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Ethics and Compliance Programs in the Age of Spins, Mergers and Acquisitions (2016 Compliance & Ethics Institute 807)


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–– Due to shrinking government market space, many of the
large U.S. Defense contractors have had to learn to adapt
in order to survive.
–– Presenters will share the effects and opportunities each
of these “life events” has brought to them and their
respective programs.
–– Presenters will also describe how their ethics
and compliance programs have adapted to their
new “normal”.

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Ethics and Compliance Programs in the Age of Spins, Mergers and Acquisitions (2016 Compliance & Ethics Institute 807)

  1. 1. Ethics and Compliance Programs in the Age of Spins, Mergers and Acquisitions Date: September 27, 2016 Tom McDaniel Cristina Potter
  2. 2. Agenda • Background • Spin, Merger and Acquisition (History and Experience) • Current State of Programs • Opportunities/Challenges • Considerations/Tools 2
  3. 3. Company Overview Engility At a Glance 2015 Revenue 2.1B(with TASC) Ticker Symbol EGLNYSE Headquarters VAChantilly Over 10,000 employees in the US and abroad Access to over 50 contract vehicles including all major GSA schedules, numerous GWACs and Agency-specific IDIQs Engility Overview 3
  4. 4. | 4 Harris Overview Global Headquarters Melbourne FL, USA Abu Dhabi, UAE Winnersh, UK Singapore, SGPRio de Janeiro, BRZ Major Locations Regional Headquarters NYSE: HRS 22,000 employees worldwide 9,000 engineers and scientists Supports customers in more than 125 countries United States International FY15 ~$8 Billion Annual Revenue
  5. 5. Ethics & Compliance Program 5 Audit Committee Corporate Compliance and Ethics Council Corporate Ethics Department Centralized Ethics and Compliance Program
  6. 6. | 6 Ethics & Business Conduct Program Mission Foster a corporate culture with an unwavering commitment to high ethical standards and core values. Empower employees to raise concerns and ensure misconduct is deterred, detected, and dealt with appropriately Components Governance Oversight / Alignment / Strategy Value Enhanced reputation, improved employee productivity, morale, and retention, and mitigation of financial and operational risks Commitment Tone / Budget & Resources Written Standards Values/Code / Policies Employee Engagement Communications / Training Governance Monitoring & Evaluation Assessments / Due Diligence Reporting Metrics / Speak Up Enforcement/Disclosures Investigations / Govt Disclosures Continuous Improvement Benchmark / Reg Mngt PartnershipsValues Integrity Excellence Customers Results Innovation Inclusion Regulations/Guidelines Federal Sentencing Guidelines: Chapter 8 ISO 19600 Compliance Management Systems UK Bribery ActFCPA
  7. 7. Spin, Merger and Acquisition History 7
  8. 8. | 8 Spin, Merger and Acquisition History EDO ($1.2B / 4,000) ITT ($11B / 40,000) 2007 Kodak (RSS) ($425M / 1,800) 2004 2011 Exelis ($5.5B / 17,000) 2014 Vectrus ($1.2B / 7,000) Spin-Off Spin-Off Acquisition Acquisition Acquisition Harris ($5B / 13,000) “new” Exelis ($3.1B / 10,000) 2015 “new” Harris ($8B / 22,000) Xylem ($2.3B / 13,000) 2016Sold Aerostructures (400 employees)
  9. 9. “Opportunities” • Integration, integration, integration – Culture – Systems – Policies – Vendor contracts • Loss of archival knowledge • “More with Less” 9
  10. 10. | 10 Challenges • Due Diligence  Exclusion from process  E&C informed AFTER acquisition occurs  Obtaining program info  Lack of systems/process and tracking/reporting  Assessing culture  Little/no opportunity and/or access to employees or information • Integration  Under-estimating employee concerns  “we are only directly impacting a couple of hundred managers”  Standardization of process  Getting local management to adopt new ways of doing things  Assessing culture and mitigating risk  How and how much (Organizational / Personal Conflicts of Interest)
  11. 11. Considerations / Tools • Willingness to adopt the “best of the best” • Manager Facilitated Live ethics training • Supplier Code of Conduct • Ongoing relationship with SDO • Membership in key ethics and compliance communities – DII – ECI – SCCE – Transparency International – PLI – CEB • Technology utilization – Thomson Reuters – Navex Global 11
  12. 12. | 12 Considerations • Due Diligence Embed into M&A process (Leadership, BD, HR, Legal)  Demonstrate importance of culture and risk assessments Ensure the capture of information (as much as possible)  Conduct interviews with key leaders  Develop and utilize checklist (examples)  Search for public information regarding company program • Integration Embed E&C early and often  Be visible, spend the time upfront (conduct presentations)  Embed ethics “champions” to be advocates for change  Have same person(s) involved from start to finish for continuity Communicate, Communicate, Communicate  For a full year, communicate frequently and thoroughly (either on your own or preferably with business communication) Assess culture  Conduct focus groups and/or survey of employees  Identify key risks and include in integration plans
  13. 13. | 13 Questions? 13