Clients in the United States and Abroad

Post by Sandy Swartzberg:

As anyone who has been reading my blog, Conversations with Sam, knows I was lucky enough to observe a very successful law practice and many successful family businesses up close. My grandfather, Samuel Poses, in the fifties began having an international law practice. He represented the Beckman family, one of the wealthiest families in England, and he represented Robert Robinson, one of the world’s leading importer/exporter specializing in fine clothes.

When my family went to India in 1963, we were met by a client or business associate of my grandfather’s at almost every port of call. We were met in Japan by a car and driver of one of the top executives in the high technology sector of Japan. We had an interesting ride back to our boat in a Mercedes on the tracks of a bullet train. When we went to Hong Kong, we were met by Mr. Wein and his associates. In Singapore, we were met by Mr. Penhaus and several of his associates. When we arrived in India, we were met by Ratal Sheff, one of Bombay’s leading industrialists.

My father was an anthropologist specializing in cultural economic anthropology, which eventually led him to write a book entitled The North Indian Peasant Goes To Market. As my father was doing his fieldwork, I spent two years living in a little Indian village. From both my father and my grandfather, I learned valuable lessons about doing business with persons of different cultures, whether in the United States or abroad.

My father stressed the need to understand the culture of the person you are trying to do business with and how your plan or deal fits into the cultural norms of that society. My grandfather emphatically agreed with my father, but made one further point that it is also important that the people you are doing business with from abroad, whether in their country or especially in the United States, understand the customs and the mores of the United States.

As the sixties came to a close and the seventies began, my grandfather’s principal activity abroad was going to Hong Kong and arranging transactions in the United States for Chinese businessmen.

I was lucky enough to meet many of these people when my grandfather entertained them in his home. My grandfather explained that, for a Chinese businessperson, it is very important they get to know you before trusting you with their business. Also, even though they had been raised on the English system of law, which was not entirely different from the United States, the way it was implemented in Hong Kong was significantly different than how it was implemented in much of the United States. At the time, in the world of Hong Kong, the most important thing when doing business was the honor of the person you were doing business with. This far surpassed any legal documents or protections.

When the Chinese businessmen would come to the United States, even if they were not going to live in the United States, they would want to install family members in positions of authority. They did not like to buy anything in which either a relative or a person that owed them an obligation was in a position of power to protect their interest.

Also, the more tangible the asset, the more likely they would invest. All of these steps took time, therefore, when looking at a purchase, the lawyer needed to tell the seller what a reasonable timetable was going to be. However, the good news was, as my grandfather represented any Chinese businessperson, I never heard about a deal that went bad. One of the reasons, I believe, is for the innate caution of the Chinese businessperson; they were willing to spend more money to invest in a very solid company as opposed to trying to buy something on the cheap, which was far riskier.

Blog post by Charles Stone:

The United States is probably about to witness an influx of Chinese investment that Samuel Poses could not have imagined in the 1970s. Sam represented Chinese clients who were from Hong Kong, which was a relatively small colony of Great Britain. Mainland China, which is Hong Kong’s massive neighbor to the north, did not have the financial resources or desire to invest in the United States at that time. It was, in fact, experiencing the Cultural Revolution, one goal of which was to eradicate capitalist influences from Chinese society. Investment abroad obviously did not forward that goal. While the Cultural Revolution never made it to Hong Kong, the political turmoil experienced by Mainland China convinced many Hong Kong Chinese that it was prudent to diversify their holdings abroad. And they did, with Sam’s expert help.

All of this has changed. The Cultural Revolution ended in 1976, and Mainland China has gradually become as capitalistic at the United States. Hong Kong is now a special administrative region of Mainland China, which is now far richer than Hong Kong. It is now Mainland China that wants to invest in the United States, and even its Ministry of Commerce is actively encouraging Chinese businesses to invest in the States so that they may learn how to launch global brands and become more technologically sophisticated.

And yet nothing has changed. If Sam Poses were alive today, the Chinese business practices that he came to understand would still be very familiar. The Chinese still want to get to know you before they do business with you, they still think that trust is more important than a contract, they still prefer tangible assets, and they still prefer to acquire entire businesses instead of minority interests.

But the Hong Kong businessmen who invested in the U.S. in the 1970s possessed one great advantage that comparatively few Mainland Chinese today possess: they understood how a lawyer was expected to function in a Western legal system. Hong Kong was a British colony, and its legal system was based upon British common law. Businessmen in Hong Kong were therefore comfortable with the Western approach to law in which a lawyer is supposed to be a trusted business advisor as well as a lawyer. Adapting this knowledge for use in the U.S. was a rather straightforward process.

Many Mainland Chinese investing in the U.S. today do not possess that advantage. The function of lawyers in China today is much more technical; they are experts at drafting agreements and preparing documents, but generally speaking they aren’t the trusted business counselors that good American business attorneys are supposed to be. Most Chinese businessmen, in fact, don’t use their lawyers as business counselors at all: the businessmen do the business themselves, and the lawyers do the law.

American lawyers, however, play a much more active role. They watch over the entire transaction and try to address issues before they turn into problems. They know that cultural problems cause more M&A failures than any other reason. What key employees must stay with a company if it is going to succeed and how does one persuade them to adapt to the new system? What employees can be let go without hurting the company if they can’t adapt? Even when one American company is buying another American company, cultural problems still cause more failures than any other reason. When a Chinese company buys an American company, this problem is, of course, magnified several fold. If the Chinese businessman doesn’t know that his lawyer should constantly be on the lookout for cultural problems that could kill the deal, and instead uses the lawyer only for drafting and filing documents, the odds of just such a problem killing the deal will increase dramatically.

The good news is that many Chinese businesspeople who are investing in the U.S. today already know that bridging the gap between Chinese and American business cultures is one of their greatest challenges. And they are doing something about it. It was for that reason that I was recently appointed adjunct professor of business at Peking University’s Market Economy Academy. In a previous life, I lived and worked in China for several years, and eventually obtained a PhD in Chinese language and literature. Peking University suspected that I knew enough about Chinese culture to explain why the Chinese were having trouble adapting to American business culture, and that if I could explain what was happening in Chinese instead of through a translator, they would get a lot more out of the class.

So they asked me to teach Organizational Behavior in Chinese to a class of senior executives and business owners, almost all of which were starting to invest in the U.S. or wanted to do so in the near future. I found that even executives who had spent a great deal of time in the U.S. were concerned that it would be difficult for their companies to adapt to U.S. law and business practices. But I also found that all of them were on the right track, all of them were asking the right questions, and all of them made it clear that they were going to do whatever it took to succeed in the U.S.

It will take some time before the Chinese are comfortable with American business culture, but based upon what I am seeing myself today, I have no doubt that they are going to figure this out within a few years. The volume of investments made in the U.S. by Hong Kong Chinese in the 1970s, although still substantial, will pale in comparison.


The comments and opinions expressed in this blog are intended for informational purposes only and do not constitute legal advice. Reading or using the information in this blog does not create the existence of an attorney-client privilege. Due to the changing nature of the law, the blog posts may contain dated material. For an update on the current law and the application of the law to your particular facts and circumstances, consult a legal advisor. The information contained herein is not a substitute for obtaining legal advice from a qualified attorney licensed in your state.