Your company has just made its largest acquisition ever and your Chief Executive Officer (CEO) says that he wants you to have a compliance post-acquisition integration plan on his desk in one week. Where do you begin? Of course you think about the recently released Department of Justice (DOJ) Guidance on the Foreign Corrupt Practices Act (FCPA) but remember that it did not have the time lines established in the recent enforcement actions involving Johnson & Johnson (J&J), Pfizer and Defendant Data Systems & Solutions LLC (DS&S) regarding post-acquisition integration of a FCPA compliance program by an acquiring company into a company. While there are time frames listed in the Deferred Prosecution Agreements (DPAs) that can be ascertained, one of the things that most compliance professionals struggle with is how to perform these post-acquisition compliance integrations. I recently saw an article in the December issue of the Harvard Business Review, entitled "Two Routes to Resilience", which presented some concepts that I thought might be of use to the compliance practitioner in a post-acquisition compliance program integration scenario. It certainly might give you some ideas to present to your CEO next week.
The authors, Clark Gilbert, Matthew Eyring and Richard Foster reviewed the situation where an entity must transform itself in response to various factors such as market shifts, new technologies or low cost start-ups providing competition. In order to make such a transition, the authors posit that two transformations must take place. The first one "adapts the core business to the realities of the disrupted marketplace." This process creates a "disruptive business" within the older more established culture. This leads to the second transformation, which the authors denominate as "establishing a 'capabilities exchange'- a new organizational process that allows the two efforts to share resources without interfering with each other's operations." It is this second transformation that I want to focus on in this article.
Anyone who has gone through a large merger or acquisition knows how terrifying it can be for the individual employee. Many people, particularly at the acquired company will be fearful of losing their jobs. This fear, mis-placed or well-founded, can lead to many difficulties in the integration process. In whatever time frame the FCPA compliance practitioner faces: whether 18 months under the J&J DPA, 12 months under the Pfizer DPA or 'as soon as is practicable' under the language of the DS&S DPA; the process needs to move forward in an expeditious manner. In their article, the authors suggest the creation of a 'Capabilities Exchange' which allows "the two organizations to live together and share strengths" and will coordinate "the two transformational efforts so that each gets what it needs and is protected from [unwanted] interference by the other." The authors put forth five steps in this process.
Given the pressures and time frames in both the pre-and post-acquisition arenas, I believe this article provides some insight into how the CCO or compliance practitioner can think about the compliance program integration that is required in the mergers and acquisition (M&A) context. While the ideas presented by the authors relate to a different area, I believe that they can provide insight into the compliance field as well. It also could of great use to you in presenting a program to your CEO.
Visit the FCPA Compliance and Ethics Blog, hosted by Thomas Fox, for more commentary on FCPA compliance, indemnities and other forms of risk management for a worldwide energy practice, tax issues faced by multi-national US companies, insurance coverage issues and protection of trade secrets.
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© Thomas R. Fox, 2012
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