An awareness of human rights issues in a target company is a critical factor in the success of a merger or acquisition, a CIPS event was told.
Stuart Neely, a senior associate and member of the Business Ethics & Anti-Corruption Group at law firm Norton Rose Fulbright, said a lack of awareness raised the possibility of damaging risks.
Neely listed a number of laws around the world, including the UK Modern Slavery Act, the UN Guiding Principals on Business and Human Rights and the EU Directive on Non Financial Reporting, that put the legal onus on firms to assess human right impacts in their supply chains.
Speaking at a CIPS fellows event called Should Procurement Take a More Strategic Role in Mergers & Acquisitions, Neely said his team acted primarily for the buyers in M&A situations.
“What we do is testing understanding rather than finding solutions,” he said of target companies. “If you come across a target company and they don’t have an understanding of what their risks are, there might be a lot of latent risks there.”
Neely said it was important to work with suppliers to ensure they complied with human rights legislation, rather than just relying on contract terms.
“Contract clauses through the supply chain are the number one human rights implementation tool,” he said. “You can have a human rights clause in your contract but if the supplier doesn’t understand it, if you haven’t gone through it with them, the chances are they won’t do it.”
David Olsson, partner at consultants BTD, said it was essential to have a clear understanding of how much value a company could add before making a deal. He warned that statistics over decades showed that only around 60% of M&As actually resulted in greater value for the firms involved.
“You have decades of people doing intelligent work but still it would seem as if there is a ruinous effect on businesses if they choose to grow through M&A,” he said.
“You have to create value from the business you are buying. The amount of value you can create as a result of the deal has to be taken into account before you buy the business.
“Unless you know the end in mind, how the business will run, how can you stand in the future and realise the deal benefits, before you sign the deal off. Then you would be paying the right price. It doesn’t happen 40% of the time.”
Olsson said good leadership, an experienced team and best practice methods and behaviours were the key factors in making a success of a deal.
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