Is There Corruption Risk In Franchising?
Increased focus on FCPA violations has heightened the awareness of company business practices, especially those that conduct business globally. Companies, that are seeing an increase in revenue and company growth, tend to see the production increase in business relations amongst their suppliers and 3rd party business partners. Of course, the liability that is to be had when dealing on behalf of local agents sparks a multitude of possible ways your organization is indirectly contributing to corruption and/or bribery acts. In most cases, if the company has local representation in a foreign country, the company is unaware these actions are taking place by their local business representatives. Although the company is completely un-aware of any misconduct, the company is held responsible for its actions. In an intriguing article by Erik King “International Franchising and the FCPA: Vicarious Liability,” it goes into the discussion on the international expansion model of franchising. Although franchises are independently owned and operated, Master Franchising and Direct Unit Franchising is the most typical model that enables expansion for any brand. With expansion, the risk of exposure grows exponentially, especially when you deal in local markets abroad.
“One of the main FCPA concerns facing franchisors is potential vicarious liability, shaped by the degree and manner of control over its foreign business representatives. The doctrine of vicarious liability, where a corporation can be held liable for the conduct of its agent, is a familiar one in the franchise industry. There is often litigation in the United States involving vicarious liability claims between franchisees, employees of franchisees, customers, and franchisors. Some courts have held that franchisees can act as “agents” of the franchisor under certain circumstances, such as where there is significant franchisor control over the subject matter of the litigation.”
Having local business partners handling or conducting business on behalf of a company is largely the normal procedure in local markets, but of course this poses serious risk.
Needing to understand all the risks from any business model is vital for alleviating any potential corruption possibility. Some of the points needed to succeed in an area like this, is to have a centralized platform to monitor, measure, and over see the activity of any one of your agents, sup. liers, and 3rd party business partners. Working with local agents is definitely a potential corruption risk that should be addressed, but having a plan that works to lowering your risk is key. Click here to learn more.
