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Lawyers And Strategic Risk In Multinational Companies

From Austria to Malaysia, host governments are implementing regulatory measures making it increasingly difficult for Airbnb and its hosts to do business. In many cases, the measures are aimed to protect hotel owners and online competitors while in others they are just meant to control noise pollution and other externalities. Although these measures can be devastating to hosts and the online marketplace, they will certainly not come as a surprise to international business attorneys who understand the nexus of business, politics and law.

Unlike many traditional risk programs that aim to manage the fallout from a checklist of events, strategic risk analysis (and Enterprise Risk Management) cast a wider net. Strategic risk management aims to minimize the likelihood and impact of any events (catastrophic or not) that impair a company’s ability to achieve its objectives In this context, lawyers can play an active role not only in reducing the impact of certain event but also the minimizing or eliminating the likelihood that they happen in the first place.

In many multinational companies, lawyers and compliance officers are actively involved in managing problems that arise out of risk scenarios. With enterprise risk management programs, lawyers can play a role in identifying and preventing these scenarios from manifesting in this first place. When multinational enterprises (MNEs) introduce new products and services into a new economy where no regulatory framework exists, legacy local businesses often put pressure on host government officials establish onerous barriers to entry. These barriers often amount to regulatory expropriation and investors are forced to file for arbitration.

Airbnb and Uber
UBER
Case Studies

After experiencing initial rounds of success in their cross-border expansions, Airbnb and Uber ran into significant roadblocks. Complaints from hotel owners and taxi drivers whose margins were falling and other constituents who were upset about surging rental prices and excessive congestion compelled government officials to take action. While regulators in cities such as Barcelona and Berlin implemented policies that actively discouraged homeowners from renting their homes, regulators in Asia and Europe implemented policies that interfered with Uber’s ability to launch operations and compete with local taxi companies. Conversely, there are other examples in which regulators developed policies that were tailored to address market failures and promote public policy interests. For example, in San Francisco and San Diego, authorities implemented regulations to stop rent inflation by preventing hosts from posting more than one listing on Airbnb’s website.

Managing Risk

In addition to requiring the participation of in­-house counsel and compliance officers in identifying scenarios, effective ERM programs require the collaboration of many different departments to find the most tailored and effective mitigation strategies. In the world of cross-border risk management, effective tools for mitigating the likelihood and impact of risks include insurance, bilateral investment treaties, compliance strategies, internal controls, hedging, and others. For this reason, ERM programs require counsel and risk managers to help manage the relevant risk. In the example of the regulatory discrimination that impacted Airbnb and Uber, people with expertise in the law and policy analysis can help the company proactively manage its risk in emerging and developed markets.

Counsel can consider protection under international investment treaties that mitigate the impact and likelihood. International dispute resolution practitioners can examine newly formed regulations and anticipate whether or not they will be considered proportional to the infringement of an investors rights. Risk managers can consider insurance options that manage likelihood and impact on host government discrimination against inbound investors.In order to find the strategy that is most effective and inexpensive, lawyer and enterprise risk managers should collaborate to find the most effective and inexpensive.