China -- Start Lawyering Up

Those of you in China or thinking of going there, I have two words for you:  lawyer up.

These are the words every lawyer loves to hear (come on, admit it), particularly when spoken by a very knowledgeable non-lawyer.  And when that non-lawyer is Shanghai management consultant extraordinaire, Andrew Hupert ... well, let's just say it has not taken me long to heartily pound on the drums.   

In a just released post, entitled, "Unions and Lawsuits and Bears. China HR policy shifts," Hupert talks about the broad significance of Wal-Mart's recent unionization.  Weaving in Dell's recent China problems and lawsuits (for more on Dell's China problems, go here, here, here, and ), Hupert concludes by suggesting foreign companies in China invest in a lawyer.  Gosh, sure is hard to disagree with that. 

Hupert, like so many of us analyzing the recent unionization of Wal-Mart (go here, here, here, and here for more on this) sees it as a broad shift in China policy:

You should view the Wal-mart unionization story as a sign of a broad shift in Chinese HR policy and regulation, rather than as a specific or isolated case of government meddling.

Hupert sees this broad shift as further fueling China's nascent "sue the foreigner" trend:

Prepare for a wave of 'rich foreigner companies are cheating me' lawsuits, not unlike the one Dell is having. In Dell's case, the company really screwed up and violated the law. But even though Dell made a settlement ' the lawsuits and the bad publicity keep coming. Community justice has always been the style here, and technologies like web logs, camera phones and e-mail just make it more interactive and satisfying.

Hupert rightly points out how literal the law can be in China (and most emerging market countries) and emphasizes the need to specifically contract to prevent problems: 

You need to make sure that next time, the guy doing the suing isn't your ex-sales manager who you just fired for selling your client list to a competitor.

'Did you ever specifically tell him NOT to sell your client list?' No? Then you may have. Did you ever specifically tell him NOT to sell your client list?' No?  Then you may have a problem on you hands. And then the blogs and the newspaper photographs. The lawsuit may be of no merit, but it serves everyone's purposes ' everyone's but YOURS.

Fortunately, Hupert does not leave us without a road map for seeking to prevent endless litigation (is there any other kind?):

DiligenceChina.com Advice: If you are already in China and have been hiring for more than 6 months ' invest in a lawyer or HR specialist and make sure you know the laws and are in compliance. Spend extra attention on any case or issue that involved someone telling you, 'oh, but no one really expects you to comply with that regulation''  (See Special Chinese Methods). You may want to have a specialist do this, as HR laws and regs in China can be complex ' and involve many levels and branches of government.

If you are NOT already in China or are considering a big increase in your China exposure, re-examine your HR and Financial plans. Make sure you are building in adequate protection and compliance. (I.e.: Is your HR Manager also your 25 yr old personal assistant?) Get your local lawyer and accountant involved in the conversation.

This is definitely the time to get your HR house in order. It is only a matter of time before we start seeing Dangerously Disgruntled Employees. In America, you worry about them showing up with a shotgun [or a lawsuit]. In China, you worry about the web log [and the lawsuit].

I previously posted on how foreign companies need to be ahead of the legal curve in terms of following Chinese law.  In another post on China's new securities laws, I blogged on how foreign companies are prime candidates for lawsuits in China because they will be held to a higher standard than Chinese companies:

The same holds true with respect to various business standards in China.  Western firms would be wise to adhere to the stricter United States or European standards whenever feasible.  The Chinese law and courts will likely eventually be getting every bit as strict as the United States, Canada, and Europe, and the standards China applies to foreign companies will always be at the high end in any event. 

Or, as Hupert puts it, do you really want to listen to those who are telling you "no one really expects you to comply with that regulation?'