What is Quid Pro Quo?
In financial terms, a quid pro quo is a mutual agreement between parties that gives consideration to each member of the party in exchange for the goods or services which they have each benefited from receiving. It is similar to an exchange deal in which one company uses the services of another company in exchange for that business’s products. The literal meaning of “Quid Pro Quo” in Latin is “something for something”. The emphasis in a quid pro quo arrangement is on equal value of the goods or services offered by each party to the other.
Other phrases interchangeably used in place of quid pro quo are:
- Something for something
- A favor for a favor
- Give and take
- Tit for tat
- You scratch my back, and I’ll scratch your’s
- This for that
- I give so that you will give
- You help me, I’ll help you
How Quid Pro Quo Works
Although this term is always being used in legal and political perspectives, a concrete example related to business is bartering. It is particularly seen in start-up businesses where the inflow of cash is limited, and there is an opportunity to obtain goods or services without sacrificing revenues. No cash is exchanged – instead, services are reciprocated with services.
Another example is the quid pro quo contribution, a donation in which the donor receives something of commercial value in exchange for the monetary grant he/she provided to a company or institution. Like when someone donates $50 to a foundation, and the foundation then gives the donor a pen with engraved markings worth $5 as a token of appreciation..
Quid pro quo is also present in professional networking. A business person can reach out to other professionals who share the same interest or passion. A business group is created wherein one group member can offer something of value to other members of the group, such as education on a a relevant topic essential to the receiving member’s business core competency, in exchange for services in the future. The quid pro quo is also important for those looking to network to start their career.
What are the Issues Encountered in Quid Pro Quo?
Quid pro quo agreements are occasionally viewed as unfavorable in a business setting. For example, in a reciprocity agreement between a big financial house and a company, the financial house might modify the company’s poor stock rating in exchange for a stake in the company business. This is poor business practice and obviously violates regulatory rules. Acting properly, the financial house should put their investment clients’ best interests first, ahead of any potential gain for the house itself. However, this example does illustrate well the fact that quid pro quos are often in the nature of a favor for a favor, as opposed to a direct exchange of goods or services.
In the political arena, quid pro quo is often viewed as giving financial support to a political candidate in exchange for some future benefits or consideration regarding an issue or business operation. The Latin phrase may appear to indicate a bribe, but there is nothing inherently improper with the notion of quid pro quo. For example, a business or professional organization may contribute to a political candidate’s campaign, merely with the understanding that the elected official will keep the organization’s interests in mind when considering relevant proposed legislation.
Check out the resources listed below to further broaden your financial and business knowledge.