So Your Company is Going Global Top 5

So, Your Company is Going Global! Top 5 International Issues for In-House Counsel Association of Corporate Counsel – St. Louis Chapter October 2, 2014 David J. Malliband Andrew J. Boling Lewis D. Popoff Baker & Mc. Kenzie LLP is a member firm of Baker & Mc. Kenzie International, a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a "partner" means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an "office" means an office of any such law firm. © 2014 Baker & Mc. Kenzie LLP

About Baker & Mc. Kenzie 4, 200+ lawyers 76 offices 47 countries Baker & Mc. Kenzie facts 76 offices in 47 countries More than 4, 200 lawyers admitted to practice in over 250 jurisdictions and fluent in 75+ languages We are in markets that matter ü 37 of the world’s 50 largest economies ü 13 of the top 15 global financial centers ü 12 of the 15 most resource-rich markets We are No. 1 In Cross-Border Work When it comes to cross-border work, our firm is the No. 1 choice, according to the just-released 2013 Acritas Global Elite Brand Index. The survey asked 815 senior in-house counsel from global corporations to name the most well-known firms, firms they perceived favorably, and firms they would choose for cross-border work. We earned the highest score for the fourth consecutive year, beating the next-ranked firm by a 34 -point margin. © 2014 Baker & Mc. Kenzie LLP 2

So, Your Company is Going Global! Top 5 International Issues for In-House Counsel 1. 2. 3. 4. 5. Options for going international Managing compliance risk Global employment issues Data privacy concerns International dispute resolution © 2014 Baker & Mc. Kenzie LLP 3

Options For Going International

◉ In 2014, the number of cross-border M&A transactions globally is close to a post-crisis high. ◉ In a Baker & Mc. Kenzie global survey of C-level executives on trends in cross-border M&A, 86% said that their most recent cross-border M&A transaction was a success and 34% plan to make further acquisitions within the next two years. ◉ In a 2013 survey, 37% of respondents cited joint ventures and strategic alliances as the types of investments they plan to make when entering emerging and high-growth markets in the next year. ◉ Since 2010, there have been more than 250 joint ventures and strategic alliances announced and/or completed with a value of more than US$63 billion. Cross-Border Focus: High-Growth Markets ◉ © 2014 Baker & Mc. Kenzie LLP Companies continue to expand beyond the BRIC countries (Brazil, Russia, India, China) to include other high-growth markets, including Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa, among others. 5

Transaction Continuum: Options for going international Outsourcing Contract Services Corporate Joint Venture Contractual • Area Development / Franchise / License • Supply/dist Non-Equity Investment Non. Controlling <50% Equity Joint Ventures Controlling ≥ 50% Traditional M&A Partial Acquisition Controlling >50% Full Acquisition Greenfield Establishment of Wholly. Owned Subsidiary Equity Increasing Degree of Commitment Increasing Degree of Integration Increasing Degree of Control © 2014 Baker & Mc. Kenzie LLP 6

Options for going international JV vs M&A vs Greenfield Joint Venture Traditional M&A Greenfield Initial Costs somewhat costly price + legacy costs highest costs Speed to Market faster entry slower entry Market Presence dependent on branding highest presence Governance Complexity complex less complex Level of Control dependent on agreement higher control highest control Political & Cultural Risks somewhat risky riskier highest risks © 2014 Baker & Mc. Kenzie LLP 7

Options for going international Non-taxable vs. taxable presence Rep Office Non-Taxable Presence ? Foreign Employer Subcontractor Distributor Branch Taxable Presence LLC Subsidiary Corporation © 2014 Baker & Mc. Kenzie LLP 8

What is a Cross-Border Joint Venture? Commercial undertaking by two or more parties to run a business for profit, sharing risks, with the parties and/or the business located in more than one jurisdiction ◉ ◉ ◉ Joint development and joint marketing arrangements Area development and franchise relationships Strategic alliances, toll manufacturing and supply and distribution arrangements Consortia Equity joint ventures © 2014 Baker & Mc. Kenzie LLP 9

Options for going international Choose the right partner § § § Strategic business alliance relationships have grown increasingly popular and serve as a means for both parties to leverage their respective capital, brand awareness, market insights and commercial positioning Select a partner who is not only knowledgeable and well positioned in the local market but also willing and able and willing to become familiar with your strategy and practices In choosing a JV partner, the following should be considered: Non-operational matters Operational matters • • • Reputation Legal compliance Ongoing disputes Organizational compatibility Geographic stability Technological compatibility © 2014 Baker & Mc. Kenzie LLP Alignment of goals Business cultures Financial resources Operational savvy Leadership commitment Development path 10

10 Essentials for Tackling the Unique Challenges in a Cross-Border Joint Venture Identify Goals and Success Drivers for the JV Find a Compatible JV Partner Establish a Common Vision Respect and Comply With Local Law / Custom Protect Your Brand Reputation Protect Your People Against Risks Protect Your Assets Anticipate Common Problems in Documentation Establish Well-Defined Exit Mechanics Be Ready for Day 1… and the other Days © 2014 Baker & Mc. Kenzie LLP 11

Managing Compliance Risks

Compliance Challenges Await Nearly all cross-border transactions have compliance risks Key factors are: • Counter-parties • Jurisdictions • Industries with high risk profiles Risks of ignoring or downplaying compliance issues are: • Significant post-closing clean-up • Negative publicity • Loss of some – or even all – of deal value Compliance is one area where there needs to be particular scrutiny and vigilance. © 2014 Baker & Mc. Kenzie LLP 13

Managing compliance risks US Foreign Corrupt Practices Act (“FCPA”) ‒ Most actively enforced anti-corruption law in the world ‒ Contains two main provisions § Anti-Bribery § § Prohibit the payment of bribes to foreign (non-US) officials to obtain or retain business Directly or indirectly through a third party “knowing” that some or all of the payment will be paid to a foreign official § Books and Records § § Requires all US issuers to maintain adequate books, records, accounts, and internal controls Includes foreign-based companies that issue American Depository Receipts in the US © 2014 Baker & Mc. Kenzie LLP 14

Managing compliance risks FCPA Sanctions ‒ ‒ Anti-Bribery Provisions § Up to $2 million for each violation for companies § Up to $100, 000 and imprisonment of up to five years for individuals including officers, directors, stockholders, and agents of companies Accounting Provisions § Up to $25 million for each violation for companies § Up to $5 million and imprisonment of up to 20 years for individuals © 2014 Baker & Mc. Kenzie LLP 15

Managing compliance risks Where’s the risk? Corruption Perception Index 2013 © 2014 Baker &

Managing compliance risks Risk-based FCPA due diligence ‒ In which countries does the target operate (Australia vs Zimbabwe) ‒ ‒ ‒ Which industries does the target serve (oil/gas, defense, pharma) Who are the target’s customers (governmental agencies) How does the target its products to market (agents, distributors, consultants) What are the target’s key regulatory touch points (customs, licenses, permits) What is the target’s compliance culture / history ‒ ‒ © 2014 Baker & Mc. Kenzie LLP 17

10 Essentials for Managing Compliance Risks in Cross-Border Transactions Be in the “Compliance Mindset” from the Start Understand What You Are Acquiring – and From Whom Conduct a Preliminary Risk Assessment Identify Potential High Risk Areas Early Scale Diligence Appropriately Consider Disclosure of Identified Misconduct Structure the Deal to Avoid or Minimize Risk Negotiate Appropriate Contract Provisions Prepare for Day 1 Remember: The Compliance Road Goes Ever On © 2014 Baker & Mc. Kenzie LLP 18

Global Employment Issues

Global employment issues “Foreign” vs US employment law ‒ ‒ ‒ General lack of at-will employment Individualized employment agreements Prevalence of trade unions and works councils Statutory termination indemnities Acquired rights But as in the US, employment law is a reflection of social/economic/political factors © 2014 Baker & Mc. Kenzie LLP 20

Global employment issues Not every hire will be an employee ‒ ‒ Director / manager v. non-manager Employee v. independent contractor § § ‒ ‒ Ensure the nature of the relationship is properly classified, i. e. , reality v. the “label” Continued / extensive use of independent contractors globally raises misclassification risks worldwide Employee through third party employer Employee on expatriate assignment © 2014 Baker & Mc. Kenzie LLP 21

Global employment issues Impact on local hiring documentation ‒ Offer letters vs comprehensive employment contract § § ‒ Must be compliant with local laws Changes may require express consent, avoid binding statements regarding bonus/commission or benefits plans Cultural differences Do not include equity Proprietary information & invention assignment agreements § § Often included within local employment contracts Confidentiality Intellectual property protection Non-competition / solicitation handle with care! © 2014 Baker & Mc. Kenzie LLP 22

Global employment issues Key employment terms ‒ ‒ ‒ ‒ ‒ Identify the employer Probationary periods Duration of employment (definite vs indefinite) Compensation / benefits Hours / location (steer clear of overtime traps and observe applicable teleworking laws) Vacation / holiday Termination Choice of law / forum Arbitration Keep in mind National Collective Bargaining Agreements © 2014 Baker & Mc. Kenzie LLP 23

6 Key Considerations for International Employment Pick the correct hiring entity and form of engagement Provide “best practices” employment contract appropriate for individual position Keep US stock options out of non-US employment documents Consider payment requirements when contemplating inclusion of post-termination non-compete/solicit restrictions Don’t be US-centric (many US terms / practices / policies don’t translate or are non-compliant with local laws) Be aware of potential union / works council obligations © 2014 Baker & Mc. Kenzie LLP 24

Data Privacy Concerns

Data privacy concerns Scope of data privacy laws ‒ Regulate the collection, use, storage, disclosure, and other processing of “personally identifiable information” or “PII” § § ‒ Name and other “identifiers, ” and any other data that can be linked with the identified or identifiable person. Employees, consumers, contractors, corporate customer contacts, supplier contacts, website visitors, business partner contacts, end users, and other individuals. Two approaches to regulation globally: § § United States: Sector-specific (HIPAA/HITECH, GLBA/FCRA, and the like) and data-specific (SSNs, bank account, credit/debit card numbers) European Union: Omnibus privacy laws applicable to all PII, regardless of sector, category of individual, or type of PII; EU tends to lead the rest of the non-US world. © 2014 Baker & Mc. Kenzie LLP 26

Data privacy concerns Data Privacy in Compliance Programs ‒ Compliance often includes: § § § ‒ Internal investigations Whistleblower hotlines E-monitoring E-discovery Compliance screening Regulatory reporting Challenges: § § Business or compliance requirements at global (e. g. , US) level for data or documents Local privacy rules and conflicting rights for employees or persons of interest in investigations, litigation, and compliance activities © 2014 Baker & Mc. Kenzie LLP 27

Data privacy concerns Data Privacy in M&A and other activities ‒ Mergers & acquisitions § Due diligence: privacy may affect value of target company, depending on whether patient, customer, employee, or other user data is critical to value proposition for purchaser § Conduct of transaction: exchange of information may be subject to regulation. Post-acquisition integration: IT transformation, consolidated service centers, more data flow § ‒ Business transformations and IT solutions § § ERP systems and cloud services may allow for the global centralization of human resources, supply chain, distribution and customer relationship management Global PII data flows about employees, consumers, corporate customers, distributors, suppliers, end users, and others. © 2014 Baker & Mc. Kenzie LLP 28

Data privacy concerns Data Privacy issues and solutions ‒ Two “big picture” data privacy issues: § § ‒ Local compliance obligations § Notice/consent § Legitimacy/proportionality § Information security § Sensitive PII requirements § Data protection filings/ consultations with data protection officers Cross-border data transfer restrictions Solutions: § § § IT policies, notices, and consents Proportionality, avoiding prohibited activities Filings with authorities and consultations with works councils Cross-border data transfer solutions Anonymizing data and other solutions © 2014 Baker & Mc. Kenzie LLP 29

3 Key Considerations for International Data Privacy issues arise in compliance activities as well as business transformations Enforcement and data security breach notification is driving up costs for non-compliance with privacy requirements Perfect privacy storm: § § § more complex laws, more business activities, and more enforcement © 2014 Baker & Mc. Kenzie LLP 30

International Dispute Resolution

Tips for International Dispute Resolution ‒ ‒ ‒ Arbitration provides greater flexibility when law is against you Ambiguity gives other side ability to delay, increase costs and possibly win Venue typically more important than applicable law Honesty usually wins and dishonesty and/or unpreparedness almost always catches up to parties Can use same counsel wherever dispute is Arbitrator selection one of most important steps 32 © 2014 Baker & Mc. Kenzie LLP 32

Tips for International Dispute Resolution ‒ Be clear about priority § Priority of contract documents and provisions § Priority of contract and applicable law “In arriving at their decision, the arbitrators shall consider the pertinent facts and circumstances and be guided by the terms and conditions of the Contract; and, if a solution is not found in the terms of the Contract, the arbitrators shall apply the provisions of the laws of the Republic of China” 33 © 2014 Baker & Mc. Kenzie LLP 33

Comparison of international arbitration options International Centre for Dispute Resolution International Chamber of Commerce London Centre for International Arbitration China International Economic and Trade Commission United Nations Commission on International Trade Law (ICDR) (ICC) (LCIA) (CIETAC) (UNCITRAL) Well run, second most frequently used and usually less expensive than ICC. International arm of American Arbitration Association, and thus, often objected to by non-US parties. Oldest, most frequently used and best run organization. Most formalistic and usually most expensive. Costs are frontloaded in form of advance on expenses of institution and arbitrators. Can create an effective deterrent to filing of claims. Very formalistic, very British. The most popular arbitral institution for Chinese parties in which the seat of arbitration is the People's Republic of China. Historical issues with impartiality and related concerns. Viewed as neutral and somewhat unobjectionable as a set of rules, but ad hoc (i. e. , no administering body. Less expensive, but open to more gamesman-ship, delays, and complications due to lack of immediate oversight. Must go to local courts if need assistance. Should not be used with out naming an administering body is also named (ICDR will administer cases under UNCITRAL Rules). Most common in Europe and Middle East. Fairly expensive and frequently carries with it the addition of barristers (and associated increase in cost). With exception of CIETAC, these rules do not vary materially and where they do, parties can typically contract around the differences © 2014 Baker & Mc. Kenzie LLP 34

6 Essentials for International Dispute Resolution Think about enforcement at deal stage (i. e. who will be claimant, where assets, how much is at issue) Select a venue in the Agreement Remember priority Consider service issues Choose an applicable law Consider whether arbitration or litigation would best serve your interests © 2014 Baker & Mc. Kenzie LLP 35

Questions? Baker & Mc. Kenzie LLP is a member firm of Baker & Mc. Kenzie International, a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a "partner" means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an "office" means an office of any such law firm. © 2014 Baker & Mc. Kenzie LLP 36

Thank you! David J. Malliband Andrew J. Boling Partner, Corporate & Securities Baker & Mc. Kenzie (312) 861 -8695 david. malliband@bakermckenzie. com Partner, Global Employment Baker & Mc. Kenzie (312) 861 -8076 andrew. boling@bakermckenzie. com Lewis D. Popoff Snr. Associate, Corporate & Securities Baker & Mc. Kenzie (312) 861 -8160 lewis. popoff@bakermckenzie. com © 2014 Baker & Mc. Kenzie LLP 37