A jurisdictional guide of how to manage country risk for multi-nationals doing

business in the DR.

By Pablo Gonzalez Tapia

When representing a client with significant business activities in our country, there are
some key risk-related concerns that arise in such a cross-border context, which has
brought the question as to how a parent company can minimize such risk.

Usually, the most imminent risks-related concerns for a company dealing with our
country are: a) the unfamiliarity with our local laws and even with our legal system (the
DR is a civil code country); b) political risks, because despite our efforts to be subjected
to the rule of law, the concept is still evolving; c) inconsistencies from the judiciary or
regulators, where different decisions and resolutions are taken regardless of being
subjected to a similar set of facts; and d) the potential attraction for the local management
to do business the “local way”.

Given those potential concerns, our customary advice to the parent company (other than
creating the corresponding risk matrix), mostly, would range from:

 Engaging a reputable law firm with experience dealing with multinationals. The
firm should provide the client with a summary of the basic regulations and laws
affecting the business, an assessment of the country risk profile, among other
relevant information, before starting to do business in the country.

 Set forth a clear guideline where local counsel must be early involved in the
decision-making process to identify the potential risks of any material business,
operative, or legal decision to be made. This is to change the local mentality that
lawyers are involved whenever the problem arises instead of acting in a
preemptive manner.

 Protect local counsel from being bullied by local management. This way, while
giving local counsel certain margin to provide early and unsupervised expedient
advice to local management, in- house should maintain, and encourage, a direct
line of communication with local counsel to prevent any departure from parent
company guidelines.

 Share, instruct and enforce parent company code of conduct and corporate
governance. Tell in clear language to local management the way that parent
company does business.

 Abide by the law and resist any temptation of taking shortcuts in the solution of
legal, regulatory or Governmental problems.
  Avoid nonsensical and costly litigation but do exhaust all judicial stages in those
cases that may be a clear attack of the company’s ethos or in claims that, if go
unchallenged, may set a harmful precedent on the company resolution to follow
the law as written in the country.

 Register with the local chapter of the parent company chamber of commerce and
provide support to reputable NGOs that may fight against corruption within the
country.

 Maintain constant communication with your embassy.

While entertaining some of the above options, another question that arises is the degree
of control that a parent company should have over the local subsidiary. It is difficult to
establish in the abstract the healthy degree of control that a parent company should have,
since such control will depend on the industry the local subsidiary would operate. For
instance, financial entities would be subject to a much higher degree of control and
oversight, while a manufacturing company (other than quality control) may not.
Therefore, the degree of control must be a combination of parent company policies and
its way of doing business, along with identification of the country risks and the
requirements to have a centralized chain of command or giving local management certain
flexibility given their better knowledge of the market and the culture of the country.

Once parent company has identified the risks of the country and the professional level of
its local management, it is ready to determine the degree of control that will exercise on
the operations and decisions to be made by the local subsidiary. With clear guidelines on
the management of the subsidiary risks, local management should be able to determine
when certain decisions must be made by parent company, and when the local
management is free to act and then report.

Finally, in seeking the right balance between a tight control of the operations or providing
flexibility for local management, the parent company must take into account the times
we are living. In the past, headquarters had the luxury of providing the local subsidiary
with ample margin to do business following the culture of the land. However, all of that
have greatly changed with the increase of digital communication and the arrival of social
media, since now it is normal that parent company’s reputation may be significantly
impact by the mere perception of wrongdoings of an overseas subsidiary.

A right balance in that tension would be a combination of different variables, including

creating financial thresholds on the decisions to be made and the areas where the decision
is being taken. As an example, parent company may allow local management to deal with
all labor issues of the employees but restrain them to deal with upper management
conflicts. Parent company may restrict any decision that could impact the environment,
or that may have a negative perception in the community, but in turn, may allow local
management to take decisions on programs that may benefit the community following
the rule that “the most appropriate people to manage an issue are those who know it best.” At
the end, the parent company should find the perfect balance between doing the business,
making a profit, protecting the brand, impacting positively the community, and in doing
all of that, comply with the law and avoid sanctions or severe liabilities claims.