Uh oh. PR trouble is brewing for McDonalds and KFC, which have been accused by the Chinese media of underpaying their Chinese labor. From the AP, via the China Daily:

McDonald's and [KFC owner] Yum Brands Inc. spokesmen in China responded by saying their companies abided by the law but were seeking clarification about regulations for part-time workers, especially for students.

A spokesman for the Guangdong Provincial Labor and Social Security Department said officials were looking into reports from workers and local media that staff in the fast-food outlets were being paid up to 40 percent less than the local minimum wage.

"If those foreign companies are actually violating our labor law, they will definitely get punished according to the relevant laws and rules," said the spokesman, who like many Chinese would give only his surname, Zhang.

"Those foreign companies." Gotta love the sharp line drawn underneath the foreignness of the (possibly) offending companies. Might take people's minds off of the ruthless exploitation of migrant laborers that happens all across China. Not that global brands like McDonald's and Yum should use an appalling lowest-common-denominator as their yardstick, especially in China where foreign brands are under more scrutiny than ever. But a little perspective is good.

It is not reassuring to see that companies are "seeking clarification about regulations for part time workers" at this stage. I realize that China's regulatory environment can be inexact, but this might have been something to look into before hiring people. 

The story is based on an enterprising bit of investigative journalism by the Guangdong-based New Express newspaper. While the AP story is relatively straight-up, the China Daily has courteously also published its own, much weepier version of the story, quoting liberally from the source article:

What can a part-time Chinese employee of McDonald's afford by his hourly pay?

Only two small ice creams, which are valued at four yuan (US50 cents).

Yikes. If that doesn't get the blood boiling, I don't know what will. It's the equivalent of 640 yuan a month, which is by anyone's math pretty small beer. I had a lamb wrap for dinner tonight that cost 12% of that (I'm in the office late) and now I am awash in bourgeois guilt. I have a sudden urge to smoke a Gauloise and wonder at the hopelessness of it all. And there's more:

Zhu Yongping, a Guangzhou lawyer, has begun to move for the rights of employees.

He told the paper that the work contracts have 'seriously violated' the legal rights of employees.

A Lin, a McDonald's employee in Guangzhou, regarded McDonald's as a respectable foreign-funded enterprise before starting to work there. But the working experience has changed her mind.

"I don't have enough rest. It seems that I was overly exploited."

Indeed. Me too. I feel for ya, lady.

But here's the thing. As the article points out, at four yuan an hour, workers at McDonald's may well have been paid under the legal minimum wage for Guangdong. By three mao an hour. Yes, the article says that the Guangdong minimum wage is a munificent 4.3 yuan an hour, or 688 yuan a month. But don't get smug, thats better than Beijing (550) or Shanghai (650), perhaps reflecting the oft-reported labor shortage in the Pearl River Delta. Or just the general miserliness of Beijing and Shanghai.

Not that a 3 mao shortchange excuses McDonalds and KFC. In fact it makes them look even more venal and cheap. Seriously? All this trouble for three friggin' mao an hour? Of course that assumes that they actually did anything wrong and that this whole story isn't just based on a rounding error.

In fact, I have no idea if McDonalds or KFC has done anything wrong and, pending the outcome of an official investigation, I don't think anyone else does either. But the perception is being created either way, and from what I can see in these stories, neither company is doing itself many favors with its public remarks:

Cui Minghuan, Manager of KFC'S Guangdong market, refuted the claims of rights violations, saying the current rule of the minimum hourly rates of pay for the non-full-time employees implemented in the province is not applicable to the part-time employees working for KFC.

"KFC does not breach relevant laws in China."

Cui said these part-time employees are neither full-time workers nor non-full-time workers. "Their hourly rates of pay cannot be measured by the rule.

An unnamed offical with the Provincial Department of Labor and Social Security said Cui's words are ridiculous.

"So what kinds of workers they are on earth?" [sic]

The official said the rule is applied to these part-time employees.

McDonald's said in a written statement that "it is always committed to relevant laws and regulations in China."

Ah, legalistic defenses. They look so clear and reassuring when they are written into a holding statement. And they so seldom give any comfort to angry masses. For further proof of that, go back and examine the ineffectiveness of the largely legalistic responses offered up by US Internet firms in response to criticism of their cooperation with Chinese authorities. Also, it must be said, that Mr. Cui seems to have got himself into real trouble if he actually said that his company's workers are "neither full-time workers nor non-full-time workers". What else is left? Sharecroppers?

Further illustration of the problem with legalistic or technical responses is provided by KFC's other recent PR problem. CSR Asia's newsletter this week has a bit of a recap of this issue (PDF, see page 12), along with some sound advice on why a legally oriented PR position is not always the answer. The advice is given in the analysis KFC's response to recent problems concerning a non-toxic additive used to extend the life of cooking oil, in some cases reportedly up to ten days:

[Evidence] for a court and the “court of public opinion” are two very different matters.

***

There are, I think, two things a company can do in a situation like this. First, it has to move very quickly. Today, information spreads rapidly, and KFC should have moved very quickly to respond. Second, it should have addressed concerns, one by one. It could have had on hand documentation that was already translated into Chinese and could be disseminated in various ways. Perhaps it should have had information about the use of oil powder publicly available so that claims of secrecy could be dispensed with. Relying on truth and facts is not enough. As irrational as this seems, companies caught in situations like this need to show that they are open and transparent. Consumers will respond to honesty.

That's all true. And although the CSR Asia piece doesn't state it explicitly, it hints the basic problem. There is a difference between rational and emotional responses to situations (crisis guru Peter Sandman likes to talk about how overall risk equals "hazard + outrage"). At a rational level, the oil additive is safe, legal and widely used. At an emotional level, ten day old cooking oil is gross and suspect no matter how you treat it. So how do you address the emotional reaction? Not with a legalistic argument, I'm afraid. Especially if unfriendly voices are waging a PR campaign against you.

So, back to cheap labor, which is analogous if not as gross. The outrage factor is separate from legal compliance. KFC and McDonalds have said that they abide by the laws, even though they need to seek clarification on what those laws actually are. And they may very well be abiding by these laws. But that's only a cursory response, and it leaves open a few potentially emotive issues, especially considering that this story is all about how foreign companies treat Chinese workers. Among them:

  • Do their customers believe that McDonalds and KFC abide by the laws? If not, why not?
  • Do their customers support the laws in question?
  • Do their customers think the laws are appropriate for Chinese people working for mighty foreign corporations? Are different standards applied to them than to local companies?
  • What do their customers and the Chinese public at large think in general about the 4.3 yuan per hour minimum wage?
  • Minimum wage aside, do they think that McDonalds and KFC are treating their employees fairly? If not, why not?
  • Do their customers ultimately feel that McDonalds and KFC are being transparent in the way they are addressing these criticisms? (Try to find some information about this on either company's Chinese website and tell me what you think.)

I don't know the answers to these questions, but I was doing PR for either of these companies, I'd sure be trying to figure them out.

Update: Looking at Feng37's comment below, and some of the reports out there, it seems the minimum wage in Guangzhou may have gone up in January from the previously reported 4.3 to 7.5. In that case, the companies involved are guilty of missing the regulatory change. That might not be entirely their fault, but it serves as a powerful lesson for the future. In China you really want to be ahead of the regulatory change, not behind it. Especially if you are a foreign company. 

Disclosure: I don't do PR for either of these companies. Also, this post is based on the sketchiest of information, in the form of the two news reports cited. It is entirely possible that the two companies have responded beyond what is noted here. Then again, it's entirely possible that they haven't.

Related stories:

"Half Chinese do not trust foreign brands". A slightly misleading title. It has nothing to do with people of mixed blood.

Slightly more extensively, from Asia Times Online, "China turns cold on foreign brands."