Ethics pitfalls in mergers, acquisitions.

• Author: Haney, Brian S.
• Position: Ethics Corner

Integrating two companies' ethics and compliance programs during the merger and acquisition process is critical and begins well before the union of the companies.

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Both the target company and the acquiring company should take care to conduct diligent research into the ethics and compliance programs of all parties involved prior to signing the transaction agreement. Failure to perform such diligence can be fatal to the success of the transaction.

During the pre-acquisition phase, the first rule to keep in mind is that joining two companies' ethics and compliance programs is about more than paper and numbers. It is also about culture. A company's ethics and compliance programs are deeply interwoven with company culture. Company culture is not something that shows up in the transaction paperwork or perhaps even in due diligence reports.

Yet, the compatibility of the companies' cultures is a vital part of merger and acquisition success. Thus, company characteristics that contribute to the make-up of a company's culture--such as values, work ethic, business practices, leadership style and company mission--are all critical to the merger and acquisition process.

A second rule to keep in mind throughout the process is that ethics and compliance issues, including cultural issues, need to be addressed as they arise. Ignoring ethics and compliance issues or placing them on the backburner can jeopardize the transaction's success. Consequently, disparities in the parties' ethics and compliance programs need to be managed and resolved prior to finalizing a transaction to maximize the likelihood of long-term success.

The third rule that target companies and acquiring companies need to keep in mind is that integrating ethics and compliance programs successfully requires patience. Management of the newly formed company should be mindful of the fact that integration of two companies' cultures can be a slow process. However, the chances of a successful integration of two companies into one larger company, family and team are substantially increased when the right amount of time, effort and resources are allocated to the integration process.

For example, Goodyear in 2015 paid more than $16 million in disgorgement of profits and prejudgment interest as part of a settlement agreement with the Securities and Exchange Commission. The agreement settled Foreign Corrupt Practices Act violations alleged against Goodyear. The violations stemmed...