A recent blog post by Ethics Resource Center President Pat Harned, reported on findings from the ERC 2013 National Business Ethics Survey (NBES) of significantly more observed misconduct in companies that are under stress during mergers, acquisitions and organizational restructurings. The survey found that companies undergoing change, on average, had a 21.5 percent increase in observed misconduct.
These findings should not be a surprise to anyone who has been in an organization experiencing these types of changes. Most people don’t like change—especially change that could threaten their job in the case of redundant positions, or fear of failure with new bosses and colleagues. Often there is also pressure to put the best financial performance forward for new owners or potential buyers.
Risks of Ignoring Behavior Risk During Major Organizational Transitions
Our experience has shown that leaders have a natural reaction to put ethics and compliance initiatives on the back burner until a new organization is in place. Why spend the time or resources now when new structures and people will be in place in a short period of time? They believe it is best to wait to address risks facing the newly formed entity when the deal is complete.
While this may sound intuitive, it is exactly the wrong thing to do. The merger or acquisition process itself often presents new or different business risks especially to those directly involved in the change process—and even those who are on the sidelines waiting for the big announcements (that the rumor mill has already picked up).
Identifying New Risks Created by Mergers, Acquisitions and Restructuring
Risks during organizational change may include heightened antitrust hazards when a competitor is a potential merger partner or acquirer. Or, for example, a U.S. government defense contractor being considered for purchase by a foreign national company must be prepared for a host of new challenges and government regulations.
Some of the highest risks occur during a due diligence process when good intentions to respond to requests for information from a potential buyer turn into a breach of compliance. There is also always the intensified risk that someone may be a little too aggressive in financial reporting to show the most favorable market position.
Organizational internal restructuring also brings new or increased risks. Uncertainty and worry about loss of job or position can lead people to do some inappropriate things.
When Velocity of Change Increases, Reporting Often Decreases
Anecdotal evidence has shown that in periods of uncertainty, employees are much less likely to report suspected wrongdoing because “it just isn’t a good time stick your neck out.” So, organizations experiencing big changes have higher levels of observed misconduct (based on the ERC research) and less internal reporting of potential issues. This is not a good combination for an organization in transition where the last thing it needs is compliance problems and bad publicity.
Five Keys to Leveraging Organizational Change to Strengthen Your Corporate Culture
Change in a vulnerable time can be a great catalyst for enhancing a corporate culture—or it can go the other way. Organizations need to be predictive about what could go wrong and plan ahead to put concrete actions in place before and during mergers, acquisitions, or significant internal restructurings.
Following are five steps you can take to strengthen your ethics and compliance program effectiveness and protect your organization during times of major change:
- Conduct an ethics and compliance risk assessment of the planned change process. This does not need to be a time consuming process but it should identify the potential new risks, the employees who will be involved in the process that need to be aware of the new risks, and it should define the planned mitigation strategy to avoid problems.
- Ensure that those employees who will be involved in the change process receive new or refresher training on the high risk elements of their specific change-related responsibilities. Clearly communicate expectations to all involved that company standards and policies cannot be violated or compromised during the change process.
- Consider requiring key individuals in the change process to certify—or re-certify—that they understand the policies applicable to the change-related risks.
- Be aware that no matter how many confidentiality agreements the participants in the change process may have signed, someone will likely leak the information to another employee who was not identified as a process participant and who will not have received the specialized training and reminders. Consider deployment of company-wide communications (such as microlearning messages or full refresher training) on protecting confidential information to help ensure that all employees have increased awareness of their obligations.
- Finally, knowing that those employees who become aware of potential wrongdoing during a stressful period may be less likely to report the issue, it will be important to step up communications about the need to report any known or suspected wrongdoing and the organization’s position on retaliation.
To learn more about building a strong culture of ethics and compliance that will help increase program effectiveness no matter what kind of transition or change your organization might be experiencing, read our whitepaper, “Creating a Culture of Ethics, Integrity & Compliance: Seven Steps to Success.”