Risky Business

7 common reasons given for a merger

Mergers and acquisitions are likely to be the biggest capital investment for a firm. For the acquired, stock prices typically rise significantly, but for the buyer, they typically fall. So what are the main reasons given for a merger or acquisition? In a recent Risk Series session hosted by The Risk Institute, Isil Erel discussed these and more during her talk.

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FCPA & Ethics highlighted at latest Risk Series

Ethics is more relevant than ever before; In public and private entities, ethical decision making seems to have taken a back seat to short-term profitability be it monetary gain or popular opinion. Companies like Volkswagen, Wells Fargo and Equifax are seeing share prices in freefall while simultaneously dealing with a public relations nightmare.

The Risk Institute hosted its first continuing professional development session of the academic year on October 11, 2017, on the Foreign Corrupt Practices Act (FCPA) and ethical decision making. Speakers included David Freel, a professor at The Ohio State University; Eric Lebson, a vice president at the Crumpton Group; Vlad Kapustin from New York Life; and Bill Foale, an investigator from EY.

Globally, corruption accounts for more than 5 percent of the global GDP — more than $2.6 trillion. Most of that corruption occurs in developed countries with approval from senior management. Which leads us to think that the tone at the top and organizational culture need work.

Organizational culture is the shared beliefs or expectations that influence thinking and behavior; it’s the glue that holds the company together. According to Prof. Freel local companies Nationwide, Cardinal Health are best-practice examples of excellent, ethical organizational culture.

And ethics is important to consumers too. The data currently says that consumers are more likely to do business with companies they perceive to be of a high moral fiber.

Since a company’s ethics is a priority to consumers, it could be assumed that strides have been made across industries to clearly define ethical behavior for its employees, provide training, improve whistleblower policies, etc.

Unfortunately, that’s not the case.

Over the last 30 years, there’s virtually been no change in anti-corruption policies. According to Eric Lebson, “It’s difficult to get a company that has never experienced a FCPA incident to take action.”

An FCPA investigation can be crippling. On average, an FCPA investigation lasts 3.7 years, 92.42% of defendants who settle with SEC, and 76.44% of defendants who settle with DOJ.

Bill Foale encouraged executives to empower their audience to make compliance second nature. Many anti-corruption policies are dense and jargony and therefore difficult for even a native English speaker to comprehend. Foale suggests asking the following questions about your anti-corruption policies:

  • Is the material understandable?
  • Is it written in a way that the information is relatable to the audience responsibilities? As in, not just a list of “do nots” and includes examples of practical tips
  • Language? Keep in mind that many of your employees may be native English speakers.
  • Is there a resource available for questions/assistance?

Many ethical challenges like transparency, privacy, self-interest, and data protection lie ahead. But with proper prior preparation, any organization can avoid ethical conflicts.

For more on this topic and many others, visit fisher.osu.edu/risk. Risk Series V continues on November 14 with a conversation on Mergers & Acquisition Risk. M&A is a high stakes game and getting it right matters. Join The Risk Institute and our experts from academia and industry for a lively discussion about the delicate balance of risk and reward in M&A. To register, visit go.osu.edu/marisk.

Summer session eyes opportunities, risks of digital disruption

Nearly three-quarters of a century into its existence, Safelite Group has reason to act like a market leader – it is one.

The ubiquitous Columbus-based glass repair and replacement services company has a presence in all 50 states, with the capability to serve about 97 percent of U.S. drivers. Even 70 years after its founding, it’s in growth and acquisition mode.

That doesn’t mean, however, that Safelite isn’t keeping an eye out for disruptors waiting in the wings to turn the business on its ear.

“We’re looking over our shoulder,” said Bruce Millard, the company’s vice president of digital and customer innovation. “We’re asking, ‘Who has the velocity to potentially cause us problems?’”

Millard was one of four speakers at the second of two summer sessions focused on top business challenges and co-hosted by The Risk Institute along with three other centers housed at Fisher College of Business: The Center for Innovation and Entrepreneurship, the National Center for the Middle Market and The Center for Operational Excellence. After surveying the state of the “talent war” in July, the centers brought together industry executives and academic experts to offer a mix of exciting developments, sobering realities and paths forward in the rapidly shifting world of data analytics and digital disruption.

In his kickoff keynote, Jeremy Aston of tech communication giant Cisco Corp. shared how much — and how little — has changed in how companies are viewing and preparing for the threat of digital disruption. Cisco’s Global Center for Digital Business Transformation in a 2015 survey of nearly 1,000 executives found 15 percent said digital disruption was already occurring in their respective industries. At the same time, a scant one in 250 of those surveyed said digital trends would have a transformative impact on their industry. Fast-forward to a new survey round this year and the shift is staggering: Half of those surveyed said disruption was ongoing, while nearly one in three foresaw a transformative effect.

“Today, we’re under pressure to transform and perform,” said Aston, senior director of the Go to Market and Offer Monetization Office at Cisco.

One statistic that changed little in the two-year span hints at a gap Cisco’s research has found between companies’ awareness and action. In 2015, a quarter of those surveyed said they were “actively responding” to digital disruption. That number rose to just 31 percent this year.

“That is a dangerous game to play,” Aston said.

While the media/entertainment trades and Cisco’s own technology products and services niche are easily most vulnerable to disruption, few – if any – parts of the economy are immune to companies born in today’s digital-first world. Speaker Mark Kvamme, a former Ohio economic development official and partner at venture capital investment firm Drive Capital, shared a dynamic portrait of companies in Drive’s investment portfolio that could have a transformative impact. One of them, Columbus-based startup CrossChx, has launched an artificial intelligence-enabled tool for the healthcare industry that synthesizes and automates high-volume, repetitive tasks — prior authorizations, appointment reminders — outside the scope of patient care. On the analytics front, Columbus-based FactGem — run by Megan Kvamme — is helping companies translate hordes of data from far-flung sources into actionable intelligence.

All these innovations, Kvamme said, point to an unavoidable truth: “The amount of change we’re going to see in the next five to 10 years is going to spin everybody’s heads.”

A world of opportunity, however, also means a world of risk. Professor Dennis Hirsch, who runs the Program on Data and Governance at Ohio State’s Moritz College of Law, closed out the session with a look at the tricky terrain of data analytics in technology, which already has destroyed some players (student data repository InBloom) and led to serious brand damage for others (Uber).

“Big data is a crystal ball,” Hirsch said, “and that means it can be used for good — and for bad.”

As companies move forward, Hirsch said, it’ll be incumbent upon them to establish processes and guiding values that protect customers and treat them fairly. Technology and its innovative uses for data, in fact, are outrunning the law itself.

“The law hasn’t caught up, and to some extent it never will,” Hirsch said. “We need to be asking, ‘What does it mean to be responsible beyond just compliance?’”

A key tool companies can use as they make decisions on these issues, and the broader world of digital transformation, is a decidedly non-technological notion at heart: process. From a legal and ethical perspective, that means establishing them on the front end to mitigate the risks of leveraging big data. From a business agility standpoint, Aston of Cisco said in opening the day, that means having a perspective that extends beyond the flashy innovation itself.

“We have to make thoughtful decisions,” Aston said, “and we can’t just be focused on technological outcomes. What’s the business outcome you need to drive?”