When in Rome...

Dealing with the institutions in a country where you have no knowledge of how things are done and where who you know is as important (or even more so) as what the law says means you have to be vigilant from day one.

The biggest error in this case was that they did alright on the 'trust' bit but they failed the 'verify' bit right from day one.

If there had never been so much room for maneuvering in the first place then this would have likely never happened. It's sad but in situations like this you're setting yourself up for long term trouble if you do not actively seek to control things right from day one.

I have a couple of cases quite comparable to this one in my immediate surroundings and some of it sounds eerily familiar.

The OP is in good company, big corporations fall for things like this and usually it costs a lot more than it did here. Chalk it up to your educational fund.

If anybody is in a position to attempt to replicate this experiment you may want to do the following:

- incorporate through a lawyers office and if local law requires a resident or national as a director make sure they are accountable

- prepare to go there when incorporating and get yourself educated with respect to the local situation (corruption, graft, how foreign companies usually get plucked)

- be prepared to spend a lot of time in the target country from the moment that you incorporate

- get your ducks in a row, don't put the responsibility of doing that in the hands of someone at arms length.

- if you want to keep things simple do not create a subsidiary, instead aid someone else in creating a company and hire them for a service they provide. This makes departures so much easier to deal with. It removes all of the responsibility from your end but you keep control at the level of the customer. Not happy? Then deal with someone else.

- spread the responsibilities over several people, make sure they check up on each other and report to you.

- trust but verify, repeatedly, continuously

This is not meant as a 'Philippine people can't be trusted' line, or even a 'foreigners can't be trusted' one. The sad fact is that if you, a rich western company lands to do business unprepared in a foreign country you are simply a very fat goose waiting to be plucked. So you need to be aware of that and act accordingly.

As these lessons come this one was remarkably cheap.

I've had something similar happen and I wished I could take my own advice above retroactively, my lesson was a lot more expensive than the one detailed here:

http://jacquesmattheij.com/stick-to-what-you-know-a-tale-of-...

There's two business lessons here, and neither are specific to doing business in the Philippines:

1) Don't be sloppy (and don't get emotional, because that'll make you sloppy);

2) Whenever you're dealing with a counter-party, try to understand where they're coming from.

There was clearly a mismatch between how the author saw Karen's position and how Karen saw it, one that was undoubtedly aggravated by the lack of documentation. Look at the situation from Karen's side. She started out running the business in the Philippines. Joe came in a year later and took over, effectively demoting her. After discussing the situation, the owners proposed an 80% pay-cut and 4-month leave of absence, something most reasonable people would interpret as a signal that they were being pushed out. Depending on Philippine law, this could have qualified as wrongful termination (most countries are not as employer-friendly with regards to terminations as the U.S.) When Karen sued, the author assumed it must have been some sort of shakedown, because he couldn't see how it could be a legitimate grievance. This established the paranoia that ultimately led them to ignoring calls from their own attorney.

If the authors had tried to empathize with Karen in the first place: 1) they could've taken actions to avoid the lawsuit; 2) realized that Karen had a pretty compelling case, and treated the suit with the seriousness it warranted. All this probably could have been avoided by some thinking and a severance payment that was less than the time and money wasted on the legal proceeding.

Interesting case. I also live in the Philippines and I have been looking into starting a company here.

I have been looking into info on "PEZA" - the Philippines Economic Zone Authority. It appears that for corporations which have 100% income coming in from abroad (which I assume you qualify for) you can get around many of the painful things that other corporations have to do.

For example, your corporation could be 100% foreign owned. Could you have just started a new corporation and simply started all business as part of that new corporation without "Karen's" involvement?

I don't think this is a PEZA item, I believe this is the case for any business in this situation.

ETA:

You probably can't answer this, but I noticed that if you are in a free economic zone with the same situation as above, you can get a tax holiday for X years. To get this, your business has to be physically located in one of these zones though. I'm wondering about the possibility of setting up a mail drop with a virtual office company which is located in a "PEZA" building.

ETA ETA: I can definitely identify with the feeling you get when you believe someone is trying to rip you off. I think that's unfortunate and may hold people back. In some cases, I see foreigners lose their professionalism and take things way too personally. Good job on getting through this.

Lost in court

> We stopped returning calls from his office. We ignored requests... we simply ignored the situation and continued to grow our business.

Really?

It's very simple they tried to start on the cheap and when they saw things were working out they decided to incorporate. That's when they started doing everything wrong. The first wrong thing was not understanding Filipino culture. Second thing not knowing the labor and business law.

Find out more here on how to register your business the correct way in the Philippines.

http://www.dayananconsulting.com/philippines-business-regist...

I couldn't find the bit corresponding with "6. Was arrested and put in a Philippines jail cell". That links to the section entitled "Retaliation" which doesn't say anything about being arrested or imprisoned. What am I missing?

> The original business was established under Karen’s name and we switched everything over to the corporation a few months down the road.

Did you meet Karen physically before or just began to trust her virtually.

Would you say from her perspective, the issue was as simple as "Let's try extort some more $$ as I leave, because I can.", or could it be more complicated?

>named Karen (not her real name)

Why don't you tell her real name and other info?

> $1.8M pesos (over $40K USD).

The confusing dollar sign.