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Shruti J. Shah
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Russell A. Stamets
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Richard Bistrong
Contributing Editor

Eric Carlson
Contributing Editor

Bill Steinman
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Richard Bistrong: In defense of, ahem, intermediaries

International success now depends on business leaders having “the foreign policy acumen to distinguish what they can and cannot do,” according to John Chipman, the director-general and chief executive of the International Institute for Strategic Studies.

Writing in the latest issue of the Harvard Business Review, Chipman says a requirement for business success is now a “corporate foreign policy” built on “geo-political due diligence and corporate diplomacy.” Reports about Och-Ziff and Unaoil prove his point.

Chipman recommends engaging “a very sophisticated team of internal analysts to assess geopolitical risk on a continual basis” and to strive for “a geo-political support base that positions them to capture future value.”

As to corporate diplomacy, Chipman recommends the “careful assessment of the local, regional, and international forces at play before, during and after any investment.”

Doing all that is a really tall order. But Chipman warns that “the general international reputation of a company can be affected by its success or failure in any given country.” He’s right. Alison Taylor and James Cohen sounded a similar warning in their post for the FCPA Blog about heightened risks in our era of hyper transparency.

But a corporate foreign policy isn’t for every company. The cost of understanding political, economic and corruption risk, whether out-sourced or internally resourced, isn’t suited to all balance sheets. And that, I suggest, is why so many companies will continue to rely on intermediaries.

Intermediaries, after all, are paid for their geo-political knowledge and skills. Companies hire them to navigate the political shoals, often on a success-fee basis, thereby minimizing fixed up-front costs. Intermediaries are contractors that fit nicely into Chipman’s requirement for companies to understand and engage in “geo-political due diligence and corporate diplomacy.”

Frank Brown from CIPE said, there are intermediaries who work towards being a legitimate and dependable part of the global supply chain. But as Alison Taylor wrote in another post for the FCPA Blog, intermediaries are risky. She rightly called them “force multipliers for prosecutors.” Again, Och-Ziff and Unaoil come to mind, as examples of the risks that intermediaries bring to companies of any size and from any industry.

Realistically, most companies don’t yet rise to Chipman’s ideal, with home-grown teams of analysts who can assess geopolitical risk and help set a company’s foreign policy. And for all the companies that fall short, intermediaries can still play a valuable role. Risky or not, they can help clients understand “the dynamic relationship between the government, the business elite or oligarch class, and civil society,” as Chipman describes it.

The question, then, is how can a company make a truly educated and informed decision about an intermediary? Let’s stipulate that the decision goes beyond due diligence and into the realm of Chipman’s corporate foreign policy. In other words, there’s no simple formula.

But here’s a suggestion, again inspired by Alison Taylor. Before retaining an intermediary, answer these questions.

Are you you using an intermediary as an exclusive and expedient route to market in lieu of a more robust  analysis of political, economic and corruption risk? 

Or, are you selecting an intermediary as one of the final stages of an exhaustive due-diligence process, which even if falling short of corporate foreign policy, provides leadership with a very clear view of the transactional landscape?

If it’s the second scenario, then  an intermediary might be a legitimate route to market as part of a well thought out sales process.

If instead it’s the first scenario, then probably the intermediary isn’t part of a legitimate corporate foreign policy. More likely, you’re about to tie yourself to a mere fixer who may operate outside the law and inflict massive damage on your company and its business.

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Richard Bistrong is a contributing editor of the FCPA Blog and CEO of Front-Line Anti-Bribery LLC. He was named one of Ethisphere’s 100 Most Influential in Business Ethics for 2015. He consults, writes and speaks about compliance issues. He can be contacted by email here and on twitter @richardbistrong. He’ll be a speaker at the FCPA Blog NYC Conference 2016.

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2 Comments

  1. Intermediaries have been traditionally used in Latin America as an expedient route to market and to access of high level public officers who are amenable to taking bribes. The name Intermediary in Spanish already has a criminal sound.

  2. I applaud this article and the comments by Richard Bistrong. Developing International business sophistication is not easy and it will be controversial internally. It takes a natural intellectual curiosity to conduct effective due diligence and a willingness to put your initial perceptions aside and assess new information that may just lead to an alternate solution. Far too much emphasis is put on identifying a singular business contact in country that can help you negotiate your way to business success. With regards to the article's comments about a legitimate corporate foreign policy, a firm grasp of the business environment in any country requires an understanding of the relationships between business, government and the competition. Perspectives from different points of view are necessary and a willingness to look at each view objectively is required.


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