Reference no: EM131458862

Assignment

RECRUITMENT AT CHINA SUNWAH BANK: GUANXI VERSUS TALENT

China Sunwah Bank deputy manager, Chun Zhao, and Li Zhang, head of human resources (HR), had closed their office to go home for the weekend after lengthy deliberations concerning the new appointments to their 28 branches in Dalian. It was doubtful they would rest easy over the weekend as all of their contacts knew their cellphone numbers and most knew that the deadline for the final decision was fast approaching. The final list of candidates recommended for appointment had to be sent to the head office in Beijing at 9 a.m. on Tuesday. There had been more than 4,000 applications received via their website and mail for only 12 advertised positions. Chun, Li and their team had already spent hours reading applications and conducting interviews, as well as receiving specific endorsements for applicants from government officials, friends, former school teachers and other bank managers in Dalian, Kunming and Qingdao. They faced the challenge of making the final 12 appointments, keeping in mind they had to try to respect and satisfy the requests for favours they had received from important stakeholders. They were under pressure as these appointments had to be balanced with the China Sunwah Bank's need to hire the most talented new recruits to meet the drive to create wealth under the Chinese market economy conditions. Li and Chun knew that this would be a tricky process that required sensitivity and skill.

THE APPLICATION PROCESS

Four weeks earlier, China Sunwah Bank had listed a job advertisement (known in China as a recruitment note) for 12 positions on their website and in the national newspaper outlining the requirements for the positions so applicants could access and complete the application form, attach their resumés and submit their applications. Following the closing deadline, the first stage of the elimination process began with the China Sunwah Bank central HR team in Dalian reading all applications and reducing the list to 200. The senior HR staff then examined the remaining candidates with a detailed assessment procedure to eliminate those who did not satisfy the criteria, and finally presented Chun and Li with a prospective list of the top 48 candidates for final consideration and interview. The list contained each applicant's name, sex, degree, university and "just a few pieces of information for the committee to examine easily." From this list Chun, Li and the committee would decide the final 12 candidates who were to be recommended for appointment to a position at the bank. If necessary, Chun would have the power to make any final decisions that he, Li and the committee could not agree upon.

After the HR team had examined all the applications, they informed Chun that some had special notes attached to say "this candidate is important," for example. These notes indicated that these candidates had a relationship and support from a powerful government official, prominent businessman or a senior manager at the bank. Chun told his staff to find the best candidates based on merit, and to leave the applications that had notes attached but did not make the final list in a separate pile.

Although applications were received from graduates from many universities across China, only students from top universities who had graduated with certain majors were considered. Candidates needed to have majored in finance, accounting, power generation, highways or railways, as these were the sectors in which the Dalian branches of China Sunwah Bank conducted most of its business. Applicants studying overseas were only considered if they were graduating from one of the top 100 non-Chinese universities in the world. Many from less reputable universities had already been eliminated.

Some of the local applicants who had not been successful had received a phone call informing them that they would not be getting a position but, for most, there was no notification for unsuccessful applications. All these applicants could do was to call the China Sunwah Bank HR department, hoping for positive news.

If the HR personnel, Chun and Li liked a candidate's application, academic achievement and/or employment history, then this application would be placed on a separate pile. After the final 48 applicants were chosen, they were then required to complete an examination that had a threshold score they had to reach in order to progress further. All those who remained were then contacted to arrange face-to-face interviews. The application, examination results and first interview were then used as reference points of consideration from which the committee would decide who would be interviewed a second time. Seven candidates who were studying overseas made it to the last 48 and Chun and Li interviewed them using Skype. Three were good enough to reach the second interview stage and Chen flew overseas to interview them. Students in the final list were graduating from Harvard University, the Australian National University and Yale University.

SECRETS

The "guanxi"1 concept of relationships was exemplified through the notes that were attached to some applications, which typified the complexities associated with the recruitments process in China. Modern bank recruiters needed to use more effective recruitment methods to eliminate the need to satisfy the requests of powerful stakeholders in terms of hiring processes. The influence of guanxi had long played a role in securing jobs in China; however, modern Chinese bankers, under pressure to make profits and satisfy key performance indicators, were hesitant about using guanxi as a method of determining suitable employees. The reason for this change was that in the past, banks were sometimes forced to recruit employees who were well connected but not necessarily the most productive, talented or qualified applicants.

To try to minimize the probability of this happening, Chun and Li had advertised 12 positions, yet in reality there were 22 positions to be filled. This provided them with the flexibility to make sure that at least 10 of the new positions were reserved solely for the most talented applicants. This ensured the Bank would be gaining some dynamic and talented new recruits, and meant that at least 10 of the successful candidates would have gained their placements based on presentation, merit and qualifications and not on

1 "Guanxi" is a mandarin word meaning "relationships," and referring, specifically, to a special type of relationship that bonds individuals through the reciprocal exchange of favours and mutual obligations. Lucien Pye, Chinese Negotiating Style, Quorum Books, Westport, Connecticut, 1992.

How powerful their guanxi connections were. Of course, confidentiality was critical in this process and both Li and Chun had needed to deny, on several occasions, that any such extra positions existed.

To outside observers, Chun and Li had followed the normal procedure needed to recruit employees by posting an advertisement on the bank's website and in the national newspaper that described the criteria, what applicants needed to provide and how they could submit their applications. As was expected, this open method exposed them to requests for favours from powerful businessmen, senior government members and/or Communist party officials who wanted to secure the job for a friend or relative as "payback" for some previous or anticipated favours.

After the advertisement had appeared, past teachers, friends, former classmates, government officials, private-sector professionals and other bankers had contacted Chun and Li to endorse their candidates for the positions. They knew that positions at China Sunwah Bank were highly sought after and gaining a position at the bank would mean the beginning of a secure career and future in banking and finance.

Only five days after the advertisement had appeared on the bank's website, Chun had received a detailed letter from his former finance lecturer at the Qingdao University, Tang Tan, inquiring about his health and family, and requesting that Chun seriously consider one of his finance graduates who had excelled in her studies. As co-members of the university's alumni, Tang knew Chun would have some influence on who would get these placements and perhaps be able to help his graduate gain a position at his bank. This was a significant letter for Chun as Tang had helped him through a critical and difficult period as a student when his mother had passed away suddenly and his studies had suffered. This memory remained important in Chun's mind and he had always wanted to repay Tang's favour in some way. After receiving the letter he rang Tang to discuss this candidate with him personally and promised that he would look closely at her application.

Similarly, a former classmate and colleague, Zhou Zing, who managed a branch of the China Sunwah Bank in Dalian, called Chun to invite him and his family to join his family for dinner at the five-star Blue Moon Lake Hotel in central Dalian. In China it was traditional that the person extending the invitation pay the cost of dinner, even between close friends, and Chun was a little surprised that they were not going to the cheap noodle restaurant nearby that their families usually frequented. Nevertheless, it was a strategic move: Zhou knew Chun enjoyed eating at stylish restaurants. At the dinner they talked about their time together at university, their families, business and interests, and eventually Zhou came to discussing a candidate he wished to recommend to be considered for a position at China Sunwah Bank. Zhou endorsed his candidate's suitability as a good recruit for the bank. Chun knew he owed his former classmate a favour and his assessment would decide if the applicant supported by Zhou would get a position at the bank. He made a note to look out for the name of the graduate in the list of the last 48 candidates.

In addition, a director from the Department of Electric Power phoned Li with a similar request. Li thought the director may be very powerful and proceeded with caution. As they did not know each other well or directly, Li tried to find out more by contacting his own friends, colleagues or former classmates to search for someone who may know the director well. Two members of Li's "guanxiwang"2 knew the director, and Li arranged to meet with them for dinner to consolidate their guanxi and discuss how to communicate best with the director and consider his request. At the dinner, one of Li's friends strongly supported the director's reputation and suggested arranging a meeting with him to give Li and the director the opportunity to compare respective backgrounds and, more importantly, provide Li with more information to make an informed decision. In this way, the success of the director's candidate depended directly on the strength of the relationship between Li and his guanxiwang, the quality of the relationship between the director and these same people, and the power the director had in the Chinese Communist Party. If these two sets of relationships were strong enough and the director was in a powerful position, then the director's applicant would be strongly considered and would likely obtain a position at the bank. Two days later, Li met the director for dinner and made many notes to ponder regarding his decision about the director's candidate.

Earlier on the same day, Chun had attended a banquet with Mike Gan, senior executive of Helang Appliances in Beijing. Gan was visiting Dalian for two days to look at the company's production plant there. Six months earlier Chun had assessed and approved Gan's application for a China Sunwah Bank loan for US$1.4 million3 for Helang to invest in a research and development plant in Dalian. The banquet was a long and drawn out event and Gan was well known to like to drink a considerable amount during these occasions. Chun was not a heavy drinker but knew he had to participate to give his associate "mianzi"4 and to represent China Sunwah Bank. Chun felt important and respected, as Gan had arranged his position at the banquet next to him directly on his right, thereby indicating that he was the most important guest.

After nearly two hours, Gan started to describe how Helang wanted to multiply its investment in research and development in Dalian with the long-term goal of growing to be one of the top 20 companies in the world. Gan estimated Helang would need in excess of $17 million to support this initiative over the next three years and said he would like to see Chun in charge of their loan management and communications with Helang, the government and officials. Chun heard Gan clearly emphasize the possibility of an excellent outcome for him and for China Sunwah Bank if the large loan eventuated. Just prior to their final farewells, Gan then took Chun aside to quietly express his thanks and to say that he had heard that China Sunwah Bank had recently advertised for new employees; Gan described how his son and one of his son's best friends were looking for such positions following the completion of their university studies. If Chun could secure these two positions, Gan hinted, then he would like Chun to manage the loan from China Sunwah Bank for the research and development centre he aimed to develop.

Driving back to his office Chun reflected that Gan's son must get a position regardless of whether he had high marks or had completed the right undergraduate degree. Gan was an important contact and Helang was an important China Sunwah Bank customer, so satisfying this request was crucial. Chun knew if Gan's son's university marks were high then this would be a justification to ensure he gained a position. Conversely if his marks were below the standard required for the position, Chun knew he would have a difficult time explaining to the China Sunwah Bank executives why he had selected Gan's son; however, if the situation was complicated by the low marks, Chun was confident he could still justify Gan's son's positions to the directors of China Sunwah Bank's central office.

Yet Chun was somewhat perplexed by Gan's request, as the guanxi culture in China did not approve of two requests being made at one time. Making a request for one favour (finding a position for Gan's son) was acceptable but requesting two favours (a position for Gan's son's friend as well) was usually regarded as arrogant and excessive. Still, Chun wanted the $17 million loan to Helang to be realized and thought that he may have to recommend his son's friend to a different bank through another friend, colleague or classmate who owed Chun a favour.

Such requests had been fairly constant for Chun and Li since the China Sunwah Bank advertisement had appeared. Chun had received a telephone call from a former university classmate, Shi Winnee, who was also working in Dalian. Shi telephoned and asked Chun if they could meet to have dinner since they had not seen each other for quite a while. After the introductory exchange of gifts and niceties at the dinner, they reminisced about their university days. Shi then mentioned to Chun that her daughter had just graduated from Dalian University with a major in finance and had sent in her application for one of the positions at China Sunwah Bank. She asked Chun what chance her daughter had of being considered for such a position. Chun gave his standard reply, outlining the duties and conditions of the positions and said that he would try his best to include her daughter in the new employee intake. However, during their parting handshake, Shi handed Chun a "hongbao"6 (red envelope) of considerable weight as a gift towards paying for Chun's son's school education. Chun was embarrassed and passionately refused but after a gentle struggle Shi insisted. Chun was thankful but also anxious since he knew that government officials may misinterpret this gesture as they were focusing on eradicating the practice of managers receiving gifts for favours. He quickly placed the envelope out of sight and made a note to look for Shi's daughter's name in the remaining 48 candidates. He would not open the envelope and thought it best to keep it in a safe place at home untouched until all the appointments had been completed, just in case he needed to give it back.

Chun had also received a call from another classmate and fellow banker, Qin Yong, from the Yunnan Rural Bank. Qin had helped Chun find a place for his cousin's daughter in the Kunming branch of his bank, as well as his close friend's son in the Dali branch a year earlier. Qin was calling to keep in touch, to discuss the recent bank policy developments by the central government and also to see if Chun could repay one of his earlier favours and find Qin's nephew a position at China Sunwah Bank. Their relationship was solid but Chun and Qin both felt that they wanted to consolidate their guanxi so they could rely on each other's help if need be. Their guanxi was long term and they knew in the future they would work together again - perhaps in finding a member of their guanxiwang a job or providing some assistance to improve their banking businesses. They discussed how perhaps one could transfer some deposits to the other's bank for investment or if one was taking on a large new financial project, they could set up a joint venture loan that would improve both of their key performance indicators. Chun thought the new job for Qin's nephew could be traded in many ways. Qin's nephew had completed the correct undergraduate degree and had good marks and so the chances of him gaining a position were good, regardless of guanxi.

It had been a long week for Chun and Li, and the final deadline was approaching fast. They were scheduled to meet the recruitment committee on Monday night before forwarding their list of final recommendations to the head office in Beijing on Tuesday morning. With so many issues to consider, it looked like Monday would be a late night. Who would they choose to be the successful recruits to fill the 12 advertised positions and the 10 that had not been advertised? From the original 4,000 applicants, now only 48 quality graduates remained at the final stage of consideration. All of the candidates in this list had reached this stage based on merit only; the pile of applications with attached notes sat on the table next to the first list. How would Chun and Li satisfy all the requests they had received from members of their guanxiwang and also employ all of the excellent candidates who had no guanxi?

DISCUSS QUESTIONS:

1. In this case, what evidence is there that non-relationship-based selection criteria and processes are beginning to grow in importance in recruitment processes?

2. When Chun, Li and the HR committee sat down to work their way through the remaining 48 candidates to decide who should be recruited, the names of Zhou Zing's candidate, Shi Winnee's daughter, Qin Yong's nephew, Mike Gan's son and his best friend could not be found on the final list of candidates. (1) if you were Chun, what action would you take with regard to these five candidates and why? Discuss the options and likely outcome. (2) If you were part of the recruitment team for a major Western commercial bank, what action would you take with regard to these candidates and why? Discuss the options and likely outcome.

3. Why do you think Zhou called Chun to invite him and his family to meet his family for dinner in an expensive, high standard restaurant in central Dalian when usually they had frequented a noodle restaurant nearer to their home?

4. What should Chun do about the "hongbao" that his former classmate and colleague, Shi, gave him?

5. What is the likelihood that Guanxi will continue to play a significant role in HR selection in Chinese banks as they adapt to the market economy?

6. (1) What are the advantages and disadvantages of granting the Department of Electric Power director's candidate a position? (2) Chun found that Gan's son and his son's friend had not even submitted applications: how could this complicate Chun's decision?