Challenges in Lawyering

Introduction

U.S. corporations, especially those in the mining and oil and gas industries, face many challenges in operating in difficult locations around the world.  With the imperative to go where the natural resources occur, these challenges can be geographical, operational, legal, and ethical depending on remoteness, terrain, political stability, governing regime, and cultural differences.  Absent a developed concept of “rule of law,” there is often no assurance of impartial courts, predictable enforcement of contracts, or due process in the treatment of employees or assets.  Changes in regimes or economic conditions can result in an environment that has deteriorated significantly from the time a company made its initial country entry decision.  Creeping expropriation through tax, royalty, or regulatory changes or total expropriation of assets is a potential risk.  Expatriate employees are often asked to take local assignments, and local employees may be hired.  Their safety and security is a central concern.  Reputational risk is also a key consideration.

Imagine this realistic scenario presenting a perfect storm of problems: Several years after undertaking operations in a country, a company learns that a local agent may have paid bribes to obtain business on its behalf.  The governing regime has become increasingly despotic.  The U.S. government indicates that country sanctions may be imposed due to links between the regime and terrorism.  The regime initiates decrees to double the royalty rate and tax rate on foreign concessions.  A company expatriate employee is hijacked and possibly kidnapped on his way to work, and, because operations in the country are material to the company, prompt disclosure obligations apply.

Providing legal advice to business operations exposed to such events requires counsel to be aware of a wide range of considerations in order to plan a specific country entry, anticipate problems, reduce the risk of legal exposure, and react quickly to developments.  Creative lawyering goes beyond knowledge of the applicable law to include understanding local culture and customs, understanding the company’s strategy and risk tolerances, being mindful of corporate reputation, gathering relevant prior experience, and being willing to act as the conscience of the company.  To address known and unknown risk conditions, companies and their lawyers can look to a number of guiding principles to shape decisions and responses.

As a starting point, U.S. corporations must comply with applicable U.S. law and local law in their operations.  This obligation is supplemented by self-imposed standards set forth in codes of business conduct adopted by most major corporations and in international initiatives on human rights, security, and transparency to which many companies in extractive industries have subscribed.[1] The evolution of these initiatives in industries that have experienced the challenges for many decades can provide a context and precedent for companies in other industries with global operations.

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[1] See, e.g., ConocoPhillips, Code of Business Ethics and Conduct, https://secure.ethicspoint.com/domain/media/en/gui/26697/code.pdf [hereinafter ConocoPhillips Code of Conduct].