The case for business ethics was recently made very clear to me when I co-chaired at the New York State Bar Association International Section’s Seasonal Meeting in Guatemala, particularly as it relates to hidden ethics risks in M&A transactions. I wrote a piece for the Law360 site as part of their "Expert Analysis" explaining these risks.
It's a case study about A.P Moller-Maersk who purchased a port in Guatemala in 2016 just before it became embroiled in a corruption scandal, eventually adding another $43M to their acquisition costs to get a new, clean permit.
From the piece:
The TCQ case raises numerous questions. Will ethics risk increase as anti-corruption efforts by governments intensify around the world? Can contractual relationships ever provide enough insurance for companies doing business in a jurisdiction that is known for high levels of bribery? For local governments in the emerging markets, how can they can best manage the long-term interest of fighting corruption — particularly given that there may be short-term costs to attracting large-scale investment by foreign and multinational companies?
A prudent acquirer should also consider assessing the internal ethical culture of an organization. This can be done through focus groups and culture surveys to get a better understanding of the common mindsets and beliefs that drive behavior in a company. The assessment should also include analysis of whether the informal norms of behavior align with the company’s stated values — in other words, does the company “walk the talk?”
Any merger ultimately leads to questions about how to integrate the cultures of the two organizations, and certainly management will be preoccupied with culture management throughout the integration process. Being deliberate about these issues prior to closing a deal can help the company not only get a jump start, but also find red flags and potential liabilities.
Read the entire piece on the Law360 blog [subscription required] >>