Risk Minimization: Contract and International Business Law

Contract Review and Risk Transfer Clauses

Before entering into any legal agreement, it is essential to have legal staff carefully review the provisions of the contract. The contract must be both legal and enforceable. Both state and, in the case of interstate commerce, federal law should be reviewed to ensure that the agreement does not run afoul of existing regulations (Meiners, Ringleb, & Edwards, 2015, pp. 90–91). It is also important to consider the likely trajectory of future regulation, as the legal landscape governing the economic environment is always changing — especially in the volatile world of healthcare and technology.

In the case of many business deals, clauses are specifically inserted to ensure that one party does not bear the brunt of excessive or unexpected damages. As noted by Harvard University's risk management guidelines, "within a contract, risk transfer is primarily accomplished through a combination of indemnification/hold harmless, limitation of liability, and waiver of subrogation clauses" ("Basic guidelines," 2015). Indemnity shifts the risk or responsibility to the other party for losses or damages — whether physical injury or monetary — caused by that other party. Liability limitation restricts the amount of damages one or both parties can recover. In a waiver of subrogation, one party prevents its insurer from attempting to recover damages from the other party ("Basic guidelines," 2015).

WorldWide, Inc., as a biotechnology company, must be particularly cognizant of the need to ensure that the responsibilities of both parties are specifically delineated in any contract. If, for example, there is a problem with a drug that is not the organization's fault but is instead due to the actions of a third-party vendor or subcontractor, WorldWide must protect itself against any resulting negative financial fallout.

International Operations and Anti-Corruption Compliance

The world is more interconnected than ever before in terms of the global nature of modern commerce. Although it may benefit the organization to engage in international agreements to save costs and foster positive relationships abroad, there is also greater risk and expense involved due to the legal questions that may arise between entities in different countries. Entering into joint ventures with local enterprises can be an effective risk mitigation strategy, as the locally based entity will have greater familiarity with the surrounding environment (Meiners, Ringleb, & Edwards, 2015, p. 671). Joint ventures and franchising may also help mitigate the risk of cultural misunderstandings.

It is important to remember that regardless of what is accepted business practice abroad, a U.S. company cannot flagrantly disobey American law. The Foreign Corrupt Practices Act (FCPA) expressly forbids U.S. companies from engaging in bribery and corruption, even when such practices are the norm in a given country (Meiners, Ringleb, & Edwards, 2015, pp. 672–673). The FCPA also requires companies to "make and keep books, records, and accounts which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of [their] assets" (Meiners, Ringleb, & Edwards, 2015, p. 673).

WorldWide has operations in a number of regions — including China, Mexico, Russia, and India — where corruption is a significant problem and is often tacitly tolerated by government officials. Beyond ensuring the absence of wrongdoing in formal contracts, personnel must be carefully briefed about appropriate procedures to avoid pressure to engage in illegal activities outside of such formal agreements. Even in countries with low levels of corruption, different systems for financing medical treatment can affect pricing, and these differences must be taken into consideration when targeting specific market areas.