Survey Finds Appetite for Board’s Role in M&A Oversight to Grow

Mergers and acquisitions (M&A) activity continues to be a significant strategic tool for many organizations, and the management teams of organizations are looking to the board for deeper involvement and for their own wisdom. In an effort to gauge the extent to which boards are sufficiently equipped to support management on this front, NACD partnered with Deloitte to conduct a poll on the subject. Two hundred and nine NACD members responded to the poll between May 22 and June 24, 2019. Two findings from the survey are particularly noteworthy:

1. Both directors and management seek greater involvement from the board’s nonexecutive directors.
2. Integration is a critical phase of M&A, and one where the board’s greater involvement can serve as a real asset to their organization.

Boards Seek a Greater Role

There is evidence that efforts to combine businesses remain an important lever in formulating and executing business strategy, as the pace of M&A activity remains high. Survey respondents indicate that boards would like to be more directly involved in M&A activity, and there is good evidence that management is increasingly keen on this growing board involvement.

• Directors want to share their business wisdom. More than 80 percent of survey respondents indicated that there is a greater opportunity for nonexecutive directors to use their previous management experience to support management throughout the M&A process.

• Management is reaching out to the board for help. Sixty-three percent of respondents report that senior management has attempted to engage the board more frequently about M&A activities compared to prior years. Further, management is looking at new and innovative ways to engage with directors. Senior management has gone on to employ new M&A tools or methods to involve the board in more dialogue around M&A at 45 percentof respondent companies.

• Boards are seeking directors with M&A expertise. Nearly a quarter (24%) of poll respondents indicated that their board has considered bringing on new directors with specific M&A expertise.

Opportunity Abounds for Board Involvement In Integration

While it is evident that there is an increased desire for board guidance through the span of the M&A process, the integration stage in particular may merit more nonexecutive director support. It might also be the stage where their advice could yield the greatest value.

• The board can help field points of increased scrutiny in the deal. Nearly two-thirds (64%) of respondents feel it is likely that the integration stage of the acquisition process will be subject to increased levels of scrutiny by a range of stakeholders. This stage may deserve this extra attention, as the complexities of merging finances and cultures can hinder any sought-after efficiencies. It is at this stage where many deals fall flat, leading to decreased yield on the deal’s potential value. Having the help of an engaged board could help companies avoid deal failure.

• Integration is a key opportunity for board contribution. After reviewing management’s strategy with respect to a given transaction and subsequently approving that transaction, the third-most-common task undertaken by respondent boards is holding management accountable for integration strategy. Currently, 66 percent of respondents indicate that their boards review post-merger integration plans, and 40 percent go on to oversee post-merger execution. However, further nonexecutive director involvement may be necessary, as a narrow majority (50%) of respondents feel that it is very importantor extremely importantthat the board include at least one nonexecutive board member who has experience managing or overseeing integrations.

• Executives welcome board support. This sentiment was particularly strong among executives who indicated that they would value the input of directors whose professional involvement with M&A was in an executive role (as opposed to a director or advisor), perhaps reflecting the value such a director can have for a sitting executive.

There are a number of complicated issues (financial and cultural issues, for example) that boards should help executives consider and sort out at the integration stage, up to and including what happens to the board itself.  Nearly half of respondents indicate that they have recently discussed the impact that an M&A transaction would have on the board. The difficulties encountered at this stage are many, and given the consequences of failure, it is perhaps not surprising to find that additional board guidance may be required—even on tough topics that might lead to the elimination of a board seat, for instance, in the name of deal success.

Additional Resources

NACD can support directors in several ways. A recent report from NACD’s Director Essentials series on “Strengthening Oversight of M&A” includes a summary of M&A trends and provides guidance for boards in fulfilling their role throughout the M&A process. Additionally, Deloitte’s report, The State of the Deal: M&A Trends 2019, provides an overview of the outlook for M&A in 2019 and can be found here.

For more NACD content related to the board’s role in M&A oversight, please visit our Resource Center dedicated to the topic.