Understanding A Targets Governance Framework

Understanding A Targets Governance Framework

By Kerrie MacPherson and Michael Brosnan

To understand an acquisition targets corporate governance framework, the buyer must first ask whether corporate governance is integral to the targets organization.

After reviewing documents, policies and procedures, the buyer also needs to zero in on the organizations governance culture by asking “soft” questions, such as:

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 the board?
Is the board composed of independent directors?
How does the organization approach enterprise wide risk assessment?
How frequently does the board receive reports on the risk assessment program?
Is risk management part of every employees job description?
How does the organizations pattern of legal and regulatory compliance compare with the buyers?
Has the target company viewed regulatory requirements as a necessary evil rather than good business practice?
What are the targets relationships with the state regulatory bodies in its jurisdiction?

If there is a significant disparity between the two organizations compliance practices, what will it cost to establish consistent, appropriate policies and processes?

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

The events of the last two years have highlighted the risks inherent in executive compensation schemes. To evaluate the targets financial results and approach to decision-making, the buyer must understand the drivers of remuneration–not just for senior management, but also for “star performers.”

What is the targets appetite for reputation risk?

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

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