General Counsels: take care of your value chain

by Ricardo Cortés-Monroy

As the economic and business pandemic driven multi-faceted difficulties become part of a revised “new normal”, many General Counsel continue to face new challenges in their day-to-day operations. Probably nowhere this is more apparent than in the value chain of your respective businesses. We have heard abundantly during this crisis about “disrupted supply chains”. I prefer to analyze the problem through the so-called value chain, upstream and downstream your business.

Last week we did precisely that with another 25 General Counsel from different industries, using of course Zoom. When you consider all players in your value chain, it becomes apparent the need to take a long and holistic view on keeping business flowing. Suppliers struggling to deliver on time and desperately in need of a prompt payment. Customers struggling to take your products and generate the sales. Safety & Health considerations affecting your and their workforces…. And all the sudden your working capital is, to put it mildly, severely stressed.

Of course, you will try and improve your company’s situation. But maybe, I humbly suggest, leave the litigator inside us aside for a while. The 25 General Counsel unanimously agreed that we have a crucial role in ensuring the least possible disruption to the value chains. Playing tough and hard is myopic I dare to say. It is very difficult “where to split” the cost of the disruption. For example, Adidas’ approach to playing hard ball against the shopping centers and malls owners intending not to pay rentals for their stores during the lockdown was, in hindsight, quite over the top. Even Chancellor Merkel reacted. Many companies have got it right in that sense: taking a pragmatic approach, for example, with their raw materials providers in the food industry. Ultimately, one needs to take a Sustainability inspired view. This situation is about contributing to Social and Economic Sustainability. It is about enhancing your companies’ license to operate, especially foreign multinationals in stressed ecomomies.

Of course, our main role is to protect our business, sometimes in dire straits. And tough negotiations are occurring daily. So, allow me to get a bit granular on one aspect. Probably we, as a GC community, never got so many and often queries about “force majeure” right? And probably we were a bit surprised with the fact that it is not such a clear concept after all. I am not talking about insurance policies exclusions; I am talking about “bread and butter” procurement and services contracts, the ones that constitute the bulk of your business. Not a bad idea to revise those; certainly, a bad idea to consider them boiler plate clauses applicable urbi et orbi. The 25 GCs favored, almost by unanimity, a pragmatic approach, for example renegotiating terms and conditions and seeking the longer-term viability of the business relationships. Sometimes this need for a renegotiated approach takes a spectacular and dramatic turn: filing for protection under bankruptcy laws such as Avianca and Latam did in the USA (by the way, as they are headquartered in Colombia and Chile, respectively, one wonders how their provisions can be extended to other jurisdictions e.g. the recent decision by a court in Chile recognizing the effects of the Chapter 11 decision protecting Latam in the USA).

Generally, one is somewhat relieved that most businesses are taking the pragmatic approach. Yet, sorry to sound ominous, one wonders what it will mean the spike in law-firms hiring of litigation lawyers in the USA.

And Pliny the Younger, our favorite Roman jurist, in all of this? Well, he, his uncle Pliny the Elder, and his friend and historian Tacitus covered a lot of ground on Roman agriculture and the need to ensure proper supply to the mega city of antiquity. Little they knew in the first century AD that four centuries later a disruptor Genseric the Vandal would conquer North Africa, the Empire’s breadbasket, triggering a chain of events that would lead to extreme duress and, ultimately, to the “fall” of Rome as an empire polity. One can imagine Pliny telling us: Curam catenam afferemus (take care of your supply chain).

To read other blogs by Ricardo Cortés-Monroy, click here.