Understanding A Targets GovernanceFramework

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By Kerrie MacPherson and Michael Brosnan

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To understand an acquisition targets corporate governanceframework, the buyer must first ask whether corporate governance isintegral to the targets organization.

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After reviewing documents, policies and procedures, the buyeralso needs to zero in on the organizations governance culture byasking “soft” questions, such as:

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Where is the compliance officer locatednear the executive suite,or at the other end of the building?
To whom does Internal Audit reportthe CFO, the CEO or theboard?
Is the board composed of independent directors?
How does the organization approach enterprise wide riskassessment?
How frequently does the board receive reports on the riskassessment program?
Is risk management part of every employees job description?
How does the organizations pattern of legal and regulatorycompliance compare with the buyers?
Has the target company viewed regulatory requirements as anecessary evil rather than good business practice?
What are the targets relationships with the state regulatory bodiesin its jurisdiction?

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If there is a significant disparity between the twoorganizations compliance practices, what will it cost to establishconsistent, appropriate policies and processes?

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Has the buyer carefully explored the target insurers riskprofile and the potential exposures?
What drives executive compensation?

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The events of the last two years have highlighted the risksinherent in executive compensation schemes. To evaluate the targetsfinancial results and approach to decision-making, the buyer mustunderstand the drivers of remuneration–not just for seniormanagement, but also for “star performers.”

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What is the targets appetite for reputation risk?

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In financial services, perhaps more than any other industry,reputation is everything. For an insurer, even a relatively minorlapse might bring serious consequences once the media and themarkets get done with it.


Reproduced from National Underwriter Edition, July 14, 2003.Copyright 2003 by The National Underwriter Company in the serialpublication. All rights reserved. Copyright in this article as anindependent work may be held by the author.


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