Large privately held company - risks in hiring vendors 2543

  • :? Any help would be much appreciated. I am researching the actual risk involved with a very large privately held company who specializes in assett recovery, and their possible hiring of a freight carrier to move their freight. I will refer to them as Company A and Carrier B.
    Company A’s Transportation Director and Transportation Mgr. are both married to individuals who work for Carrier B. Company A’s Transportation Director also sits on the Board for his company. A salesperson from Carrier B would like to do business with Company A in terms of shipping their freight. Company A says the risk is to big because if they were ever audited, there may be question of impropriety or other like issues.
    Carrier B believes it should be given a chance to prove itself the way any other carrier would have to and maintain legal documents as it would have to with any other company. So even with the risk, Company A should hold them as accountable as they would anyone else. Carrier B also has a sister company (referred to as Carrier C) who is minority owned who could actually sign on Company A and control all documentation through it but who would choose to hire Carrier B as its’ vendor of choice to move the freight. So in essence, Carrier B would still be involved with Company A; however, Company A would have signed on Carrier C…who would then decide to use any vendor they choose to move the freight.
    Is there truly too much risk for Company A to use Carriers B or C because of the marriage relationships within Company A and Carrier B? Or is the risk no more than any other risk they have in choosing vendors?
    Can anyone help?

  • The only risk is that Company A might be accused of going with Company B because of the relationships of the Company A directors with Company B employees and not because Company B was the best vendor to use for transportation of goods.
    There is nothing wrong in doing business with a related party as long as the relationships are disclosed to both Boards of Directors and any significant transactions are properly disclosed in the financial statements of both companies.
    Generally when doing business with related parties, one must ensure that all necessary steps are taken to ensure that proper company policies are followed, especially concerning putting work out for bid. If a related party is chosen to do the work, then there should be support for the decision to go with the related party.
    I would suggest that the transportation director of Company A involve someone else in his company to review bids and contracts related to Company B to help ensure that all transactions and decisions are above board.

    Thank you…that helps confirm what I have been thinking and I really appreciate your feedback.

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