Arrest of more China Mobile executives swept under carpet

PUBLISHED : Saturday, 21 August, 2010, 12:00am
UPDATED : Saturday, 21 August, 2010, 12:00am
 

Sweep the dust under the carpet, as the saying goes.

China Mobile's management apparently saw no need to tell shareholders about the arrest of as many as five top executives in the past eight months. Instead, it bragged about its profit increase at Thursday's press conference.

The detainees aren't small fry. The company said earlier that its deputy chairman had been arrested, and on Thursday China Mobile chairman Wang Jianzhou confirmed that 'several' others had also been arrested.

Mainland media has reported the 'several' is actually four: two of its eight regional heads, a human resources executive and a No 2 at a regional branch.

Each has either been arrested or fled the country for 'financial irregularities' or corruption. One executive has gone on trial for taking bribes from the company's suppliers, according to Xinhuanet.com.

Other than the removal of the deputy chairman last New Year's Eve, China Mobile has said nothing about the chain of scandal, until Money Matters questioned Wang at Thursday's press conference.

Wang said: 'Recently, there have been activities that broke the law and party discipline. These are individual matters. The authorities are now investigating. I can assure you that these are all personal violations. They have no implication for the company whatsoever, definitely not on our numbers.

'We have conducted a series of measures to strengthen our anti-corruption education. An anti-corruption conference has been held to increase people's awareness. We have also taken a series of measures to improve our internal controls. That will help.'

This is too short and empty an answer to explain the fall of five top executives at one of the country's best-known corporates and the second-largest blue chip listed in Hong Kong.

'These are individual cases,' Wang said. That might be true if only one employee was arrested. But when five senior executives are taken down it suggests something is rotten in the system.

Has the company been plagued, as some in the mainland press have suggested, by a system of regional phone bureaus run by 'regional warlords' given full autonomy in return for profits?

'No implication on the company whatsoever.' I wonder on what basis Wang made that statement? Has an external auditor or adviser been brought in or is this just an internal assessment?

China Mobile is a large corporate able to withstand turmoil. But to say the departure of five top executives has no impact is to suggest there are major redundancies at the top.

And they did not disappear due to illness but because of 'financial irregularities'. In one case, an executive allegedly took bribes from equipment providers. Suppliers offer kickbacks either because their products or their prices are not the best. Yet, Wang is telling us the case has done the company no harm.

By the way, China Mobile promotes 'honesty and integrity' as part of its corporate culture. What do the staff have to say about this now?

Wang said the company instituted 'a series of measures to strengthen our internal controls'. What are these measures? Is Wang referring to the reshuffle at the top of its five regional branches, which the mainland press sees as a way to shake up the power base of the 'local warlords'. Or is he referring to the debate within China Mobile about whether to centralise or not?

Also hanging in the air is the major question of why the company kept silent about this chain of corruption scandals for months.

Two parties owe shareholders an answer - the directors and the regulators.

First, there are questions we'd like to ask the directors. How much do they know about the arrests? What have they done to protect shareholder interests? Have they discussed the appointment of an independent consultant to study the company's internal control system? If not, why not?

Why did they sign off on a 2010 interim report that makes no mention of the arrests and indicates there are no issues with the company's internal control system?

The report said: 'We continue to strengthen internal control and monitoring, focus on the key and different check points in our operation, further refining our management system and imposing the monitoring and assessment function of our internal control.'

Second, the regulators. The arrests were widely reported in the mainland press. Have the regulators questioned China Mobile on that? If yes, why haven't they asked the company to disclose the arrests?

Do they consider the corruption scandals not to be price sensitive enough or that China Mobile is too big to touch?

These are not questions to be brushed aside. It's not just because China Mobile has long been the flag carrier of the so-called 'China concept' in Hong Kong. More importantly, we have had this silence more than once before.

In many cases, a senior executive at a listed state-owned enterprise will disappear. The company will make an announcement that he was removed for 'economic irregularities'. The file is then closed. There is seldom any follow-up by independent directors or regulators whatsoever.

About the only exception to this silence in the face of corruption was the arrest of the chief executive of Bank of China Hong Kong, Liu Jinbao, back in 2003. An independent auditor and consultant were appointed to study the damage and review its internal controls. In that case, the Hong Kong Monetary Authority became involved.

To stay silent on the China Mobile scandals will send only one message: 'Buy China at your own risk'.

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