Ensuring your top brass is squeaky clean

One of the hottest topics in China's HR community right now is leadership. HR professionals across the country are currently striving to identify individuals with the talent to fill management roles and to drive their organisations forward. However, many organisations are in such a rush to identify and to acquire this type of talent that they may overlook one vital consideration. Those occupying senior management roles are in the position to have a massive effect upon your organisation. Any negligence or wrongdoing can have a huge impact on your organisation and the employees within it. So, it is vital you have a legal safety-net in place to ensure the impact your senior staff have is wholly positive.

I am sure this is something about which you and your organisation will certainly be very concerned. Therefore, listed below is some advice on how to control the behaviour of senior managers based upon Chinese law.

Define ‘Senior Management'

In my introduction above, I have actually jumped the gun a little. Before we can discuss the behaviour of our senior managers, we must actually establish what we mean by ‘senior management.' So, let's make sure we have everything clear. According to Chinese law,

‘senior management' includes: the general manager, deputy general manager, chief financial officer and the secretary to the board of directors of a publicly listed company. These are the standard positions we define as ‘senior management'. However, it is important to understand that all organisations are different and have different structures. Therefore, we must examine

senior management on a case/by/case basis. This means that, on occassion we can expand the scope of the term depending on circumstances and an organisation's specific needs. Therefore, some companies also list their chief technical officer, chief legal affairs officer and several other positions. The key principle here for you is to establish exactly who you consider ‘senior management' and what their responsibilities entail.

Examine moral and credit status

Once we are clear on who we are dealing with in terms of senior management, a great next step is to look into the background of your existing and prospective senior managers. This is a particularly pertinent issue when you are recruiting for your most prestigious positions, or, if you are looking to promote existing employees into higher positions. By examining their credit and moral history, you can gain valuable insight into your high/ranking employees and the way they are likely to behave. If their records are clear, your organisation certainly faces far less potential risk.

Here are a list of issues you should explore before you appoint a new senior manager, and regulations you must follow if you are dealing with a senior manager who is already in place. Chinese law stipulates that managers who: (a) have committed fraud and are within five

years of the completion of their sentence (b) were personally liable for the bankruptcy or closure of a company in the past three years, or (c) have a large amount of outstanding debts, cannot be appointed or serve as a director or senior manager of a company.

"By examining their credit and moral history, you can gain valuable insight into your high/ranking employees and the way

they are likely to behave"

Clarify duties and liabilities

Chinese law stipulates that directors and senior managers must execute their organisational duties in good faith. This means that they must not exploit any work/based relationships to (a) damage company interests (b) misappropriate company funds (c) loan company funds (d) provide guarantees without permission (e) enter into transactions with your organisation (f) personally exploit business opportunities created by the organisation, or (g) disclose company secrets. If your senior managers engage in any of the activities listed above, the proceeds should belong to the company. Therefore, it is vital you outline boundaries in terms of work duties and outside interests.

To protect against this, shareholders can stipulate detailed clauses and procedures in organisational regulations to limit the power of senior managers. For example, organisations need to establish strict rules for important issues such as the use of company seals. Another important issue here is labour contracts. For senior managers, it is important to stipulate liabilities on breach of contract. The organisation must also sign confidentiality agreements with senior managers who are privvy to commercial secrets and sensitive information. In some cases it is also advisable to include non-competition provisions if necessary.

Supervise behaviour

Even though your directors and senior managers are at the top of your organisational pyramid, they still need to be supervised. You must stipulate people to have this supervisory responsibility

and who must be entitled to inspect the company's financial records. These can be, for example, internal or external auditors. Crucially, though, they must also have the scope to demand

directors and senior managers alter their behaviour if their actions are deemed to be damaging to the interests of the organisation.

Protect legal rights through litigation

The above snippets of advice will certainly help to ensure your top brass is squeaky clean. However, if this proves not to be the case, then your organisation must make provisions for

recourse. Chinese law allows for an organisation and its shareholders to protect their rights through litigation. If the behaviour of directors and senior managers causes your organisation to lose money, its shareholders must take responsibility and bring a civil action on the company's behalf....... Of course, this is a last resort!