Huawei In Bad PR Move With Anti-Corruption Campaign

Huawei internal anti-corruption drive nets 116 workers

If telecoms equipment giant Huawei was trying to convince the world it’s not closely linked to Beijing, then its new campaign to root out internal corruption certainly looks like a bad strategic move. Of course I’m being just slightly facetious, as any good corporation should always be vigilant against corruption within its workforce. But in terms of public perception, this new internal anti-corruption campaign seems strikingly similar to the much larger and high-profile campaign being waged throughout China by the 2-year-old administration of President Xi Jinping.

If I was a top executive at Huawei, I would certainly worry that launching an internal anti-corruption drive at this time looked suspiciously like the company was taking orders from Beijing, or at the very least following Beijing’s lead. That’s exactly the wrong image that the company wants to be promulgating right now, since Huawei desperately wants to convince the world that it’s an independent private enterprise that makes decisions based on commercial and not political factors. But more on that shortly.

Firsts let’s focus on the latest headlines, which say that Huawei’s internal anti-corruption campaign has so far netted 116 employees. (Chinese article) The new drive is actually occurring in Huawei’s consumer division, which officially goes by the name of Huawei Business Group, and kicked off in July. The cases of corruption uncovered so far have involved more than 100 million yuan ($16.3 million) in bribes, which Huawei workers accepted from vendors eager to get the company’s latest smartphones as fast as possible.

Equally common in China is bribery that flows the other way, with manufacturers often paying bribes to their customers. Those customers then order more products and promote those products more aggressively. Regardless of which way the money flows, this kind of bribery is quite rampant in China and is an integral part of the local business culture. .

That kind of bribery got British drugmaker GlaxoSmithKline (London: GSK) in big trouble last year, which resulted in the arrest of several company executives on corruption charges. In that case, an internal whistle blower exposed GSK for routinely bribing doctors and other medical professionals to buy the company’s drugs. The outcome of that case is still pending, with GSK’s China head being forced to remain in the country even though no reports have appeared saying he’s been formally charged with a crime. (previous post)

The GSK saga is a nice angle back into my original point, namely that Huawei’s internal anti-corruption drive seems far too closely timed to the national anti-corruption drive from Beijing to be a coincidence. GSK is one of the few foreign companies to get sucked up into that campaign, which instead has focused mostly on big state-run firms like PetroChina (HKEx: 857; Shanghai: 601857; NYSE: PTR) and China Resources.

While Beijing seems determined to root out corruption at those big, bloated companies, whose top ranks are mostly filled with Communist Party bureaucrats, most of the nation’s private companies haven’t followed with their own similar internal clean-ups. That’s probably because corruption isn’t nearly as big a problem at those private firms as it is at the big state-owned enterprises. But the private companies are also far more independent than their state-run peers, and seldom take their cues from campaigns emanating from the central government in Beijing.

Thus Huawei’s internal anti-corruption drive makes the company look suspiciously like its following one of Beijing’s directives, even if Huawei took the action independently. That’s certainly not a good signal to be coming from Huawei right now, since governments in both North America and Europe are suspicious that the company has ties with Beijing. In the most extreme case, Washington has even banned all US telecoms carriers from importing Huawei equipment over concerns that it could be used for spying by Beijing.

At the end of the day, Huawei should probably be commended for launching this kind of internal anti-corruption drive, since private companies engage in many of the same types of bribery that are rampant at big state-run firms. But from a public relations perspective, the timing and high-profile nature of this internal crackdown seem like a mistake to me, and will only further convince skeptics that the company indeed enjoys a cozy relationship with Beijing.

Bottom line: Huawei’s internal anti-corruption drive may be a smart business move, but its timing will give the impression that it takes its orders from Beijing, even as it denies any such connection.

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