Over this series, I have visited with Eric Feldman, Senior Vice President, Don Stern, Managing Director of Corporate Monitoring & Consulting Services, and Rod Grandon, Managing Director of Government Services, from Affiliated Monitors, Inc., (AMI) who is the sponsor of this series. In it, we explore how to go about assessing ethics and compliance in the mergers and acquisition (M&A) context. In this fifth and concluding episode I visit with Stern to tie together how an independent integrity monitor can benefit the entire M&A process.
I began by asking Stern when the best time is to engage an independent monitor for the M&A process. It is “as early as is practicable”. By doing so there can be preliminary discussions with senior management about the process, sometimes at the Chief Executive Officer (CEO) level and at other times with the Chief Financial Officer (CFO). From these initial meetings an independent monitor could be a part of the acquirer’s team assembled for the project. He also noted there would probably be a due diligence room with documents made available for the acquiring company to review under a nondisclosure agreement (NDA). That could be meetings where teams from one company meet with teams from the other company. Stern reminded us that M&A work to some extent is “a fire drill, as everyone’s working very hard in compressed time schedules, trying to do a lot in a very short period of time.” This means at times issues pop up which may require the companies to further negotiate the terms of an escrow or other risk management protection for the buyer.
A key is the independent nature of the monitor. Part of it is that they have no stake in the outcome, no stock to vest or other remuneration. Also, it is natural for the target company’s employees to have their guard up as they are more than a little wary about anybody coming in and asking a question. Stern said, “I find that people open up, I’m more willing to be forthcoming when somebody’s outside either company comes in and is asking the questions really in a non-threatening way. The independent monitor is just looking for the facts. I find that we are able to get more information than I think we would otherwise get if we were not independent.”
We then turned to post-acquisition. Here Stern emphasized the need to have a plan in place. Obviously, this is important if the government ever comes knocking but equally important for the newly acquired (former target) employees. He said that if you have a plan in place it can help you avoid “some of those problems because people expect there will be training in week three and there will be focus groups in week four, etc.”
We concluded with a discussion of what you should do if a Foreign Corrupt Practices Act (FCPA) or other problem comes up in spite of robust pre-acquisition due diligence. Stern said that it is important to stop the illegal or even unethical conduct as quickly as possible. This has become more important because of the recent addition of the Safe Harbor for M&A to the FCPA Corporate Enforcement Policy. This has incentivized companies to not only remediate but also self-report.
This new FCPA Safe Harbor for M&A re-emphasizes how powerful a tool an independent monitor can be in the M&A context. Stern ended his remarks by noting that the Department of Justice (DOJ) certainly sees it as good practice to have a third party independent involved on both the company side and the reporting side, if required. All of this lends credibility to your ethics and compliance program. If your company finds itself under scrutiny from a M&A transaction, you can take some comfort in the strategies outlined in this five-part series.
Why does having an independent 3rd party in your M&A process facilitate the integration of compliance programs? Find out in today’s podcast.Click to tweet