GSK Case Raises China In-House Questions
In late May, Zhao Hongyan was one of about two dozen in-house lawyers who spoke at a conference in Shanghai. Her topic was an extremely common one for such confabs: dealing with corruption issues.Her views on the subject are going to receive much more scrutiny in the weeks and months ahead. Zhao, the China legal director for British pharmaceutical giant GlaxoSmithKline, was one of four executives of the company detained by China’s Ministry of Public Security as part of a probe into whether the company funneled almost $500 million in bribes through 700 travel agencies to doctors and hospitals in order to get them to purchase or prescribe its products. No charges have yet been announced against Zhou and the other executives.The fact that a senior in-house lawyer has been named in the unfolding scandal has raised tough questions about how corporate legal departments operate in China. Lawyers in the market appear divided on whether a lawyer in Zhao’s position would definitely have known about a large-scale pattern of bribery. But all agree that in-house lawyers in China often face great difficulties coordinating with headquarters general counsels while at the same time they feel enormous pressure to help the business side achieve its goals.
“[Many multinationals in China] appoint a local Chinese lawyer that lacks both an understanding of corporate policy and culture, and is someone that can be easily manipulated to step in line with the illicit activities of wayward on-the-ground managers that are under much pressure to capture the markets,” Sheppard Mullin Richter & Hampton Beijing managing partner James Zimmerman says. “The pressures to sell and to sell the Chinese way oftentimes leads to activities that cross the line.”Exactly what Zhao, who also used the given name April instead of Hongyan, knew or did not know, did or did not do, is still unclear. Last week, GSK admitted in a statement that “certain senior executives … appear to have acted outside of our processes and controls which breaches Chinese law,” although it has so far not offered further details. The company last week hired Ropes & Gray to conduct an internal investigation into the matter.
Zhao herself has not been heard from, though another detained executive, GSK China vice president Liang Hong, has been shown on state television admitting to bribing doctors.Most of the lawyers interviewed for this story had not heard of Zhao prior to current corruption investigation. A short biography posted on the website for the conference in which she participated in May says she joined GSK in 2007 and took over as legal affairs director four years later. Prior to GSK, her main experience was nine years as a judge with the Beijing Railway Transportation Court.
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