The Merger & Acquisition Leader's Playbook

CHAPTER 15Financial Governance: Always Necessary

The second component of the governance playbook is financial governance, which is always necessary.

This is another relatively short chapter with exactly the opposite message of the last chapter. Where your regulatory governance needs merely to secure your license to play, deploy a zero-tolerance approach to financial governance. Require complete integrity and compliance.

Every one of you knows a story of some executive that used their best judgment in recognizing some revenue in some period that others might not have recognized to deliver on their commitments. Every one of you knows a story of how that executive ended up causing severe reputational damage to themselves and their company when they did it again and again and again until they got caught.

Don't do it. Don't let anyone else do it. Own the miss. Take the short-term hit. Fix the problem. Recover. Move on.

Financial

Keep a close watch on all the financial items you looked at during due diligence:

• Financials: Income statements, cash flow statements, balance sheets, general ledger, accounts payable and receivable
• Off balance sheet liabilities
• Credit report
• Tax returns—federal, state, foreign
• General accounting policies including revenue recognition
• Risks attendant to foreign operations (e.g., exchange rate fluctuation, government instability)
• Debts, their terms, ...