with no benefit. Why not make it work for you in the long run? That means getting closer to the bottom of it with no airing of laundry or chastisement, but a private acknowledgement, advice or plan with encouragement to keep moving forwards. Time, rapport, and an ability to speak Chinese are the only way to get there.

Professional development

If your GM ran things very Chinese, chances are your staff are under trained. Whether that’s technical, English language, sales training, nothing will get more confidence that you’re here to stay and interested in them than providing training. The ones who don’t care? Fire them. By and large, Chinese professionals are thirsty for knowledge of all sorts.

More critically, develop their leadership potential. A recent HBR article points out that leadership gaps and soft skills is one of the biggest problems in the workforce today. I see that all the time in the US, but in China it can be worse. I would rate many senior managers as barely supervisors in their leadership and managerial qualities, especially if you’re trying to run a global operation.

Addressing other needs of employees

Once you open this up, expect a flood of requests, but you should investigate the overall quality of life of your staff to make sure your policies are reasonable. Whether that’s paying expenses on time or adjusting holiday policy, realizing that minor inconveniences can be huge obstacles may help you establish a healthier more focused work force (and make you more leftist?)

Also, making sure they are properly equipped…well-lit work stations, AC, cell phone expenses, vehicle subsidies, etc… Many Chinese-run companies put much on the employee that would not be acceptable in the US. Just because you can doesn’t mean you should.

Take care of them and they will take care of you, by and large. It’s true everywhere, but when operating in a country where you’re so easily taken advantage of, why ask for it?

Compliance

Post transition get ready for inspections

As a parting gift, your GM or one his cronies may play informer for non-compliance. Worse, he may inform his pay-off buddy the well is drying up. Here are the big ones:

Labour contracts: If your contracts are not up to date, you can be subject to many penalties. Sometimes after 3 successive contracts, they enter an ‘open’ state, which makes termination and negotiation difficult. Check with your local labour lawyers. Great chinalawblog post here.

Get a handle on everyone on probation immediately and do a proper review before their contracts pass to permanent status. If you let these pass, you’ve just added considerable headache later.

Chinese work contract

HR Manual. Know it for options on firing and compliance on your own rules.

There can be all kinds of hoops to jump through with finding alternate positions and GROSS violations before terminating someone. Incompetence is not necessarily strictly valid, especially if they’re off contract. You can assign a manager to janitor, so getting rid of her can be more annoying than long-term (it still can seem interminable to you). But what about the janitor?

On a practical level, many employees are ignorant or misinformed about their rights. They also are practical themselves unless you’ve turned it into a personal fight. It’s about the payout. But compliance is still necessary.

Overtime and pay: Hopefully you have an OT policy and actually pay it. There are however, strict OT caps at 36 hours/month. You may end up paying a penalty, and there’s no good way to avoid it. It’s really about planning to get into compliance in the future.

There’s also other issues such as the hot temperature subsidies that you must comply with. One note, don’t get suckered into paying it if you provide comfortable office conditions–it’s then about making employees happy, and convincing the local authorities of your exemption. (Good post on that here)

Software: Only a sucker or large corporation pays for software in China right? That’s certainly still the prevailing attitude. IT’s function is often not compliance but advanced piracy. Prepare for them to come calling. (article on Microsoft plans here) You probably have a relationship in the US or EU with these vendors. They can be a resource to help clear things up, but they’re also an avenue to come collect.

I advocate for compliance, but some advice for those who insist on doing it the China way: set aside funds and tally a ground-zero license requirement. Factor in a certain degree of back payments/penalties. They may go for as much as 22%/year/license plus penalties. You can usually negotiate, but if they decide to play hardball you can be in a tight spot if their relationships with the local business bureaus happen to be sufficient to lower the boom. Further, you need to demonstrate credible action: if you leave any hint in public that you’re knowingly trying to duck the fees, they can sniff it out and it can turn antagonistic fast.

Environmental & Regulatory compliance: If you emit or dispose of any hazardous waste or are subject to any specific regulations, get a jump on it. Make sure you follow rules stated in your internal manuals, particularly regarding safety. ISO can not be worth the paper it’s printed on, but if it’s valuable to your business, you should do a review. Product quality programs are probably most valuable to your operation and reputation.

Taxes: China can seem fanatical about collecting taxes with as much control and little efficiency as possible. (Article here on 发票 fapiao, or tax receipts.) However, if any money was being hidden, it may come out now, either from ‘anonymous sources’ or your own forensics. Just going to have to pay and fix it. This applies to import/export too.

VAT fapiao

These are some of the things that you may have to do by law. Next week I’d like to address what you may want to do because it’s just good leadership and how you right the ship.

First week priorities

Establishing control after dismissing your GM

I harped a bit on the legal rep issue and business office registration before, so I’ll focus on some other aspects now:

Personal seals/chops: Your GM may have used his personal seal for some admin functions. Make sure everyone who will have similar functions has one, and that your company chops are in good condition. There can be several chops in the company: the legal chop (法人章 farenzhang), company chop (公章 gongzhang) , financial chop (财务章 caiwuzhang) etc…

Company seals

Banking: Make sure the right people are registered to have corresponding authority at each of your bank accounts. Getting your GM off the accounts (you know about) shouldn’t be that tricky as banks will err on the side of caution. Getting new people on can be harder and take time. Fix all your banking issues, even for small and dead accounts now, while the legal rep is in country. A cultural note here: your staff may tell you some things are not priority in order to lighten the work load. Inevitably something terribly important comes up later and you don’t have time to fix it because you went back home and are unreachable on your deep-sea fishing charter.

Spending limits: Your GM may have distributed authority, but in a smaller outfit it’s very likely she signed off on every bill. You want to set a clear policy with your Chinese accounting team on who can sign off on what to a) distribute the admin nightmare b) get a more granular view of the organization via relevant department heads. For example, your US buyer can take over raw materials purchasing and your engineering manager takes spend (training, hardware, software) for that department.

Accounts Receivable: A huge problem in China. You need to put together a picture of what’s not collectible, how much is on credit, and what’s been ‘paid’ via banker’s acceptance (承兑汇票 chengduihuipiao). I may write a short post on this later, but your bookkeeper should be able to fill you in on the problems related to this. You may need to set some firm policy right away to stop accepting low-quality ones.

Banker’s Acceptance plus transfer. Many are not worth the paper they’re printed on.

Accounts Payable: A lot of foreign-owned companies pay their bills, but if things are starting to go sideways, this is an easy place to hide. Moreover, you need to figure out what are patronage accounts: contractors, outsourced functions, projects, consulting, etc…all may be friends of your GM. Worse still, with kickbacks baked in. The rumour mill should turn up a lot of info on this. (maybe a post in the future on how to better tap into it) Bring someone from Chicago: they’ll be able to sniff it out even with the language barriers.

Petty cash & scrap: Find out what’s paid/received in cash and why. Find out how the scrap/waste is sold and where the money goes. A common way to pocket money, a good friend of mine has been threatened more than once trying to bring things above board.

Pocketing scrap metal could double even your GM’s salary

Inventory: No one’s going to like it, but everyone will understand it (what does that tell you?) If you can, take a physical inventory. If possible, do it on a weekend, and have your whole foreign team help out. What are the controls on high-value, easily traded goods? Tighten it up at the expense of some efficiency until you’re able to address it comprehensively.

HR: You need a temp org chart ASAP, and present it to everyone. Err on the side of taking too much responsibility with your foreign team to give you flexibility later. Start compensation and contract reviews immediately, as well as tallying up overtime hours. Compliance headaches are going to materialize soon (next post). Get your department heads to at least give an oral review of their key staff. It tells you as much about them as their team. Make sure your foreign team is included in any team building, even if they just sit there not understanding anything. It still builds rapport.

PR: Get ahead of this. Without a replacement it’s going to be hard to sell it as a normal transition, but if you can paint it as the GM moving on with your blessing at least you have messaging. DO NOT SHUT DOWN EVEN FOR ONE DAY. One photo of your place shuttered with workers outside and you’re toast on Weibo and other networks. Plus a pretty good way to get trapped inside by your staff, who will no longer believe you have plans to stay or pay them.

Image Management: A general issue, but your whole team is going to be particularly on display during this time. My main advice here is: suck it up and work twice as hard as anyone there: first in, last out. There is definitely a perception that the foreign masters are fat, ignorant cats who put in 6-hour days and find it a hardship. Don’t show up in state of the art filter masks if your whole team is working smelting rare earths with a wet towel over their face at best. A couple weeks won’t give you black lung, but can definitely burn Zoolander into their memory forever.

Don’t be this guy.

Pulling the trigger

Tactics and preparation for letting go of your general manager.

So you have your board resolutions, banking info clear, retained a law firm with China experience and affiliates, drafted a severance deal, a forensic accountant on board perhaps: time to plan your trip over.

Timing: go near the beginning of the month so you have time to stabilize before bills and payroll come due. Ever seen a million RMB? I have because I once helped take out a grey-market cash loan to make payroll because we went mid-month and couldn’t access the accounts in time. Do it Monday or Tuesday, and have lots of lunches and dinners with the staff throughout the week.

Holding 2 bricks of 100,000 RMB.

Who goes: The legal rep, controller, legal, managers with good relations with staff, especially if there’s a diagonal-line relationship, and as much executive as you can spare. You may need to get local translation assets in place for such a large team. If you’re privately held, as many stakeholders as possible.You have to both fill a massive leadership void and convey confidence that you’re doubling down, not pulling up stakes.

At this point, if you still think he doesn’t see it coming, book everything yourself, make sure visas are all good from a previous trip, and advertise the trip as a small team for normal review/relationship building. Include the legal rep and person with firing authority on the ‘official’ itinerary. If you’ve tipped your hand the important thing is to get on the ground ASAP.

Here you may feel how unprepared you really are. Do you even know how to get to the plant without the company driver? Your local consultants, be they lawyers, accountants what have you, can help. The unannounced team can be meeting with them while the official party moves on to meet with the GM.

Have you decided on a transition period or to escort her out the building? A promotion to SVP of international corporate identity? Depends on the relationship and situation. However if you’re afraid of shenanigans and don’t have a locally capable asset to constantly watch what she’s doing, you may have to make it abrupt for safety, and also to lift the pall of fear off the local staff.

Regardless of the deal, the main point is that the payout doesn’t happen until you’ve verified you have full control of all accounts and other administrative functions. Also make sure China HR requirements are met in addition to corporate governance. I’m assuming you’re offering much more than necessary, but she may still want time to confer with her resources. Make it clear she’s leaving the building today either case. This is tricky, because you may not have all the legal firepower, but you have the practical power, so as long as you’re not antagonistic you should be able to get her out. Wait it out if you have too; don’t even have security touch her unless she’s belligerent.

If she’s fundamentally playing ball, while I urge you to keep your guard up, you should have a reasonable path ahead of you. Mainly watch out that who she’s recommending really has the goods and is not a patronage appointment.

So I’ll continue assuming you escorted her out of the building at about 4:30 PM. Standard deal, email, cell phone, etc…cut off. Have a good understanding of how your IT works so they don’t have remote access. That includes making it clear to your personnel who they now work for. If she controls the corporate WeChat, QQ, etc…make sure that’s transitioned.

Don’t hide. Make sure the bosses sort of walk her out as she says goodbye, along with someone who understands what she’s saying. Keep an eye on her cronies the whole time. Video coverage is good. I’ve seen people steal laptops and samples on their behalf. Smile and make it seem as mutually beneficial as possible. She’ll have no incentive to make it worse. Shake hands outside the building and wish her well if you feel that’s what she wants. If she wants to anonymously disappear that can also work for you, but be wary as to why. Assign someone on your team so she can come back and pack her things after everyone else has left unless you can do it for her.

If you don’t have security, consider temporarily hiring some or lock the place down at night with someone manning front desk during the day with the nerve to keep her out.Your staff likely won’t. An expensive but convenient option for Westerners to work with would be someone like Hill & Associates who will do local contracting for you as well as give practical advice. Your call on whether it’s necessary or not. If you don’t really understand the overall situation, it may help you sleep better.

At 4:45 assemble the factory and release a statement with a translator, delivered by the highest-ranking owner. Main points are pretty standard copy but here you go:

– Mr. xxx has taken us through an incredible period of growth, and we appreciate all he has done
– We feel that in this next phase of development a different skill set and background will better serve the company and our prospects, and wish him well in his next endeavors in a new industry (because with what you paid him, it included a non-compete right?)
– Many of you are worried about the changes (read terminations). We will be evaluating things from top to bottom and expect a period of continued change until we achieve stability (You know more is coming down the pipe. Be up front and honest about it; it may help things settle faster.)
– Our search for a new general manager is well underway, and we hope to announce that shortly
– Our vision is greater co-operation and support between our entities. Respecting your local needs and sensitivities but making us a more globally unified company, and to be the number 1 company in our field.
– We are NOT reducing investment, but expanding, which is why we have decided a new kind of leadership is required. There will be opportunity for advancement and training, so let your managers and directors know your ambitions. We are also offering cash bonuses for ideas that save the company money or make more revenue.

In the meantime, daily business will continue, with reporting temporarily working like this: xxx

Make sure there’s an org chart. They love and respect org charts, and understand that temporary promotions can’t turn into demotions later without trouble.

You need senior leadership to stay on the ground for a few reasons:
– Continuity and confidence
– Assess what is lacking that your new GM has to bring
– Sort out the admin and legacy

A lot of information is going to shake loose, and you need as much of your staff there as possible to absorb it. So next time let’s look at the first two weeks after.