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CHAPTER 14
Regulatory: And the License to Play

Table represents the seven sub-playbooks.

The governance playbook has three components: regulatory, financial, and board governance. The first is about risk management. The second is mandatory. And the third can be hugely value-adding.

The Georgia brand team walked into George's office in Tokyo.

“Bradt-san, the lawyers say our new brand name is illegal.”

“OK. We're not going to argue with the lawyers. They know the law. Instead, ask them what they think, in their legal opinion, would happen if we (a) chose to break the law and (b) got caught.”

This being Japan, the brand team didn't like that. But as much as they feared breaking the law, they feared George more and went back to legal.

They returned an hour later.

“Bradt-san, it happened.”

“What happened?”

“We had an illegal brand name in the market and we got caught 13 years later.”

“OK. What happened?”

“We had to change the name.”

“Who went to jail?”

“No one.”

“How much was the fine?”

“There was no fine. We just had to change the name.”

“Excellent. I'm prepared to accept that risk. Go forth and launch your illegal brand name on my authority.”

Of course, you're not going to do that. You're not going to do a risk–reward assessment and then knowingly violate regulations that don't really matter. Our point is the Gore-Tex waterline analogy. They're happy with people taking risks that could result in a hit above the waterline. They can fix those. They are inconsequential and reversible. But if someone takes a risk that could sink the boat—consequential and irreversible—they need to escalate that decision.

Violating some regulations result in minor fines. Fine. Violating some regulations result in regulators taking away your license to operate. Not fine.

Other key considerations as you evaluate a business for a mergers and acquisitions (M&A) or private equity (PE) deal is brand reputation and emerging regulatory trends. Among other things, pay attention to:

Business compliance requirements
Licensing
Insurance
Permits
Pending compliance, regulatory, lawsuits, and legal issues—by company and against company
Environmental information, such as health and safety notices, information related to any hazardous substances, or underground storage tanks
Industry and company pricing policies
Risks attendant to foreign operations (e.g., exchange rate fluctuation, government instability)

Guest Contributor Katherine Kirkpatrick

The current deal-making environment is filled to the brim with resurgent M&A activity globally, and people are making money hand over fist. But in those circumstances, it can be even harder to step back and evaluate whether the proper governance and compliance infrastructure is in place.

I spent a dozen years in the private sector focused exclusively on investigations, corporate compliance, white-collar defense, and regulatory matters. When I decided to make a change, I shied away from the all-important compliance-oriented positions. Why? Certainly not because those roles aren't important—they are often the most crucial. But as someone who thrives on getting the deal done, I hesitated before considering a role that would often necessitate “no, no, no.”

That being said, considering that often inconvenient no is paramount. A necessary impediment to making money is often an investment in the longer-term health of the entity. The ancillary costs of distraction (along with legal fees, fines and penalties, business limitations, undue scrutiny, and so forth) should an issue arise are significant. Along the lines of “no one ever regrets a workout,” no C-suite ultimately regrets prioritizing regulatory implications.

Right now, the regulatory environment for M&A deals globally is exciting but fraught with landmines. Regulators are considering more stringent agendas with a distinct focus on environmental and social issues, digital assets, trade, privacy, antitrust, and national security. The regulators are getting smarter and more sophisticated, so the private sector needs to outpace them by learning more about artificial intelligence and analytics. In addition to assessing the probability of deal approval, take into account aggressive regulators and new foreign direct investment regimes intended to further economic nationalism. Everything is a chess match—if you are three steps ahead, you have a much better chance of winning.

Now is the time to make money, but it is also the time to batten down the hatches and focus on diligence, quality, compliance, and proper corporate governance.

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Table of Contents for CHAPTER 14: Regulatory: And the License to Play

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Table of Contents for
CHAPTER 14: Regulatory: And the License to Play