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Business Matters

Advice from Russia, with love

/ 11:41 PM November 16, 2012

Last week, Prime Minister Stephen Harper of Canada, like other visiting dignitaries lately, described the Philippines as an “emerging Asian tiger.” He coupled that generous description with a pledge to work toward increasing the volume of bilateral trade between Canada and the Philippines from its current level of $1.5 billion.

But how do we locals make it happen? What need we do to convince foreign investors that beyond the welcoming smiles, there is much more inland that Philippine business has to offer?


An interesting read is the advice listed in a legal update that was e-mailed to me also last week. It gave 10 suggestions, surprisingly from a country that is, from where we sit, unexpected: Russia.

The legal update was a publication of Goltsblat BLP, the legal practice in Russia of the Berwin Leighton Paisner, which was ranked in 2011 by Pravo Ru/Vedomosti (of the Financial Times and The Wall Street Journal group) as one of the top three law firms in Russia. It is a very pragmatic exposition of what foreign investors want to see in Russian companies and what the latter need to show in order to attract foreign investors and convince them to stay for the long term. Replace “Russia” with “the Philippines” and most of them,  mutatis  mutandi, are applicable here.


On top of Goltsblat’s list is transparency: Domestic companies need to be visible to the outside world. Locals ought not forget that contrary to their own familiarity with the Philippine business, foreign investors know very little of our enterprises.

Very seldom are Filipino companies, except for the big names that need no foreign investors, mentioned in the business pages of, say, the Financial Times or The Wall Street Journal.  Very few have any meaningful presence here that would give them enough appreciation of how our businesses operate. Moreover, the decision-makers of most foreign investors, for obvious reasons, are based in major cities elsewhere.

Goltsblast’s suggestions to locals on the transparency concern are very practicable: (a) maintaining an updated website; (b) establishing and sustaining close contact with foreign bankers, lawyers, auditors, and business consultants whose task it is to scan the global landscape for opportunities; (c) providing information as well as sending representatives to conferences and trade fairs; and (d) cultivating connections with mass media that are in English and other widely spoken languages. Filipino proficiency in English, though often fodder for our private jokes (like the ubiquitous “Eraptions”), is a competitive edge that we unfortunately simply take for granted.

Closely following transparency is the readiness to accept foreign investors’ need to conduct due diligence. Visits, reviews, queries and evaluations by foreign investors’ lawyers, accountants, commercial experts, and consultants are normal, in fact needed, for them to make informed decisions; hence, there should be more than minimal compliance with requests for information. Undoubtedly, it is time-consuming and distracts the company from its normal pursuits. As a solution, Goltsblat counsels hiring external lawyers, with experience and familiarity with the due-diligence requirements of foreign investors, to manage the flow of information.

A third advice is to have a plan of what to give and what to take as soon as casual inquiry turns into serious interest of negotiation. Foreign investors expect locals to compromise; it must be clear what the local company is willing to concede and where it needs to stand firm. “Take it or leave it,” “Trust us,” or “This is how it is done here” usually do not work with foreign investors, unless the local has a clearly dominant position. That negotiating plan must be flexible, and for instances when the local may decide to step back from its initial stance, the explanation proffered must always be reasonable.

It is advised to postpone agreements on valuation until after the foreign investor has done its due diligence. Surprises cropping up during due diligence enable foreign investors to demand discounts, price reductions, indemnity clauses, holdbacks, escrows, and similar protective devices that may prevent the attainment by locals of the true value of their enterprises. The government should help in this area by minimizing drastic shifts in policy, avoiding abrupt changes in rules and regulations, and refraining from sudden introductions of measures not previously threshed out in public discussions, debates and deliberations.

Requiring foreign investors to execute confidentiality agreements and setting up a data room where the advisers of foreign investors are to limit themselves in performing their investigations minimize the disruptive effect of the due diligence process. These steps reduce the visibility to the work force of the presence of outsiders, thereby not raising personal alarm bells regarding their continued tenure; these steps also isolate the foreign investor’s agents from overtures and inquiries of the local employees.


Local companies and their lawyers must, furthermore, have at least a general appreciation of the general principles of the usual choices of governing law, of alternative (i.e., out of court) dispute settlement procedures, and of venue of judicial recourse. The favorite governing law is English law because of its flexible legal concepts; international arbitration is often the mode of settling differences of interpretation; and the venue of court action is usually the major financial centers where judges are expected to be conversant with commercial transactions. (To be continued)

Ricardo J. Romulo is a senior partner of Romulo Mabanta Buenaventura Sayoc & De Los Angeles.

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TAGS: Business Matters, investments, opinion, Prime Minister Stephen Harper, Ricardo J. Romulo, Russia
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