If anything has become clear from my interaction with corporate secretaries and board members over the last couple of months it’s this: takeover overtures and acquisition opportunities are among your most daunting challenges.
That’s no doubt due, at least in part, to the fact that a board’s decision to green light one of these deals is almost invariably followed by a shareholder suit alleging that the company’s directors and officers didn’t secure a high enough share price, or that the transaction wasn’t at ‘arm’s length.’
Even the best advice on how to handle mergers and acquisitions likely won’t stop the litigation. Knowing what constitutes ‘best practices,’ however, should go some way toward helping you to achieve peace of mind. Here’s the advice your colleagues on the front lines have been sharing:
1) Know that the board is responsible for acting in the company’s short-term best interests. That’s not a typo. This is the one time when a corporate director must eschew his or her traditional responsibility to act in the company’s long-term best interests. ‘You can’t be thinking about whether the firm might be worth more 10 years from now if it remains independent,’ said Gary Benanav, a director at Express Scripts and the former CEO of NY Life, at a recent meeting of the New York Chapter of the National Association of Corporate Directors.
2) Have a process in place. 'Whether it be ongoing acquisitions, potential mergers, divestitures, or a sale of the company, it is best to manage it methodically,' says Dr. Elise Walton in a paper that was released last month by the Millstein Center for Corporate Governance and chronicles the boardroom experience insights of 35 chairmen, CEOs and stakeholders. 'One company reviews the acquisition landscape (what competitors are doing; what companies might be targets) whether or not an acquisition is being proposed. This relieves the Chair-CEO relationship of the thumbs-up/thumbs-down decision and its fallout. It puts decisions in a framework that aids informed decision making for all.'
3) When in doubt, disclose (to the members of the board, that is). Executives at companies including Hewlett-Packard and J. Crew could have avoided a lot of bad publicity these past few months by sharing all they knew about takeover overtures and participants.
4) Be especially careful when a single investment bank is involved on both sides of the deal. This potential conflict of interest has raised the specter of impropriety in the past, but never so much as the recent Delaware Chancery Court decision Del Monte Foods.
For more insight on what the Del Monte decision means to you, see the April issue of Corporate Secretary magazine.