Third Party Oversight

Legal Risk: How to Moderate the Business Impacts of Litigations

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Companies in various domains, with different areas of expertise and strengths, often partner to better serve their clients’ needs or to collaborate on something new and innovative. Establishing an effective partnership typically requires involvement of all core teams in each organization (financial, legal, human resources, etc.) to develop a mutually acceptable agreement that ensures efficiency and avoids future legal implications. But even well-crafted agreements can leave room for ambiguity or loopholes, which can lead to disagreements that are difficult to resolve, and it is not uncommon for headlines to report on litigations surrounding a partnership gone wrong.

Last week our Supply Wisdom Alerts reported on the Cisco lawsuit against HP over a monetary dispute regarding a VoIP contract. Cisco claims that HP owes the company US$58 million for the support services Cisco agreed to provide to an HP VoIP customer in 2013. HP responded that this customer cancelled its HP services shortly after, which prompted HP to cancel its Cisco service and in turn Cisco owed HP a full refund. However Cisco claims that the refund demanded by HP is more than the amount HP owes Cisco.

How does this type of monetary dispute between two tech giants affect its clients and suppliers? How should you interpret this type of event if you do business with one or both of these companies? In this specific case, because the amount of money being disputed is relatively small in comparison to annual revenues of both companies, it is not likely to have any significant business impact. Still, there are a number of proactive measures that can be taken:

  1. Reach out to the company exeuctives to confirm that these ongoing proceedings will not affect existing business agreements in any way.
  2. It is also important to know what went wrong in this particular alliance, to alleviate the occurrence of a similar incident in future.
  3. Conduct a root cause analysis to make sure that the necessary specific points and regulations are added to your contract in order to avoid a similar episode in future.
  4. Even a company that is reputable and has strong governance models, corporate practices may have gaps at the engagement level. It is always necessary to have clarity with respect to corporate methodologies to ensure that they are practiced and applied effectively.

The success of your globalization initiatives depends on how well you understand your suppliers’ governance structure and practices.