Corporate
Development now is entering a period of balance between central execution
and decentralization, flexibly providing both service and control. Each of
these phases will be discussed.
PHASE
1 (1981-83):
ESTABLISHING
THE CORPORATE DEVELOPMENT FUNCTION
Although
historically Bausch & Lomb had grown from both internal and external
strategies, in 1981 we were not actively pursuing an organized new
ventures program. In earlier years Bausch & Lomb had purchased a few
companies and pursued several licenses, but by 1981 we were seeing very
little deal flow and were executing, at most, only one or two small deals
a year.
The
establishment of Corporate Development followed a four-part strategy:
Strategic
Planning. A strategic planning process was developed to identify
business strengths and weaknesses and focus on opportunities that could be
captured through a new ventures program. A particular success was
separation of strategic issues from financial plan development. Freeing
strategic thought from the “numbers exercise” put more focus on
opportunity and creativity. A management decision was made to capitalize
on Bausch & Lomb’s strengths. We used various outside consultants
who were helpful in individual businesses, but not in the development of
overall strategic vision. In the end, that had to be done internally.
Developing
Deal Flow. In 1981, Bausch & Lomb had contact with only a handful
of banks and intermediaries for M&A purposes. We began to create a
global network, which is still being expanded, to establish contact with
more than 1,000 intermediaries worldwide and seek opportunities that meet
Bausch & Lomb’s acquisition criteria. The hardest part of developing
deal flow was convincing intermediaries that Bausch & Lomb was going
to become a true dealmaking company so that they could treat us like the
“A team” and trust we would behave that way. Initially, we tried to
use a third party to develop intermediary relationships. Although it gave
us a model to follow, ultimately we had to develop our own relationships.
The most important ingredient in turning around the intermediaries’
mind-set was the way we actively began to do deals. Until then, it was
only words and promises.
Some
corporate development professionals do not believe in using banks,
brokers, or intermediaries to find deals. In evolving a corporate
development function, we took the opposite tack, deciding that not to use
such help would be like climbing a rope with one hand tied behind our
backs. The network we established continues to be helpful even many years
later, and there certainly are deals we would not have been able to do
without this kind of help. We see about 1000 deals per year, and
consistently complete 2 to 3 percent.
Developing
a Technical Base. Although we wanted to use outside help, we did not
want to be dependent on outsiders. Therefore, we developed our own
in-house valuation, deal searching, analysis, and due diligence
capabilities. Besides adding those capabilities to Corporate Development,
we found it necessary to work with many areas of the corporate staff to
raise the corporation’s overall dealmaking capability. Experience proved
to be the test as well as the teacher.
Changing
Internal Mind-Set. Just as it was necessary to change the attitudes of
intermediaries toward Bausch & Lomb’s M&A program, it was
necessary to change our own internal mind-sets, to make our organization
not just tolerant of but hungry for growth. It is easy for operating
managers to be too busy to look at new ventures, for the “plate” to be
“too full.” The CEO’s involvement in this process is critical. We
had monthly operations committee meetings in which division presidents
were expected to bring forth their growth opportunities. Lost opportunity
has a real cost to the shareholder, too, and that needs to be recognized.
It
is easy for Corporate Development inadvertently to become competitive with
Research and Development in scrambling for funds. Often, millions of
dollars are spent on a transaction, while R&D works under budgets
constrained by current earnings-per-share considerations. We were
committed to seeing that such competition did not evolve and were able to
achieve harmony by involving R&D deeply in new business evaluation.
Eventually, some of our acquisitions brought new R&D opportunities and
cross-fertilization to the research and development process. We run
corporate development as a 100% effort, as if R&D were never going to
develop a new product, and we encourage R&D to run at a 100% effort as
if the “new ventures” function would never find another “deal.”
Together, these complementary strategies give our management the best
choices in “make versus buy” and our shareholders the best opportunity
for returns.
Of
the four elements of establishing a new ventures process, the most
difficult was changing organizational mind-set. Changing mind-set is an
effort that should never stop; a changed mind-set soon slips away, like a
muscle unexercised. The biggest factor in changing mind-set was the
CEO’s involvement, followed by the success of a number of new ventures.
Soon the excitement spreads and people, especially in middle management,
want to work on deal teams.
During
this early phase (1981 to mid-1984) we had some successes—notably the
acquisition of Polymer Technology Corp., producer of gas permeable lenses,
which grew from $6.8 million in sales in 1983 to the $85 million business
it is today; and Charles River Laboratories, which broadened Bausch &
Lomb’s health care position in the new sector of biomedical supply.
All
of our early deals were not successes, but we learned. From an early
failure in the acquisition of a California-based laser company, we learned
the importance of an “operating champion,” a person who would
personally be committed to the success of each new venture. We found out
how necessary it is to be more comprehensive in our due diligence,
especially regulatory due diligence which had failed to identify a major
change in the regulatory environment of the Food and Drug Administration
(FDA). We also learned how vital good management is to acquisition
success. We continue to reject opportunities if the management doesn’t
plan to continue with the business.
During
Phase 1 of Bausch & Lomb’s new ventures program we began to clarify
the kinds of companies we wanted—companies in a health care niche that
enjoyed worldwide position, market leadership, profitability, good growth
potential, and a committed management with whom we could share a common
vision. Some people were surprised when we bought Charles River
Laboratories, but it met all the requirements we had articulated for an
addition to the Bausch & Lomb family, especially successful management
that is willing to continue to do what they do best, unencumbered by
interference from a new parent.
PHASE
2 (1984-85):
RESTRUCTURING
After
a few initial successful acquisitions, licensings, and other external
transactions, it became clear that the other side of the strategic vision
soon would need to be implemented. That was the divestiture of businesses
that no longer strategically fit Bausch & Lomb’s health care vision,
diluted management attention and shareholder returns, and offered only low
returns and inadequate opportunity for growth. In 1984 we announced a
reserve of $9 million to divest the industrial instruments group. Being
able to announce the divestitures publicly was of enormous benefit in
having open employee communications that made our divestiture efforts even
more effective. Managers and key staff people were given incentives for
staying and assisting with the sale.
As
a result of the openness, potential buyers had more open access to
information, and a secretive, counterproductive environment was avoided.
The “people” element was the key to divestiture success. The highest
offer for one operation was turned down because the buyer would not
guarantee to keep the operation where it was located and minimize the risk
of terminating long-time employees. Minimum periods of employment and some
continuation of Bausch & Lomb’s severance plan were negotiated on
behalf of the employees of the divested operations.
A
number of industrial instruments businesses were sold off, including
military optics, precision optics, spectrometers, analytical instruments,
scanning electron microscopes, digital readouts for machine tools,
recorders, plotters, digitizers, and CAD/CAM equipment. (The eyeglass
frame and lens business, including ophthalmic laboratories, had been sold
previously.) As of late 1987 we had also sold off the microscope,
photogrammetry, and ophthalmic instrument operations.
Divestitures
represent an intensive, all-consuming effort. A year in divestitures is
worth about five years in acquisitions as a training ground for new
M&A people and aspiring dealmakers. During this period, we met people
who were as good as their word and those who weren’t; those who “due
diligenced ” a deal to death, and those who were quick and efficient. We
learned a lot from being on the selling side of the table, especially what
kind of acquirer we wanted to be, how we wanted to be treated as buyers,
and how we should treat sellers. On one transaction we contacted 480
prospective buyers; on another we negotiated for 28 hours straight. We
learned that there are 100 reasons why any deal can’t be done. The
successful dealmaker finds the 101st reason to do it. When completed, the
divestitures realized more than $100 million for redeployment, and the
proceeds were within the reserves and time frame established.
PHASE
3 (1986-89):
CENTRALIZED
M&A
Following
the completion of Bausch & Lomb’s divestiture program, our deal
skills were sufficiently honed to pursue further growth through
acquisition. Management attention turned to implementing major growth
strategies. In 1986, Bausch & Lomb acquired Berlin-based Dr. Mann
Pharma, an ophthalmic pharmaceutical and over-the-counter health care
products company, for nearly $100 million. Adding to this entry into a new
sector was the 1987 acquisition of Pharmafair, a U.S. generic ophthalmic
drug company. Then, in 1988, another new sector was entered with the $133
million acquisition of Dental Research Corp., implementing a long-targeted
entry into the oral care business. Another worldwide sector, hearing aids,
was entered on a small entrepreneurial basis in 1989.
The
approach to new ventures at Bausch & Lomb has been flexible, utilizing
whatever deal structure seemed most appropriate for the business needs of
both buyer and seller. For that reason, licensing never has been separated
from acquisition, as it has in some companies. Deal structure should not
be driven by organizational structure. In some cases, a licensing
agreement was a better alternative than full acquisition. In other cases,
a technology agreement, minority investment, or joint venture was the most
effective way to proceed.
By
the end of the centralized period, Bausch & Lomb had completed 105
M&A transactions, accounting for more than $625 million in market
value. Of these transactions, 26 were acquisitions, 13 were divestitures,
and 47 were licensings. Of the remainder, 12 were technology agreements,
five were joint ventures, and two were equity participations. Both the
good news and bad news was that during this very active deal period, we
bid in auctions but never won. This may be due in part to having control
of our own valuation process and refusing to overpay.
A
corporate strategic goal had been to reach $1 billion in sales by 1990
without significantly diluting our financial ratios. In 1989, a year ahead
of schedule, the target was reached, and more than 50 percent of our
growth came from the new ventures program. By the end of 1989, the four
new sectors of biomedical research, ophthalmic pharmaceuticals, oral care,
and hearing aids had been entered. New opportunities were being added in
most sectors of Bausch & Lomb’s business, creating synergies after
the initial transactions. A new target was set—to reach $2.5 billion in
sales by 1995, particularly by growing the oral care, over-the-counter
health care, and international businesses.
The
major acquisitions of 1986 to 1989 were accomplished mostly on a
decentralized basis. Just two of us in Corporate Development negotiated
most of the transactions, and centralized activity assured full
coordination and control. But a reevaluation of the new ventures program
was necessary if growth to the $2.5 billion level was to be reached
without letting centralized control become a bottleneck. As a result of
benchmarking the dealmaking process at some 20 other companies, we
developed data that pointed to a correlation between centralization and
lower deal intensity, so we systematically began to decentralize the new
ventures process.
PHASE
4 (1990-92):
DECENTRALIZATION
OF NEW VENTURES
Although
divided into four phases for the purpose of this discussion, no phase was
completely isolated from the others. In truth, a few aspects of new
ventures were being decentralized to some degree as early as 1987, as
operating units became capable of taking on various responsibilities.
We
defined six aspects of dealmaking for decentralization purposes:
It
is also a corporate policy that letters of intent are subject to approval
prior to being sent out and before vital resources are expended by both
parties.
Analysis
and Valuation. The analysis of an opportunity, especially the
valuation (usually based on deal-market multiples and discounted cash flow
analysis) has been progressively decentralized to the operating units. It
is a vital skill to have in place prior to beginning negotiations and deal
structuring, and it gives an operating unit the opportunity to experiment
with its own scenarios, sensitivities, strategies, and synergies. A
corporate model and its attendant software were developed and made
available to each operating unit. Any variation or exception in the use of
the model is brought to our attention. It gives Corporate Development the
opportunity to be more objective in the review process.
One
element of valuation retained by Corporate Development involves the
collection of multiples, especially deal multiples. To be sure the data
base is up to date and that resources are not duplicated, we provide this
service company-wide.
Sourcing.
At one time, during centralized new ventures, if an opportunity were
missed (i.e., a competing buyer bought a company or technology that would
have been of interest to Bausch & Lomb without our having had an
opportunity to bid), Corporate Development would have been almost entirely
responsible. As decentralization proceeded, this responsibility began to
be shared with the operating units. Their charters or missions are
developed during the strategic planning process, and any opportunity that
lies within a business unit’s charter should now be pursued directly by
the unit. This is in contrast to procedures at some companies where only
Corporate Development makes these contacts. The control element that
balances this degree of decentralization is that the units must keep
Corporate Development posted on contacts being made and the progress of
their deals. If a deal were missed today, the operating unit would have
primary responsibility, because it should be pursuing opportunities of
interest within its charter. Corporate Development, however, would also be
responsible if the opportunity came through a banking, broker, or
intermediary network.
Still
reserved for Corporate Development, and likely to continue to be so in the
foreseeable future, are the worldwide intermediary contacts. The global
nature of banking today and the liability of fees or even double fees make
this control reasonable. But the operating units make their needs known
and Corporate Development maintains a regular program of updating
intermediaries on what Bausch & Lomb wants. Operating units use all
other methods for deal sourcing: consultants (on a fee-for-service rather
than transaction basis), personal contacts, meetings, trade shows, and so
on.
Due
Diligence. In order to truly have accountability for a transaction, it
was obvious that an operating unit also would need due diligence
responsibility. Bausch & Lomb divides due diligence into three areas:
financial, legal, and business. Financial due diligence often requires the
help of corporate finance, tax, treasury, and accounting as well as the
outside auditors. Legal due diligence requires corporate counsel and
sometimes outside counsel, especially in unfamiliar geographic areas.
Outside counsel also may be involved in specialty matters such as patent,
regulatory, and environmental issues. Although corporate resources may be
used in both these instances, it is still an operating unit’s
responsibility to accept and endorse the due diligence done at its request
and on its behalf. The business due diligence is even more clearly an
operating unit responsibility. The further away the due diligence is from
the current experience and expertise of the operating unit, the more
likely that outside consultants will be used.
Running
the Deal. This element of
dealmaking is as much a mind-set as an activity. It involves internal
coordination of division resources as well as corporate resources needed
for deal completion. It involves overseeing the contractualization effort,
arranging timely meetings, assuring that all commitments are kept,
elevating important issues, and, in short, doing whatever it takes to get
the deal done. One characteristic of a successful new ventures person,
whether at the corporate or operating unit level, is the ability to
“multiplex,” to juggle many different projects of varying priorities
and yet move them all ahead. This is one of the more difficult skills to
assess in potential M&A staff, and the inability of people to handle
multiple projects is one of the most frequent reasons for failure.
Deal
Structuring and Negotiation. This has been the last of the six deal
steps to decentralize. The risk is higher. It is important to have all of
the other five steps in place before attempting to decentralize deal
structuring and negotiating. We connect deal structuring and negotiating
in the belief that dealmaking is an iterative process, as one moves from
deal structuring to negotiating, then back again to deal structuring.
Corporate
Development participates in the process of hiring divisional New Ventures
personnel, and in their training. One of the more difficult aspects of
training and teaching deal structuring and negotiating is how to give the
potential deal-maker a sufficient repertoire of deal structuring skills to
substitute for many years’ experience at the negotiating table. Outside
courses are used, as are co-negotiating, and a “buddy system” of
contract review. New Ventures staff from the operating units are invited
to gather once a month for deal-structure brainstorming, deal autopsies,
and reviews of unusual structures for completed deals. Operating unit New
Ventures staffs draw on each other, as well as on Corporate Development,
as information resources. Equally important as basic skills training, is
giving each negotiator a sufficient understanding of Bausch & Lomb’s
values and culture to enable him or her to represent the company credibly
and fairly. A fundamental belief of our New Ventures training is that
there is no substitute for individual and corporate credibility.
When
a New Ventures person is ready, Corporate Development and the operating
unit head jointly recommend to the CEO that he or she be named a
“qualified negotiator.” In 1992 we had four qualified negotiators at
operating units, along with two in Corporate Development and three more in
training.
Some
operating units, usually because of insufficient deal flow or lack of
dedicated New Ventures staff, do not have qualified negotiators and may
not be decentralized in certain other aspects either. In these cases,
Corporate Development provides needed services to the operating unit. If
the transaction is large, the deal is outside of operating unit charters,
or the project involves multiple divisions (such as Bausch & Lomb’s
worldwide sponsorship of the Olympic Games), all of the foregoing six
steps are the responsibility of Corporate Development. Except for these
cases, decentralization has cast Corporate Development as more of a coach
and counselor, as well as wearer of the corporate governance hat of review
and control. More importantly, decentralization has been effective in
removing many barriers to further growth. In 1989, Corporate Development
executed or played a major role in 16 of 21 deals. In 1992, 19 of 24
transactions were completed by operating units. Even more significantly,
not being burdened with the execution of smaller transactions has enabled
Corporate Development to play more of a coaching role, especially
eliminating problems in deal structuring early in the process. We are
expecting further benefits from being able to concentrate more on
corporate strategic growth and do larger deals as decentralization
solidifies.
PHASE
5 (1993- ):
FUTURE
PLANS
We
don’t expect the current organizational structure to be static. There
already are indications that in some years New Ventures personnel may
transfer back to Corporate Development to serve multiple operating units,
as a particular unit’s deal needs change. Flexible resources, available
when needed on a decentralized basis or provided when appropriate as a
corporate service, will probably be the direction over the next few years.
The emphasis on external strategies is being broadened to include new
technology search beyond the normal planning horizon of the operating
units. Bausch & Lomb also is moving to implement operating
organization changes and to vest resources in fully regionalized
headquarters in Tokyo for the Far East, Rochester for the Western
Hemisphere, and London for Europe, Africa, and the Middle East. For the
first time, a New Ventures person has been added outside the United
States.
We
believe that staying open and flexible is the key to making these
structures work. Having been through the full
centralization/decentralization cycle, we probably are better equipped
than ever to deal with the appropriate future Corporate
Development/Operating Unit New Ventures organizational structure and
balance.
To
better articulate such diverse roles, we’ve put forth a Corporate
Development values statement, developed through consensus of the operating
units’ New Ventures staff (Table 8.1). Understanding “where we are
coming from” contributes to the fine balance of teamwork and corporate
governance and has gone a long way toward developing a positive working
environment.
Table
8.1. Corporate
Development Values
Maintain
personal and departmental integrity and credibility, both inside and
outside the company.
Inspire
attitudes and activities that recognize and nurture new ventures as key to
Bausch & Lomb’s growth.
Capture
the opportunity to look at any new ventures situation that fits corporate
or operating unit charters.
Be
responsive to and perceived as responsive to new ventures needs wherever
they arise in the company, adding value without diminishing any operating
unit’s ownership of its own transactions.
Provide
leadership to the new ventures process and quality monitoring and review
of new ventures, advising as needed and being proactive in minimizing the
risk of each transaction.
Provide
quality mentoring and coaching to the new ventures team throughout the
company.
Complete
transactions that enhance shareholders’ value and in which we all can be
proud to have been involved, long after the transaction is completed.
We’ve
also clarified for the operating unit officers what it takes to
effectively manage and evaluate New Ventures staff. A list of 17 elements
of effectiveness for a New Ventures manager is in Table 8.2. Corporate
Development encourages dialogue between a division president and New
Ventures people to clarify expectations and focus on problems. The
coaching role of Corporate Development continues to be important.
Finally,
we’re focusing more on the role of quality in Corporate Development and
New Ventures departments. In 1991 we surveyed the internal customers to
whom we provide service through both blind questionnaires and independent
consultant interviews. The aspects of Corporate Development quality judged
most important by internal customers were competence and creativity, with
timeliness, relevance, and credibility also regarded as important. Overall
ratings were excellent, but certain ideas that emerged are being
implemented to create even more value, such as the formation of an
internal venture program. Currently, we have an entrepreneurial task force
addressing methods and processes for more effectively managing start-up
and internal ventures.
Also
on a blind basis, we surveyed banks and intermediaries with whom we’ve
dealt for at least three years. Response to the mailing was 30 percent. We
presented nine areas for the intermediaries to rate, and found that access
to the CEO and responsiveness were most important to them in working with
a corporate development department. Surprisingly, intermediary policy and
regular communication were down on the list. We used a survey that rated
Bausch & Lomb for each of the nine factors against each
intermediary’s perception of the very best company in that category,
excluding Bausch & Lomb. Overall, our score was 8.2 percent compared
to 8.4 percent for the “best companies.”
Table
8.2. Division New Ventures Person (DNVP) Performance Appraisal
1.
Has the DNVP
understood and been responsive to the new ventures strategy set by the
operating unit president, yet still evidenced independent thinking
regarding potential deals, even to the point of internal advocacy?
2.
Has the DNVP been
responsive to all deal flow, whatever the source, and handled it in a
timely manner, making sure none ‘falls in the cracks,’ that necessary
decisions are requested and relationships maintained?
3. Has the DNVP been
proactive in identifying companies which fit within the division’s
charter, in catalyzing appropriate contact with the companies of expected
future importance, and in maintaining those relationships with a good
sense of timing and follow-through?
4. Has the DNVP been
proactive and aggressive in contacting the division president on a
real-time basis regarding new ventures developments, and requesting
decisions regarding projects for which the DNVP is not empowered to
decide?
5. Does the DNVP
request resource when needed, and effectively manage that resource during
the dealmaking process (analysis, valuation, due diligence), involving
that process neither too early (wasting resource) nor too late (putting
the deal at risk)?
6. Does the DNVP
efficiently and effectively bring in the appropriate people to each new
ventures team, coordinate the due diligence effort to minimize disruption
to the organization, and communicate important deal activity on a timely
basis within the division?
7. Does the DNVP
understand the corporate new ventures policy and act in accordance with
that policy, providing guidance to the division as needed, and maintaining
the right balance between division and corporate needs?
8. Does the DNVP
provide coaching, counseling and guidance to those other division
personnel who participate in the new ventures process, and in general
raise the level of functioning of new ventures within the operating unit?
9. Is the feedback
received from outside the company with respect to the DNVP’s
representing
Bausch & Lomb favorable to the company, credible, and consistent with
the image and values the division president and Bausch & Lomb want to
convey?
10. Does the DNVP
effectively utilize corporate staff resources with respect to the new
ventures
process, stimulating a spirit of open communication and challenging others
to reach a high quality of dealmaking?
11. Does the DNVP drive
for ‘truth’ in the due diligence effort, elevating issues to division
management on a timely and thorough basis, with recommendations for
minimizing risk?
12.
Does the DNVP
identify and surface deal-killer issues early to protect resource
utilization?
13.
Is the DNVP
technically competent in valuation, deal sourcing, initiation of contacts,
confidentiality agreements, negotiating, deal structuring, due diligence
and contractualization, and does the DNVP stay current in the field?
14.
Does the DNVP pull
together and make an appropriate presentation to the Management Executive
Committee and/or the Board of Directors, assuring that all the relevant
issues are addressed in a timely manner?
15. Is the DNVP creative
in finding solutions to problems encountered in individual deals and in
applying the strategic charter of the division to real-world
opportunities?
16. Is the DNVP able to
balance the larger aspect of strategic dealmaking with the detailed focus
of negotiating and contractualization?
17. Does the DNVP’s
efforts result in meaningful transactions for the operating unit?
The third element of our quality program
was to continue benchmarking “peer companies,” a process begun in 1990
to validate our decentralization decision. Benchmarking is an ongoing
process to stay on the leading edge.
Overall,
the trend for the next three years should be a balance between
centralization and decentralization, with flexibility in changing the
degree of each, as needed. We see a finer balance between the collegial
coaching/ training/ service aspects and corporate governance issues. We’ve
matured enough to institutionalize the dealmaking mind-set and growth
orientation, with values clarification, performance criteria, and a
quality program. And we are working to attract new ventures staff who do
well in both corporate and operating unit environments.
PHASE
6 (1996- ): OUTSOURCING
AND BEYOND
The
preceding article was written in 1994 while the author was VP Corporate
Development at Bausch &
Lomb, a position she held for 14 years. Phase 5, which had not been named at the time the article was written, has
come to be regarded as a “Flexible Services”
approach.
The
experience in decentralization and in a flexible services approach to
Corporate Development led naturally to the observation that if such
activities can effectively be provided on a “service basis” within a
company, such services can also be provided on an outsourcing basis.
In
one sense, outsourcing is not a new concept to Corporate Development.
Through consultants, investment bankers and intermediaries, one or more
parts of dealmaking have often been outsourced: finding deals, valuation,
deal structuring, due diligence and financing. Further, contractualization
and financial analysis have often been provided by outside attorneys and
accountants, respectively.
Outsourcing
is relatively new as a service function to the Corporate Development
department or process itself. There are myriad activities, which a
Corporate Development Officer must perform effectively in order to create
a successful function, yet few contribute directly to the success of an
individual deal. Nevertheless, a Corporate Development Officer is expected
to do all or most of the following:
TABLE
8.3.
Corporate Development Responsibilities
·
Strategic
Plan / Growth Linkages
o
Decision to
Establish Function / Recruitment
·
Establish
Technical Capabilities and Resources
o
Information
Resources
o
Valuation
o
Negotiation Training
·
Develop
Internal Deal Team
·
Balance
of Line and Staff/ Service and Oversight
·
Develop
and Cultivate Deal Network
·
Develop
/ Disseminate Criteria and Policy
o
Setup Administrative
System
·
Secure
Deal Flow
o
Develop
Confidentiality Agreements
·
Establish
Fee Agreements Policy
·
Organize
Deal Resolution Process
·
Enact
Approval Procedures, Internal Policies
·
Meet
other Corporate Requirements
o
Rewards / Incentives
/ Succession Planning
o
TQM and Benchmarking
In
spite of all that a Corporate Development Officer (CDO) must do internally
to assure the success of the function, there is little reward or incentive
based on those activities per se.
Usually,
bonuses are paid on doing deals, not on writing policy. So the role of
outsourcing, not only for deal activities, but also for the internal
activities of Corporate Development, is useful to consider. For example,
the fiduciary responsibility of most Boards of Directors requires that a
solid M&A policy be in place, with strong controls. Writing such a
policy can be a nightmare for the Corporate Development Officer. Not only
does such activity take away from running deals, but developing policy is
fraught with the pitfalls of politicizing internal relationships. Most
operating unit heads don’t welcome restrictions on contacting
intermediaries, on agreeing to deal terms or on their unilaterally
deciding on valuation. A strong policy may require such restrictions, but
the Corporate Development Officer who decides to author such policy may be
stepping on powerful toes. A third party outsourcer who can provide such
policy, benchmarked against wider practice, not only frees the Corporate
Development Officer to do what is most rewarding, but can be a neutral
factor in achieving even-handed M&A policy.
Policy
is just one area in which outsourcing can be useful; however, managing the
outsourcing professional or consultant can also be very important. The
following guidelines will help the Corporate Development Officer to
determine what activities can be most effectively outsourced, and what
kind of controls should he placed on using an outsourcing professional or
consultant:
Guidelines
in using outsourcers or consultants.
· Outsourcing
should not come between the Corporate Development Officers (CDO’s) and
their key relationships such as the CEO, COO or operating unit heads, the
Board of Directors, other peer corporate staff or the deal champion (the
person driving a deal to happen). In other words, dealing with key
relationships should not be left to the outsource providers, but rather to
the CDO.
· Outsourcing
should not be used to manage one’s own people, or to exert influence up
or down the organization.
· Outsource
professionals can’t create a corporate culture or make a growth mindset
happen (but can conduct seminars and help with training, and stimulate
deal activity).
· Outsourcing
should not be used to make a decision to hire or fire, but it can provide
interview feedback and benchmarking.
· A
third party shouldn’t be in the way of the CDO’s visibility to top
management or the Board of Directors.
·
Outsourcing
is not a substitute for staying leading edge, keeping up one’s own
individual skills.
· Outsource
providers and consultants shouldn’t be the face of the company to the
outside world, or act like a company’s decision makers.
Guidelines
for the Corporate Development Officer in working with outsourcers and
consultants include:
· Articulate
what you want to learn and what you want to accomplish.
·
Build
up the relationship as you would one inside your own company.
· Learn
to express concern early, give feedback. Review results openly.
· Work
with people with training and coaching mindsets who will show you how and
not keep their skills in a black box.
·
Don’t
give the plum assignments to the outsourcers, and lose the opportunity for
personal growth and visibility.
· If
you feel like you’re losing control, you are. Outsourcing should give
you more control, not less.
The
CDO’s challenge is not only to maximize the value of each deal to his or
her company, but also to maximize the Corporate Development department’s
value to the corporation and the CDO’s own value to the function.
Outsourcing of deal activities and also of internal Corporate Development
process offers the Corporate Development professional the best opportunity
to leverage scarce resources and to concentrate where the rewards are
highest.
EPILOGUE
1998
In
1996, the author perceived outsourcing as such a viable approach for the
Corporate Development department, and the need for this activity as so
widespread, that she retired from Bausch and Lomb in order to launch
Hypotenuse Enterprises, Inc., a mergers and acquisitions advisory
company, which also provides consulting and outsourcing services to the
Corporate Development professional. Diane Harris has leveraged her 14
years of Corporate Development experience, having managed the function in
and through virtually every phase of evolution, and now offers those
services to other Corporate Development Officers and their staffs, as well
as to CEO’s committed to creating growth programs.
