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JPMORGAN: Doing Business With China's Elite

Monday, Nov. 18, 2013

JPMorgan Chase is under the gun again, as investigators are looking into the bank’s dealings in China. Between 2006 and 2008, JPMorgan partnered with Fullmark Consultants, an obscure consulting firm in Hong Kong, “to promote activities and standing” of the bank’s operations in China. The problem? Fullmark’s executive, operating under the alias, Lily Chang, is actually Wen Ruchun; the only daughter of Wen Jiabao, who at the time was China’s prime minister in charge of overseeing its economy and financial institutions. Throughout the partnership, JPMorgan secured a contract as an underwriter for China Railway Group’s public offering, a company overseen by Ms. Wen’s father, as well as held a stake in the private equity firm, New Horizon Capital, which was founded by Ms. Wen’s brother. While JPMorgan has not been accused of any wrongdoing, the bank has a history of pushing the boundaries of the Foreign Corrupt Policies Act, which prevents companies from offering anything of value to foreign officials to gain an improper advantage in retaining business. Is hiring well-connected people in China just another “cost of doing business” overseas, or is this an ethical failing on the part of JPMorgan’s top brass?

  Patrick: Maybe it’s just me, but the line between bribery and strategic partnerships seems to have all but disappeared. Did JPMorgan enter into a contract with Ms. Wen to utilize her familial connections? It sure seems that way, but isn't that what we all do? If you've recently undertaken a job hunt, you know full well the premium that LinkedIn puts on “connections,” and who wouldn’t ask their well-connected relative for an introduction? Nepotism is a real danger here, but we must also acknowledge that if business is about building relationships, we have to expect firms to act accordingly.

  Kirk: It’s no surprise multinational firms are hiring the sons and daughters of influential officials, not just in China, but in any area of operation for the company. Particularly in China, business is largely predicated on the development of relationships, often involving the mutual giving of favors. As in this case, the danger is when firms take shortcuts in developing these relationships. The cultivation of authentic relationships is the solution here. It’s not easy, and it certainly takes time, but it’s the line that firms must walk when conducting business overseas.

JPMorgan's Fruitful Ties to a Member of China's Elite (NY Times)

A Framework for Thinking Ethically (Markkula Center for Applied Ethics)

 

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Comments Comments

Reinhold Schlieper said on Nov 22, 2013
It's difficult to determine the ethics here. As a fan of Korean historical drama, I am under the impression that powerful families ran business in that region of the world for millennia. It's difficult to go against the folkways of a region; on the other hand, one should not exacerbate matters by playing that game better than the natives or selling out to the system altogether. It's important for western companies that operate in the region to hold fast to their own principles in dialog with the culture. Compromise seems OK; selling out goes too far. I do not see any clear lines of demarcation, however. - Like - 1 person likes this.
Patrick Coutermarsh said on Nov 22, 2013
Reinhold, great comment. There's definitely a tension here between the home country's norms and those of the area of operation. Pragmatically, it seems to come down to adapting to the area of operation's norms as much as possible, provided there is no fundamental ethical disagreement, while staying within the bounds of the law. --Patrick - Like
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