Companies that choose to operate through agents and consultants when they enter a new overseas market usually want doors to open and obstacles cleared by people familiar with the local scene. However, it is usually best to assume that things won't always run smoothly and that unexpected requests - most likely for extra payments of one kind or another - are often par for the course.
To keep surprises to the minimum and ensure that dealings remain on a firm business footing, it is advisable to make certain things clear at the outset. The best approach is to spell out your own company's position in key areas, leaving the agent no room for ambiguity. In doing this, consider the following:
Written agreement This should include a prominent clause or statement requiring the appointed agent or consultant to abide by the appointing firm's anticorruption policies. With the regulatory environment changing and personnel always likely to be coming and going, it is a good idea to check and update this statement every year. When this happens, the agent should be required to sign it again, if nothing else as a general reminder about maintaining the expected ethical standards.
Where applicable, the agent should agree to abide by the laws of the country where it operates, and to understand relevant laws that apply in the employing firm's home country.
To give it teeth, the agreement should also entitle the overseas company to inspect any financial records the agent keeps relating to the contract. If it then turns out the agent has infringed the terms of the agreement, termination can follow.
Remuneration A rule of thumb is that payments made to agents or consultants should be of an amount appropriate and reasonable for the services rendered. The reasoning behind this is to avoid "extra" funds being paid, in effect as a bribe or to sweeten the deal. To keep things clear, it makes sense to define the agent's fee as a specific sum, not as a percentage of the total value of the contract. The amount should reflect the agent's qualifications and hours spent on the project. There is nothing wrong with paying an advance, as long as the sum is reasonable and does not constitute the majority of the fee.
Political influence In many cases, companies employ agents or form a joint venture with a certain partner in the hope of getting access to political connections. This can be a double-edged sword. For example, if a dispute arises between the overseas firm and the appointee, the latter could use its influence to stack the cards in its favour. Also, a change of regime, whether at corporate, local or national level, can easily turn a well connected agent into a liability almost overnight.
Therefore, the important thing to remember when appointing agents mainly for their contacts is that they can use their network transparently and honestly. Once a company appoints an agent and stresses all the requirements, it is never enough to assume these will be met. Constant vigilance is still necessary, especially in cases where local standards of compliance and the general approach to business are known to differ from the internationally accepted norms.
To mitigate the risk of working with agents, it can help to have a separate code of conduct specifically tailored for third-party partners. Taking a short cut, many companies often just pass on relevant parts of their own internal code of conduct to their contractors or agents. However, it is generally better to draft a specific code for third parties. This can be precise, revised for different contexts and easily kept up to date.
Scott Lane is principal and chief executive of The Red Flag Group, a Hong Kong-based ethics and compliance consultancy
