Mergers, acquisitions call for added scrutiny.

• Author: Rath, Manik K.
• Position: ETHICS CORNER

Merger and acquisition activity in the defense sector is robust. Any merger or acquisition requires serious due diligence, to give buyers, sellers, and merger partners a clear picture of their prospective partners, examine specific issues and to test the viability of their business strategy in a particular case. Many companies employ due diligence checklists to review myriad organizational, financial, tax, employment and legal issues. In addition to standard legal compliance issues, that checklist should always include close examination of ethics, corporate culture, organizational conflicts of interest and viability of compliance programs. These issues are especially complex in the defense industry as a result of statutes and regulations relating to contracting and government ethics.

Corporate culture is the aggregate of attitudes, experiences, beliefs and values of an organization. A candid assessment of cultural differences between companies, reflected in ethics codes, compliance programs and related policies and procedures, records of enforcement, and tone from the top invariably will pay large dividends.

A close review of past voluntary disclosures, enforcement actions and penalties is particularly revealing. If a voluntary disclosure was made, analyzing resolution of that disclosure, and the impact on the target company's current government business is obviously crucial. A company's culture is the cornerstone of its ethics program, and, in turn, compliance programs implement a company's ethics policies.

When acquiring or merging with any government contractor, reviewing ethics policies, compliance programs, and all recent voluntary disclosures will provide a wealth of invaluable information. Government contractor ethics programs govern the conduct of employees and agents. Ideally, the ethics program permeates everything from day-today interaction with government officials to organizational conflicts of interest, improper gifts and gratuities, bribery, the Anti-Kickback Act, contingency fees, the Procurement Integrity Act, revolving door rules, the Truth in Negotiations Act, false statements and false claims, penalties for violations, and what to do if an employee is aware of a violation. Even attitudes toward tax compliance can provide insight.

An effective compliance program lends structure to an ethics policy, empowers compliance officers, emphasizes training, and enforces and corrects infractions. In short, in a merger or...