Effecting strategic dismissals of senior management

By Tracy Liu and Larry Lian, Jingtian & Gongcheng
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When penalising or dismissing senior management found to have violated disciplinary or corporate rules, employers often need to formulate and implement a more meticulous action plan than that required for ordinary staff. This is due to senior management’s special status within the company, their potential influence over the company and other employees, and the risks that may arise from mishandling such situations. Having advised many multinational companies on the dismissal of their senior management in China, the authors would like to share their experience and practical suggestions in designing and enacting such action plans.

THE PREPARATION

Tracy Liu, Jingtian & Gongcheng
Tracy Liu
Partner
Jingtian & Gongcheng

After being tipped off on a senior management member’s violation, companies often need to conduct lengthy internal investigations to lock down relevant facts and evidence. Handling of employees’ personal information is inevitable during such investigations. In some cases, they also require the engagement of third parties such as investigative agencies or law firms, or the cross-border transfer of information, such as to an overseas parent company. With legal requirements ramping up for personal information protection, companies should take measures to ensure compliance in the handling of personal information during investigations.

Senior management members often hold important company property such as official seals, financial seals, business licences or permits, and key business contracts. Companies should therefore confirm the whereabouts of such properties beforehand, and preferably recover or move them without alerting the senior management member concerned.

Given their critical positions in the company and departments, preemptive consideration should be given to succession candidates, work handover and transitional arrangements. Specific company or department staff may be included in preparing and implementing the action plan, as long as secrecy is maintained. With their co-operation, the company and department stand a better chance of a peaceful transition, lessening the effect of the senior management member’s departure.

Designing the action plan is a critical step to its success. A well-designed plan should include not only basic information such as a timeline, a location, participants and steps of operation, but also contingency plans for unexpected situations.

For example, for an action plan to proceed, the senior management member in question must show up on the planned date. In practice, companies tend to procure the senior person to appear at the right time and place with an unsuspecting pretext, however things don’t always go according to plan. If the person refuses to show up, leaves in a fit of rage, or otherwise acts aggressively, what would be the most appropriate response? To the greatest extent possible, these scenarios should be deliberated and included in the action plan, along with corresponding strategies going forward.

In addition, companies should anticipate various different directions and results of the negotiation. Alternative legal documents that may need to be delivered to, or signed by, senior management members should be prepared in advance, such as a unilateral termination notice, a mutual termination agreement, or suspension notice.

DAY OF ACTION

Considering the likelihood of one day having to confront the senior management member in a labour arbitration or litigation, it is advisable to conduct an investigative interview before announcing the dismissal or initiating the negotiation, so as to further obtain evidence favourable for the company. Participants of the action plan should determine in advance the scope of interviewers and their respective roles.

Larry Lian, Jingtian & Gongcheng
Larry Lian
Counsel
Jingtian & Gongcheng

In many such operations, external lawyers are engaged to lead the interview, who can draw up a list of questions based on findings of the preliminary internal investigation. In the course of the interview, lawyers tend to put the interviewee off his/her guard by using a host of communicative tactics, such as granting feigned advantages or diversion, with the goal of inducing them to let slip their misconduct or even confess their wrongdoings.

As demonstrated by many cases handled by the authors, even if the interview fails to achieve the optimum result of a confession, employees, even senior management, tend to make mistakes, making contradictory or illogical statements when caught unprepared for an unexpected interview. These records may prove highly useful in future judicial proceedings.

While a parting of ways is the common theme of all such operations, the manner of the senior management member’s departure varies significantly. In some cases, companies are inclined to procure a voluntary resignation or a negotiated mutual termination, after taking comprehensive consideration of the results of preliminary investigations and interviews, the senior management member’s degree of fault, and internal and external ramifications of a unilateral dismissal. This requires careful planning and conducting of exit negotiations.

THE AFTERMATH

Given the senior management member’s influence among employees, the authors recommend companies to prevent them from unnecessarily staying at the workplace or further communicating with other staff. If handover of work and property cannot be completed in a short time, companies may arrange another time and place for this purpose. Furthermore, to prevent excessive general speculation, discussion or disturbance in response to the senior management member’s departure, companies should timely inform their staff by offering a well-prepared and well-rehearsed explanation.

Externally, news of the departure should also be properly conveyed to relevant clients and business partners. If the senior management member in question was a legal representative, director or supervisor, the company should timely conduct business registration changes and other related procedures such as changing the bank seal or information on certain licences or permits.

As a unilateral dismissal significantly raises the likelihood of a subsequent arbitration or lawsuit, companies should especially pay attention to aggregating and preserving existing evidence, and further collect other necessary facts and evidence with professional assistance from lawyers so that all bases are covered for a potential lawsuit.

Tracy Liu is a partner and Larry Lian is a counsel at Jingtian & Gongcheng

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Jingtian & Gongcheng

34/F, Tower 3, China Central Place
77 Jianguo Road, Beijing 100025, China

Tel: +86 10 5809 1026

Fax: +86 10 5809 1100

E-mail: tracy.liu@jingtian.com
larry.lian@jingtian.com

www.jingtian.com