Strong relationships with your counterparties are vital for growth. Losing trust in them, particularly when you're locked into long term agreements or have substantial financial exposure, can have a negative impact on it.
The right response may depend on whether the loss of trust comes from market rumours or media reports rather than a specific action by the counterparty. Do you want to restore trust or exit the relationship?
Steve Holt explains the levers you can pull and the factors you need to consider in deciding the right course of action.
Relationships, like in most facets of life, are incredibly important in business.
Whether it is having a robust and dependable supply chain that means you can meet demands of your customers, being comfortable that your customers will pay you when they say they will, or working in mutually beneficial joint ventures, having strong relationships with your counterparties is vital to promoting growth.
These relationships will nearly always be managed through robust contractual agreements but, in reality, trust is the core facilitator of strong relationships.
So what happens when you don’t trust your counterparty anymore, particularly when you are locked into long-term agreements or with substantial financial exposure? Does your approach change if the loss of trust comes from market rumours or media reports rather than a specific action by the counterparty?
Well the first question to ask or answer is: do we want to (or need to) repair the relationship? If the answer is yes, then we’re looking at ways to restore trust or establish new operating parameters.
However, if the answer is no or the relationship has become untenable, then exiting the relationship while minimising disruption to the business becomes the key priority.
Companies have several levers that can be pulled in either scenario, albeit with a different focus on outcome, to establish base facts upon which defensible decisions can be made.
These levers include:
What should be done depends on the circumstances, the nature and importance of your relationship, the regulatory and enforcement environment that your company operates in, the extent to which exposure to the relationship could harm your company and your own risk appetite.
Much of this can be done utilising internal resources, but when there is particular sensitivity in the relationship it might be advisable to seek support from third party experts, like Grant Thornton.
What is universal is that you should do something – even if that something is to document your thought process and why you have made the decision you have made – and you should do that having established a key set of facts that underly your decision-making process.
