Best Practice Solutions Vol. 2: The impacts of acquisitions/mergers and divestitures/de-mergers

by Tjeerd Hendel-Blackford 22 Aug. 2018

Greetings reader! Thanks for joining us for the second volume of the 12 Best Practices of Compliance Solutions Series.

In this series we will address twelve of the key challenges you face, one-by-one, with best-practice advice derived from over a quarter-of-a-century of support to global industry!

You can read Volume 1 here.

In this volume we examine the impacts of corporate change through mergers and acquisitions, etc.

Challenge:

The challenge can probably be summarized in one word: “change”. Enhesa has been in business for almost three decades and we have seen many companies grow or shrink in that time. To name just a few examples; Alcatel merged with Lucent Technologies; GE sold off its plastics business to Sabic; Johnson Controls spun off its automotive interiors business, which became Adient; Shire merged with Baxalta; and Dow and Dupont are merging before then splitting into three separate companies. There are daily examples. Needless to say, with all of these acquisitions, mergers, divestitures and de-mergers, company EHS compliance programs can face a number of challenges. For example:

  • Companies can explode in size, in terms of locations and operations, virtually overnight (or of course, decrease in size). It is a common occurrence that global EHS managers don’t actually know with 100 percent certainty how many sites they are responsible for across their company’s entire portfolio. Obviously this could lead to situations where sites are not supported, are not yet integrated into a corporate compliance program, or indeed corporate (EHS) culture.
  • When companies split or merge it can create an atmosphere of turmoil and uncertainty (not only in EHS), which could lead to gaps in EHS compliance at every level of the organization.
  • Organizational changes can lead to a lack of a clear program and leadership in place for several months – and we have witnessed this happen over even a year or two.
  • A corporate downsizing can often lead to decreases in EHS department resources and personnel – we have even witnessed the complete removal of an entire EHS department at some companies in the past. A corporate restructure gives an opportunity to look at things anew and start with a blank slate.
  • It is common for companies that grow rapidly through acquisition to end up with a multitude of different solutions or even competing solutions to help them manage their EHS legal compliance across all of their regions and sites. Sites can often be wedded to the systems and processes they have in place and be extremely reluctant to change. The challenge is how to go about consolidating and standardizing processes across your expanding organization.
  • The reorganization of resources can also directly impact the continuity of pre-existing programs as people in key roles may be moved from one plant, business unit or division to another – taking their knowledge and experience with them – and leaving a gap to fill. Many companies fall behind on updating their written Standard Operating Procedures (SOPs), often using old company names and contacts, which can be super easy for regulators to spot if they come to inspect.
  • Transition can also be challenging on a personal as well as professional level for EHS departments. Conflicts and tensions can arise.
  • Businesses are increasingly changing what they do…in the digital age a lot of companies are fundamentally re-examining the products and services that they offer. This means that the types of processes and operations that EHS personnel are required to manage day-to-day can also change dramatically – again opening up a possibility of gaps in experience and knowledge.

Best Practice:

Concerning the explosive growth or reduction in size of companies there are a few steps that we have witnessed leading global companies take to face the problems that result. Here are some examples:

  • In the event of a merger or divestiture leading to a restructure of the EHS function, it is important to have a clear transition plan in place for your EHS compliance program. Make it clear who will do what, where, when and how.
  • EHS compliance is typically a very important aspect of due diligence prior to the decision taken of whether to buy or sell particular company assets. This importance could be leveraged to ensure that EHS considerations are at the heart of consolidation or restructuring efforts. It is an opportunity to demonstrate your value to the organization.
  • Make sure to identify, upfront, the leaders, structure, key people and systems you want to use in your “new” organization. We saw a good example of this when Johnson Controls divested its automotive interiors arm – which subsequently became Adient. To ensure a smooth transition, Adient virtually cloned the program they had been used to at JCI. There is no need to re-invent the wheel if you don’t need to.
  • Adopting a lean approach is fine – but make sure it is efficient and effective with the right people. Having a small corporate EHS team can actually be beneficial in some ways as decision-making can be more streamlined and effective. It can also foster ideas, innovation and challenging the normal way of doing things.
  • A clean slate, and fresh pairs of eyes actually present a fantastic opportunity to challenge and change “how things have always been done”. Look at the big picture across your organization in terms of existing EHS compliance programs and evaluate the approach that will provide the greatest consistency (it may a good opportunity to introduce a new global, coherent system and approach)
  • Use an easily configurable compliance tool whereby you can add (or remove) facilities; set up and administer user access rights to facilitate continued compliance management during the transition in your organization. Make any transition as smooth as possible with scalable/flexibles tools and services.
  • Communication, communication, communication! Make sure that your team is informed of what is happening in terms of a restructure. This will keep your team engaged and motivated.

Conclusion

In summary, to ensure business continuity, corporate governance and the management of risks presented by organizational changes, it pays to invest in an EHS regulatory compliance solution that is configurable, scalable and easily implemented and adopted for new users. This will enable the ripples of change to be minimized and for the management of compliance with EHS laws, globally, to remain a steady ship on choppy waters.