Making Relationships Work

How well do you know your business partners? Before you enter into a new professional relationship, there are certain things you should know about potential partners so that you can protect your bottom line.

Entering a relationship with a new client, sales consultant, joint venture partner or any other entity merits thoughtful consideration to protect your business’s value.  Likewise, once you enter a relationship, you need to make sure the relationship stays healthy and productive over time.  This is especially true when working with governments or doing business internationally because if your business partner violates the law, those violations become your problem in many instances. Pleading ignorance about a client or business partner’s misdeeds may not save you.

As a result, responsible businesses should have methods to understand who its clients and business partners are, as well as where its products and services are being sold.  If you do enter a relationship with another entity, you should have some procedures in place to assure they remain the valuable and reputable business you knew in the first place. 

Your process should be flexible, allowing for more or less due diligence depending on what the business partner will be doing for your organization, what country they will do it in and what some initial investigation reveals.

Generally, you should find out the basics of the business, its owners and its capabilities:

  • What is its business? 
  • Who are its owners and leaders? Are they capable? Honest?
  • Where does it do business? 
  • Who are its suppliers? Customers? Joint venture partners? Other partners?
  • Does it have the professional support it needs – capable management, capable IT, HR, finance, and legal? 
  • What are its offices and facilities like?  Do they even exist? Are their facilities clean and safe?
  • How are its finances?
  • What is its reputation in the industry for following the law, for its business capabilities? for integrity?
  • Does it have relationships with government officials?
  • Does it have the capability and experience to deliver its products or services?

Also, don't just take your potential business partner’s or client’s word for what they tell you – ask for proof, such as the following: 

  • Financial statements
  • Insurance policies
  • Articles of incorporation
  • Bylaws
  • Resumes of leaders
  • Visit their offices or factories

Realistically, failing to check on the entities you work with has the potential to expose you, your leaders, your employees and your business to criminal and civil penalties. Even if you avoid investigations and prosecutions, your bank may discover that you are receiving or making payments to a sanctioned country, organization or individual, and it may freeze your assets.  

Or, failing to do your due diligence may impact your return on investment or even worse − you may lose your entire investment.

Finally, failing to know your clients and business partners may not provide you any protection, due to a logical, but disturbing legal theory called “willful blindness.”  Say you want to buy a new Porsche 911 Carrera.  You search around and learn they sell for about $100,000.  You meet a guy at a bar who offers to sell one to you for $15,000 but you have to make the deal the next day He wants the payment in cash, and he will bring his friend, the notary, to sign all the paperwork.  If you go for it, chances are you just bought a stolen car and you will be prosecuted under the theory of “willful blindness,” since you deliberately ignored facts that demonstrated the transaction was probably illegal.

The same would apply to your business partners – if you ignore or fail to look into obvious or possible indications of wrongdoing, your business may be investigated and prosecuted for being “willfully blind” about your client or business partner’s illicit behavior.

In other words, not knowing there are prohibitions or sanctions against some countries, organizations and persons does not inoculate you from being prosecuted for violating sanctions laws by doing business with them.  Likewise, not being able to demonstrate that you undertook due diligence before working with your sales agent, who used bribery to get you a certain contract, may be one factor the prosecution uses to show you were “willfully blind” about your sales agent’s illegal tactics.  This is the case even if your business had no hand in the actual bribing. 

A business must understand how it delivers its products and services to market, how it gets paid and with whom it does business.  Failing to get these types of facts may expose a legitimate and reputable business to accusations of doing business with sanctioned countries or prohibited entities and individuals. It also could result in investigations or prosecutions for your business partners’ actions.  Once you have the facts, it is important to to determine if they are a red flag that your client or business partner may be up to no good. 

So, as a first step when starting and keeping relationships, get some facts, and then assess those facts to decide what it means for your relationship. As the German director, author and actor Werner Herzog pointed out, you need to analyze facts to actually understand what they mean.

“If you’re purely after facts, please buy yourself the phone directory of Manhattan. It has four million times correct facts. But it doesn’t illuminate.”  - Werner Herzog

Margaret Cassidy is principal at Cassidy Law. Learn more about the firm’s capabilities by clicking here.

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    Questions?

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