Pity the poor risk manager whose company is intent on doing business in unfamiliar markets around the globe. She has to make sure the overseas representative in Southeast Asia isn't tossing around bribes to get that license to sell pharmaceuticals in Thailand.
Or that those engineers sent to carry out soil tests at a highway construction site in the Colombian jungle are backed with a solid kidnap and ransom policy that includes a local crisis team trained to deal with extortions.
Or that a U.S. employee traveling to a country as tame as Italy doesn't need to be evacuated back home after a serious motorcycle accident.
These are just some of the risks associated with doing business abroad that can keep risk managers--as well as their corporate boards--up at night if they are not careful. And as more corporations expand into unknown foreign markets, as the world becomes a bit more dangerous with greater incidents of terrorism and detentions, and as employees exert their legal rights to be protected when traveling Unaccustomed to abroad, corporate risk managers have their work cut out for them.
"The world is a more dangerous place. There's open war in Somalia and terrorism in the Philippines. Auto accidents in many developing countries can result in catastrophic consequences or even death," says Eric S. Belk, senior counsel in the defense litigation group at Travelers out of Hunt Valley, Md. "Employers are getting sued for exposing employees to dangerous situations."
Adds Michael Dangler, senior vice president of the national specialty benefits group at Willis Group Holdings in New York City: "After Sept. 11, we saw a huge shift that moved security from the risk management and human resources office to the corporate board room.
"The chief financial officers and chief executive officers suddenly wanted to be aware of business travel accident programs."
The tricky ins and outs of workers' compensation coverage is one area that can easily trip up any company sending employees to conduct business abroad--or even a neighboring state. Virginia, for example, has restrictive workers' compensation regulations that cover only employees hired in the state to work in the state. That means a traveling salesman sent to do business in nearby South Carolina wouldn't be covered if they suffered an accident while on the job in that state, Belk says. And while most employers would readily secure the extra cover needed for a traveling salesman calling the Southeast his home territory, executives might not buy the extra coverage needed for the risks facing an employee working abroad.
"Most domestic workers' compensation policies don't cover endemic disease," says Belk, adding that an employee heading to parts of Africa could easily come down with malaria, while botulism, caused by the poor hygiene surrounding the manufacture of canned food products, is not unusual in the Eurasian country of Georgia. And conjunctivitis, a disease readily treated in the United States, could turn deadly if encountered in a rural part of Brazil.
Companies of all sizes can cover their employees' medical and evacuation costs with a special policy. Travelers, for example, sells a product that would cover an employee's medical costs and the bills stemming from an emergency evacuation. It also covers liability to third parties if, for example, a salesman driving in Ireland tootles down the wrong side of the road and causes an accident.
But it isn't only employees that can bleed a corporate bank account and create anxieties for risk managers and their boards.
The U.S. Department of Justice is increasingly nailing companies for noncompliance with the federal Foreign Corrupt Practices Act--which has for decades been prohibiting U.S. companies from using bribes or other illegal payments to get business done overseas. Yet companies routinely use an agent or local firm, which could be representing several businesses, in the local country they are trying to enter.
"You need a local to be effective ... someone who knows the local customs and business practices," says Ann Longmore, executive vice president and product leader for executive risks at Willis in New York. "And it's common practice to give a gift. But is the gift a box of chocolates or gold Krugerrands?"
Explaining at least one reason behind the jump in prosecutions by the Justice Department and the Securities and Exchange Commission, she says, "Corporate governance is becoming more important."
Corporations and their board members can be held responsible for the action of an overseas agent even if they did not instruct or condone the representative's actions. A directors' and officers' liability policy could cover any civil penalties lodged against an individual, which could reach $30,000 to $40,000. But a corporation could end up paying millions and chalk it up to the cost of doing business, Longmore said. The pharmaceutical, oil and gas, and agricultural industries are among the sectors most susceptible to this type of practice.
Multinationals have been conducting business in politically risky regions for decades and have secured kidnap and ransom insurance since the 1970s to protect their employees--as well as their bottom lines--against events like kidnappings, detentions and hijackings. While the traditional month-long kidnapping of a U.S. corporate executive working in South America is less likely to happen these days, extortions by criminal gangs and unwarranted detentions by overzealous government officials are on the rise, analysts agree.
"Only 10 percent of what happens in the world becomes known publicly," says David Lattin, director of specialty underwriting at Travelers in St. Paul, Minn. "This is on top of the evolving risks in today's world. The issue has been ratcheted up to the CFO level."
A recent example of the risks facing today's businesses is when a European businessman was thrown into jail by customs officials as he entered Bangladesh for the first time on a business trip. The insurance coverage helped bring into play the expertise of local advisors, who used their connections to pressure local economic officials and get stories placed in the Bangaldeshi press on how the event could unfavorably impact foreign investment.
"There's many more unwarranted detentions . . . where the government grabs somebody for spurious reasons and they are detained in another country," Lattin says. In another recent case, criminals in Moscow threatened the life of the country manager of a publicly traded Midwest company if money wasn't forked over.
Analysts say the surge in extortions and short-term kidnappings, where an employee is kidnapped and driven to an ATM machine to withdraw cash, underscores the need for prevention. This means a security risk management program, as well as a link with a local security firm that knows the culture and has connections with local and national police, government officials and even the media.
"A K&R policy can bring in an outside incident response firm that can help a client assess the risk," says Derek Rogers, a vice president at the New York office of Willis. He adds that many corporations sending employees abroad don't even have a formal security department with clear company protocols in place to handle a kidnapping or extortion demands placed against an employee or company property.
But it's not only corporations that can overlook the risks associated with overseas travel. University officials frequently fail to secure kidnap and ransom insurance for students traveling abroad or comprehensive liability coverage that will handle all the possibilities for injuries sustained at an overseas teaching location.
"Students are an easy target because they feel immune that anything can go wrong," says John E. Watson, executive director of the higher education practice group at Arthur J. Gallagher Risk Management Services Inc. in Glendale, Calif. "And in spite of preparedness training, they wear U.S. logo items and expensive items like watches that make them perceived as having access to money."
While brokers usually wrap a K&R policy in the employee benefits package awarded most faculty and staff members, students are sometimes left unprotected. Another overlooked area is an overseas workers' compensation and general liability policy to protect against a lawsuit filed in a foreign country.
For example, a U.S. university was forced to absorb within its current operating budget the costs incurred by an Argentine professor injured while teaching at their fixed site in Brazil.
"The professor slipped on a piece of paper dropped by a student and broke a leg," says Watson, adding the adjunct professor wasn't entitled to workers' comp benefits supplied by the Brazilian government.
"Academics are not always thinking in cost-benefit terms," adds Watson, who left his post as director of risk management for Pepperdine University in Malibu, Calif., in 2003. "The risk managers are in the finance department and separate from the academics who are running the international programs. They're not always communicating."
PAULA L. GREEN lives in New York City.
May 1, 2007
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