Three weeks ago, International Flavors & Fragrances (IFF), an American corporation and member of the S&P 500 Index, published their quarterly report. Within the report, it was revealed that during the integration period of Frutarom Industries Ltd (an israeli company acquired in 2018 by IFF for $7.1B), businessmen of Frutarom operating in Russia and Ukraine allegedly bribed Russian and Ukrainian Customs Officials and distributors, while also funding kickbacks (a commission paid to the bribe-takers) that resulted in a $2.1B loss for IFF.
What Went Wrong?
Integration of a company as part of an acquisition or merger can be tainted by hidden issues that you cannot foresee – even if you conduct financial, legal and technological due-diligence. These situations can have great financial and reputational effects on a business, as happened with IFF.
Therefore, It is important to ensure you discover crucial pieces of information, such as possible corruption, before making any large business decisions.
What can you do to avoid such a scenario when it comes to your business?
Before acquiring, selling or considering a merger of any kind for your business, conduct thorough background checks on all C-suite executives, including those in all subsidiary companies. Exhaust the deep and dark net to uncover even the most minute information about these individuals as they might potentially be your partners or employees one day.
In this case, IFF could have hired a third-party firm to map out all of Frutarom’s subsidiaries’ executives around the world and then search for any suspicious activity. A business intelligence agency could have also been utilized to conduct interviews in order to learn about these executives’ relationships with Frutarom’s HQ management, as well as to uncover more details about their supply chain to better understand the dynamics.
Even conducting a simple Google search on the former CEO of Frutarom, Ori Yehudai, yielded suspicious results as one of his business role models is Eli Horowitz, founder of Teva Pharmaceuticals. In a previous interview Yehudai stated: – “I respect Eli Horowitz as an industrialist. I have been following Teva’s steps since the 90s up to now as it has become a leading, global company with a clear strategy and vision. An example of a company that maintains its Israeli identity yet is still global, such as Teva, is the fire beneath my feet. ”This is noteworthy as Yehudai is mentioning an idol of his whose company paid a total sanction of about $520M to US authorities in 2016 for bribing Russian and Ukraninan officials. Is it a coincidence that Frutarom is in the same situation today? Perhaps not.
The scenario in which IFF is now immersed in is not uncommon. It can happen to S&P 500 companies but also businesses of any size. Hidden issues such as bribery, money laundering, information leakage, or any other scenario that can cause the public to question your company’s ethics and values, can have great and long-term impact on your business – we have seen it all.
We hope the above tips will help you avoid falling victim to such scenarios.