Cultural traditions do not excuse banks’ rule-breaking
By Patrick Jenkins
JPMorgan investigated over hirings in Hong Kong
What is corruption? What is operating pragmatically within the parameters of a foreign country’s cultural norms?
The distinction has been an issue for as long as international trade has existed, but all the more so since the US Foreign Corrupt Practices Act was passed in 1977. For banks – scrutinised more closely than any other sector following the financial crisis – the focus is particularly sharp these days.
Just ask Barclays and JPMorgan Chase. The UK lender remains under investigation by regulators over the terms of its 2008 capital raising – a probe that involves the bank and four of its then executives. One of those men, Chris Lucas, resigned as finance director last week, on the grounds of ill health. Barclays has also been investigated over its business dealings in Saudi Arabia into which a criminal probe by the US Department of Justice is under way into allegations the bank paid illicit fees to a son of King Abdullah.
Lately, attention has swung from the Middle East to Asia. Over the weekend it emerged that JPMorgan was being investigated by the US Securities and Exchange Commission over two of its recent hires in Hong Kong.
In contrast to the issues Barclays faces in the Middle East, which are directly financial, the case against JPMorgan appears far less straightforward, stemming as it does from suggestions of improper personal influence.
Again, though, cultural traditions can be problematic. Across Asia, it is common practice to hire relatives of important officials or company bosses to help break into the region’s tight business networks and compete more effectively with rivals.
In China, amid a business world long greased by the “guanxi” system of personal connections, the hiring of so-called princelings – the offspring of top Chinese officials – is particularly competitive. For foreign banks seeking to squeeze as much business as possible out of China’s slowing growth prospects, these are vital conduits to business mandates.
It is unclear whether JPMorgan has gone further than others or whether there has been any wrongdoing.
Certainly other banks have made more high-profile hires. Margaret Ren, the daughter-in-law of former party chief Zhao Ziyang, is chairman of Bank of America Merrill Lynch in China, and was earlier at Bear Stearns, Citigroup and BNP Paribas.
Another former Merrill China boss was Wilson Feng, son-in-law of the former head of the National People’s Congress, Wu Bangguo. Both bankers generated important privatisation business.
Similarly, Credit Suisse employed Levin Zhu, son of former premier Zhu Rongji, and now head of China International Capital Corp, while Alvin Jiang, grandson of former president Jiang Zemin, did a stint at Goldman Sachs.
The JPMorgan probe appears to relate to business it secured after hiring two bankers – Tang Xiaoning, son of Tang Shuangning, a former regulator who is now head of financial group China Everbright; and Zhang Xixi, daughter of a senior engineer at the railway ministry.
JPMorgan has worked with both Everbright and the Chinese railways, but there is no glaring evidence of special favours. On China Everbright’s planned Hong Kong listing, for example, the US bank ranks only as a bookrunner behind joint global co-ordinators CICC, China Everbright Capital, Morgan Stanley and UBS. If, however, the authorities do turn up proof of wrongdoing at JPMorgan in China – or at Barclays in the Middle East – they should take a hard line.
Tight networks and special favours might not be unique to Asia or the Middle East. China’s “guanxi” tradition has parallels in the City of London “old boys’ network” and some US practices such as the diaspora of Goldman Sachs bankers into public policy and business.
But there are important differences, too – a Goldman CV is less in favour these days, and was always transparent anyway, while the City’s reputation for cosiness is outdated. Most important of all, corruption in parts of Asia and the Middle East – whether financial or in-kind – is especially iniquitous because of its impact. Power in many of these markets is concentrated in the hands of so few unelected individuals that single unchecked decisions can have far-reaching multibillion-dollar consequences.
Some bankers and officials may see that as an opportunity. It is not. A clearer line has to be drawn between cultural tradition and criminality. Regulators in China and Qatar should be rooting out wrongdoing as eagerly as western authorities – in the interest of both the banks and the future appeal of the markets themselves.
The above is the article from the FT. Below are my comments relating to it.
I’ve attached an article from the FT from a couple of days ago which raises an interesting point of discussion….when do cultural behaviours become unacceptable in the eyes of others?
The article is primarily focused at the employment, at various international investment banks, of young men and women who have seemingly important relationships through their parents at the top of corporate and political power in China for reasons of influence. A number of reactions to this:
- It seems extraordinary to me that we in the West still think that we are the ultimate arbiters of what is and what isn’t acceptable from a corporate behaviour perspective when all around us lie the embers of businesses which demonstrated precisely the opposite, and where it seems we have abrogated responsibility for good corporate behaviour in terms of the policing of this to auditors and government regulators…and judging by the continued rise in corporate and personal fraud, this does not seem to be working so well.
- The ‘holier than thou’ feel of this article seems particularly abhorent when this practice takes place all around the world and whilst more subtle perhaps in the US than in China, the purpose is identical…to gain some influence.
- If this is representative of a view in the West, we still seem to be missing the point! Relationships which are at the heart of any successful business are not built from ‘target operating models’, ‘mission and vision’ statements, good corporate governance…organisations do not work according to the organisational design and the reporting lines seen on an org chart…and the job descriptions of most employees do not reflect what it is that they do! Relationships are based on trust which is almost entirely intuitive and does not use corporate heirachy as a key criteria…it’s an inconvenient truth but a reality nonetheless.
Any comments and thoughts about this would be welcome….it’s a debate which needs to happen as capital flows from east to west begin to dominate.