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The Real Focus for Compliance: Post-Acquisition Integration of an Acquired Company (Part III of III)

In light of the evolving (or evolved) DOJ and SEC approach to FCPA enforcement in the merger and acquisition context, global companies have to emphasize their post-acquisition process.  Obviously, this is not limited to ethics and compliance issues.  An acquiring company has a long list of tasks needed to complete in order to integrate the new company into the existing company’s operations.

Global companies that succeed in this process devote significant resources to the project and begin planning and execution early in the acquisition process.  In some cases, global companies do very little to nothing and permit acquired companies operate independent of the acquiring company.  This is a recipe for disaster but you would be surprised at the number of acquisitions that result in minimal integration efforts or take years to complete the process.

In stark contrast, there are global companies that recognize the importance of post-acquisition integration, assign a senior manager responsibility for the project and then insist on broad representation of each and every corporate function in the process, including ethics and compliance.  A task force approach, if effective, will meet regularly and develop assigned tasks and responsibilities for participants to carry out and complete on a strict timeline.  Global companies that are successful in the integration process usually succeed financially and in a sustainable manner over a course of years.

A target company has to address and plan for important integration issues such as:

  • Implementing compatible ERP systems;
  • Ensuring timely connection to corporate communications systems;
  • Transition of executives, managers, employees to Human Resource programs;
  • Plan for integration of physical facilities, staff and corporate operations;
  • Staffing and transition of operations from separate to integrated status;
  • Assumption of financial operations, including accounting controls, invoice-to-payment process, financial authorizations, and other critical controls; and
  • Health, safety and environmental responsibilities and other regulatory requirements.

This list is not exhaustive but is just a beginning point.

From an ethics and compliance perspective, the integration process has to include:

Ethics and Compliance Code of Conduct, Policies and Procedures: The acquiring company has to take affirmative steps to ensure that its code of conduct, compliance policies and procedures are applied “as quickly as is practicable” to the acquired business operations.  This requires prompt integration of the acquired company into the acquiring company’s intranet portal and other ethics and compliance resources.

Train the Directors, Officers and Employees: The acquiring company has to prioritize ethics and compliance training of the acquired company’s directors, officers and employees.,  Depending on the acquired company’s risk profile, the acquired company should consider training of third-party business partners and third-party representatives.  Such training should focus on the FCPA and other anti-corruption laws, the company’s code of conduct and compliance policies and procedures (e.g. due diligence, gifts, meals and entertainment expenses).

Conduct an FCPA Audit:  The acquiring company should conduct “as quickly as practicable” an in-depth and robust internal FCPA audit of the acquired company’s operations.  In essence, the FCPA audit should include deep dives into issues and operations that may have been identified during the pre-acquisition due diligence.  Whether this is conducted internally or by external attorneys and forensic accountants, the audit has to be detailed and involve a broad review and robust sampling to ensure that no potential violations occurred in the past or are ongoing.  This review is critical.  If the company does not uncover any illegal conduct, the acquiring company will bear the risk of liability if discovered after the post-acquisition audit.  Moreover, the company’s ability to secure a declination in such circumstances may diminish.

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