WisBusiness: Compliance and legal approach key to acquiring foreign businesses, expert says

By Tracy Will


MADISON — “Managing risk is really the key to success in business,” 3M corporate development manager Raymond B. Eby said Thursday, adding that “transparency is key to success in acquiring businesses in other countries.”

During a Thursday forum at Edgewood College, Eby discussed his experience in acquiring businesses in Latin America, Europe, and Africa, and the influence of local customs and traditions that pose risks for potential new owners.

A veteran acquisitions manager for the Minnesota-based 3M, Eby discussed the importance of business executives controlling the compliance of field operatives.

Eby said the problem with compliance specialists is that they are not involved in the day-to-day business operations of a company and thus are unfamiliar with issues like corruption, deceptive accounting practices and other risks that business operators know to avoid.

“Risk management has been turned over too much to attorneys and compliance professionals,” Eby said, “I have been involved in trying to turn that back over to the business people the professionals who manage risk.”

Because “when business people really get ahead of something, they can create a business opportunity out of risk,” Eby said.

In approaching the due diligence associated with acquiring a company outside of the United States, Eby said that understanding cultures and traditions associated with businesses is the responsibility of business finance and acquisition executives.

He provided several examples where national cultures influence the conduct of businesses and impact sales operations. He gave the examples of Korea, where sales personnel are expected to purchase expensive gifts (in the range of $500) for their best clients, and Latin America, where some countries tolerate “black sales” and only report a portion of their total annual income.

“What I learned doing acquisitions in Latin America is that nobody pays their taxes in Latin America,” Eby said. “You report all of the costs associated with manufacturing, but you only report 50 percent of your sales.”

“My job is to buy companies in Latin America and 3M does not participate in tax fraud,” he said. “Some people would say that ‘they wouldn’t want to do business there’ in a place that’s really growing, the whole region. Do I have to kill all my deals? So we need to find a way to embrace that risk, and sort this out, and we bought three companies in Latin America last year.”

In his recent acquisition of a broom manufacturer in Argentina for 3M’s consumer products division, the clear accounting for manufacturing costs and sales must be reported accurately to avoid running afoul of U.S. legislation.

“These laws effectively steer people into compliance, for fear of being caught violating them,” Eby said, “even though they do not have any staff to enforce compliance.”

Eby offered several observations based on his experience in acquiring business in other countries:

– The self-regulating approach is the best means of compliance.

– 3M has acquired more than 40 businesses in the past two years, far more than the average of two to three a year in previous years;

– 3M prefers to establish its own factories in Asia because the vast majority of businesses in China, Japan, and Korea are family owned and prefer to maintain their own identity rather than sell out.