« Train Employees On Position Objectives Too | Main | How To Benefit From More Successful Employees »

Tips To Avoid Problems With Conditional Relationships

Fed Nails WestLB For Tying Lending to Underwriting. Violator of Bank Holding Act accrues $3 million dollar fine and must change its "relationship banking" practice. [Corp Law Blog]

Not all business relationships are ethical, or even legal. A German bank settled charges that it violated the Bank Holding Company Act's anti-tying restrictions, pays a $3 million dollar fine and must change its "relationship banking" practices. Conditional relationships are dangerous and should be avoided.

One form of conditional relationship is conditional lending. The practice of conditional lending in exchange for other services from the borrower is illegal under Section 106(1)(A) of the Bank Holding Company Act (12 USC 1972(1)(A))

Never use relationships to tie in special services or consideration. In most situations it can be illegal, but always can put your company in a difficult situation. Anytime a decision comes to, "If you'll do X, we'll do Y" outside of the negotiated contract of terms, then you are inviting trouble.

The conditional relationship isn't always very clear, in fact, when you look at exclusive contracts and other profitable supply chain relationships-- it all gets very cloudy. Here are some tips to avoid questionable relationships:

  1. Treat each transaction as an individual contractual event. Each business transaction should stand on it's own merit, meaning, this transaction isn't happening because another transaction was made possible. There should be no conditions required for the relationship outside of those specifically outlined in the contract.
  2. Avoid linking consideration to another transaction at a future date. If you give discounts today for something that will happen later, you put your company at risk that the proposed event will actually happen. This doesn't fall into play for volume agreements, and primarily applies to non-related activities. Always keep in mind the next tip...
  3. Always consult a lawyer about applicable law. Various laws govern unfair business practices that limit competition, be sure you consult a lawyer before engaging in any business that is conditional on future events. Consider Microsoft's series of antitrust settlements, past business relationships have cost them both time and money.
  4. Maintain a proper level of disclosure and documentation. Backroom deals will always happen, but for the protection of the organization, be sure to have them properly disclosed and documented. Decisions by individuals representing an organization are the responsibility of the organization-- proper channels must be in place to protect the greater interest.
  5. Use standard contract models appropriate for your industry. While special arrangements will happen periodically, it is important to be consistent in your business practice. By using standard models for business contracts, you can avoid omissions that could come back to haunt your organization.

/ partner-relations | strategic-relations /

By Justin Hitt at September 16, 2003 3:56 AM  Subscribe in a reader


Home | Featured Articles | Glossary of Terms | Subject Index | Site Map | Editorial Calendar | About us | Contact us

Center for Strategic Relations, Dept IUN,
1123 Spruce St #3123, Martinsville, VA 24115-3123

24-Hour Phone/Fax Hotline: +1 (877) 207-3798

© 2001-2023 JWH Consolidated LLC dba Center for Strategic Relations, All rights reserved. Privacy Policy. Sitemap.