Government Connections are Fleeting

government connections

All glory is fleeting.
— George S. Patton Jr.

Had an interesting conversation with a client the other day. To protect identities, I am going to change a few unimportant facts and be somewhat vague, but here goes.

This company is in an industry very much related to government. By this I mean it pretty much cannot avoid working with governmental authorities in just about everything it does in whatever country it conducts business. They told me they are pretty much winding down their Malaysia business because their main (and pretty much only) government contact recently became persona non grata. When this contact went on the outs with one governmental entity (I am being intentionally vague here too), pretty much all governmental entities started wanting to have nothing to do with our client. Within weeks, its thriving Malaysia business was tanking.

My law firm’s international lawyers hear stories like this often, and the below are just some of them:

1. A long time ago, we represented an American company on a massive deal to sell paint to the Korean navy for all of its ships when the person with whom the deal hinged (the son of the President) showed up on TV doing a perp walk. No son of President, no deal.

2. A long time ago and for quite some time, my law firm was totally dialed in to a particular Russian province because one of our paralegals was the daughter of a very powerful vice-governor (which had nothing to do with our hiring her). But when the vice-governor was murdered we started being treated just like every other foreign law firm.

3. We had a client with a thriving business in a Latin American country, in tandem with the son of a high level military official there. The high level military official ingloriously retired and things went from super-easy for this business to so tough that it eventually shut down its operations there. Again, this company was not treated worse than other foreign companies, but it did cease to be treated considerably better than other foreign companies.

4. We had a client in a big city in Mexico that was thriving until its government connection retired and was replaced by someone with whom our client had “had issues for years.” All of a sudden it found itself being held to various compliance standards it had always seemed to skate by in the past. Interestingly enough though, one of the lead figures in this company told me that “overall, I think this will prove best in the long-term for us and will actually force us to do the sort of diversification in business scope and locations within Mexico that we have been delaying.”

I am not saying never do business in a foreign country because of “connections.” But I am saying that if some or all of your business overly relies on your “connections” you should start now to plan for what happens when those connections evaporate, because eventually they will.

What have you seen on this?

3 responses to “Government Connections are Fleeting”

  1. Your comments are very accurate Dan. I have seen quite a few companies, mainly Chinese companies, tank because the whole reason for their existence, their connections, had been destroyed.I saw this in the energy industry last year in relation to a company whose founders were charged with corruption.
    This had nothing to do with Rio Tinto, other than that possibly it was part of the general crackdown on corruption in China.

  2. One of the great traits of many Chinese entrepeneurs is their incredible flexibility. While it’s probably true in the West, it’s especially true here. Situations can change in an instant, and if you’ve got all your eggs in one basket, it can wipe you out.
    This is why you see so many Chinese businessman jump from radios to real estate to restaurants, and everything in between – their expertise is not in a particular industry, but in business. As such, they can survive, and even thrive, no matter what the circumstances. Westerners would do well to learn this skill as well.

  3. So true. So true. What you don’t say though is that this same thing is always happening to Chinese companies too. I don’t think anyone is immune from reaching out and grabbing what is too good to be true.

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