Chinese academics say ZTE case should kill old notion of ‘breakable contracts’
More Chinese companies should examine their compliance practices in the wake of ZTE saga if they want to expand overseas, academics say
The ZTE case has exposed years of negligence and should ring alarm bells about what rigorous compliance really means at Chinese companies hoping to expand overseas, say several Chinese business academics.
Although companies have boards and even a Communist Party branch in place, many fail to uphold the core tenet of corporate governance – which is the “spirit of contract and compliance”, said Gao Minghua, director of the Corporate Governance and Enterprise Development Research Centre at Beijing Normal University.
“Breaking a promise is a big taboo in international society, where laws and rules are stressed and any violation shall be punished accordingly,” said Gao, adding that the ZTE incident exposes deeper roots of the “Chinese way of doing business” which can involve off-the-books communications and bargaining with authorities.
A debate has been stirred after US Commerce Secretary Wilbur Ross announced on Thursday an end to sanctions against ZTE, in an agreement that includes a US$1 billion penalty for the Chinese telecom equipment maker and the installation of a US-selected compliance team at the company.
The US Commerce Department imposed the export ban on ZTE in April after it was found to have breached the terms of a previous settlement, by paying full bonuses to employees who engaged in the illegal sales of equipment to Iran, failing to issue letters of reprimand to those employees, and then lying about it to US authorities.