Of all the nightmares recently had by Hewlett-Packard (HP), certain one of the biggest was its purchase of the U.K. entity Autonomy. HP purchased the company for roughly $11bn and had to write off over $8bn of the investment. The acquisition fell apart almost immediately and has led to nearly five years of litigation by HP against the former principals of Autonomy (and vice-versa from the former principals against HP.) While the U.K. Serious Fraud Office has closed its investigation of the deal, the U.S. investigation led, by the Justice Department is still ongoing. In short, this acquisition was a failure of such epic proportions that (fortunately) its type is rarely seen in this day and age.
Yet for The Man from FCPA, the HP/Autonomy saga presents several important lessons from the compliance practitioner going forward. First is the requirement to engage in pre-acquisition due diligence from the compliance perspective. HP was limited under U.K. law from the amount of transactions it could review, yet even when red flags were raised they were not followed up by an appropriate level of review.
The second factor, which is much less discussed, was the role of the board and senior management. The new CEO of HP, Leo Apotheker, had made clear his desire to purchase more software companies. This desire led HP to take a look at Autonomy. Next, the board split into two groups as Apotheker wanted to divest the company from its PC-manufacturing business. This coupled with the Autonomy purchase were considered so large and complex that the board split itself into two separate groups to evaluate each proposal. So only half the board was looking into the details of the Autonomy deal.
The lessons from this fiasco will be mined and taught in business schools for years to come. Yet some of them can be incorporated into your compliance program today. Start with doing an appropriate assessment of a company in the pre-acquisition phase of due diligence, clearing all red flags and having your standard board-level review process take place.
Continue the conversation at Compliance Week Europe: 7-8 November at the Crowne Plaza Brussels. Join us as we look at changes in global anti-corruption regulations, slave labor risks in your supply chain, and how to detect fraud, to name just a few topics. Learn more
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