How effective is your board? M&A can be your litmus test. If you are making a buy/sell/merge decision, the experience will reveal your board’s capabilities in myriad areas, especially these:
Information Flow, and last, but not least
Good Business Sense
Today is Day One of your M&A Litmus Test, so we’ll start by testing your board’s…
… M&A IQ.
Does your board know why M&A matters? The wise board won’t leave mergers and acquisitions to external advisors—or wait until the last minute to bring them in. The decision to buy or sell a company of significant size is clearly a matter meriting board attention. On the sell side, time may not be on your side.
Directors serving on public company boards understand that any public company, by definition, is vulnerable to a hostile takeover (since any person with enough funding can buy their shares on the open market through a tender offer and gain control). In 2010, so far there have been nearly 20,000 announced deals worth more than $1 trillion. Some 7 percent of all announced deals worldwide—nearly 1,400 transactions—were unsolicited (hostile) bids.
Directors serving on private company boards need to understand that sometimes M&A is the company’s only exit strategy when the founder wants to retire and there is no next generation of family and/or employees to continue the legacy.
Next, you’ll be tested on fiduciary duties in the sale of a company. See you in class!
Shout Out to Sources
NACDKey Agreed Principles to Strengthen Corporate Governance for U.S. Publicly Traded Companies. Download a complimentary copy at www.NACDonline.org/LeadingtheWay.
Today guest blogger Judy Warner, managing editor of NACD Directorship, shares her thoughts about the implications of the new whistleblower program and the board’s oversight role in corporate compliance.
Harry Markopolos writes emphatically about the need to compensate corporate whistleblowers in his book, No One Would Listen: A True Financial Thriller, released this year by John Wiley & Sons.
The independent fraud investigator feared for his life for nearly a decade as he sought to expose Bernie Madoff’s $65 billion dollar Ponzi scheme to the government, the media—anyone who would listen. That all changed when Madoff confessed to his sons, and, in effect, turned himself in, exposing a financial fraud that resulted in his conviction and the loss of individual fortunes many times over. The Dodd-Frank Act creates a new whistleblower program, with new protections and potentially large cash rewards for individuals, like Markopolos, who provide information about securities law violations to the SEC.
Under the terms of the new law, the Commission will pay a whistleblower between 10 and 30 percent of any monetary sanctions in excess of $1 million dollars that the SEC recovers as a result of the whistleblower’s assistance.
A story by Marcia Coyle in The National Law Journal, published July 19, 2010, on www.law.com, reports that some corporate attorneys see the new program as a bounty and warns that even companies with robust compliance programs face increased risk. “You could have a perfect compliance program and still have no legal defense,” said FCPA specialist Richard Cassin of Cassin Law (www.cassinlaw.com) in Singapore. “We kind of depend on prosecutorial discretion. The Department of Justice (which shares enforcement authority with the SEC) will come down less hard, but still, when companies have employees who go rogue, companies are strictly liable. I don’t like it because I think it’s a disincentive to maintain a good, robust compliance program, and to self-report violations.”
Markopolos will speak specifically about the implications of the new whistleblower program and the board’s oversight role in corporate compliance at the NACD Directorship Forum on November 9 in New York City. To register, visit directorship.com/events.
Judy Warner is managing editor of NACD Directorship, the official magazine of NACD. A journalist for more than 30 years, Warner now manages the creation of all Directorship products, including its magazine, events, website, and newsletters. Warner joined the Directorship team in 2007 from ComAve, LLC, an independent marketing consulting firm she founded and ran for eight years. Warner was formerly the New England bureau chief and editor for Adweek magazine and a senior editor for Marketing Computers. She began her journalism career in the newsroom of The Boston Globe.
My nephew, a marketing and business undergraduate in the UK, recently applied for a summer internship with a large soft drinks manufacturer. He got the interview but was alarmed to be asked this question: “Do you have a Facebook fan page [learn more] with more than five hundred people signed up?” He has a Facebook page, and many friends, but he hasn’t attempted to create a fan site—and that counted against him.
The company, of course, wanted access to large groups of twenty-somethings so they could push their products to their target market at the touch of a button. Joe is as addicted to texting and tweeting as any young adult, but, when it mattered, his lack of social media savvy cost him a job opportunity. Be sure the same thing doesn’t happen to you in your board career.
Neil Braun, a corporate board member of NACD, director of IMAX, and newly appointed dean of the Lubin School of Business at Pace University, believes that digital media expertise is now an essential board competency, especially for directors who sit on the boards of consumer products companies. (Here’s a quick look at why B2Bs & B2Cs use social media.)
Neil believes that good directors add value to the company by truly understanding the industry and what customers want. “It goes way beyond Twitter or Facebook,” he says. “Your customers can make or break your company by using Yelp or Foursquare to damn you—or attract a giant crowd.”
Neil’s contention is that risk governance isn’t possible without acute social media awareness—and that directors cannot be a strategic asset to their companies unless they “get it.”