Fifty years old and I still haven’t kicked the habit of the end-of-summer book report. Sad really.
I must admit I didn’t think that Steig Larsson’s first thriller would provide food for NACD thought, but listen up all you private company directors, nomination and governance chairs worried about CEO succession, and anyone concerned with boardroom ethics and director independence. This book review is for you.
He died before his trilogy of crime stories became best sellers.
He was Swedish.
He was a former journalist who was expert in covering right-wing extremism.
It is not known how much he knew or cared about fiduciary responsibility or the governance practices of the best-run family businesses, and midway through the book it becomes obvious that the corporation and the magazine company around which most of the action is set, have not based their governance practices on the NACD Key Agreed Principles. Sure, both are private (not public) companies and being based in the frozen north of Sweden and in Stockholm respectively, are not bound by U.S. law. Nonetheless, the conditions under which old man Vanger joins the magazine company board, and the threats subsequently made to the company co-founders, would raise the eyebrows of anyone with even a rudimentary knowledge of the Duty of Loyalty. Transparency is not a core value and self-interest rules the day.
The Vanger family who run the company—and, indeed, the community at the heart of the book—would benefit from attending the family business session at this year’s NACD conference. As usual, the session will be facilitated by Jack Moore, a member of the Benjamin Moore Paint family and well-seasoned in helping directors and executives of family-run companies deal with some very sensitive interpersonal issues. Jack will be joined by Linda Thomas, the CEO of Wilcox Farms, an egg distribution company based in the Pacific Northwest. Chris Wilcox, one of the family members now involved with running the 100-year-old egg farm, will be there too. This will be textbook—not crime thriller—corporate governance, but the panel have promised some lively stories even if they can’t manage mystery and intrigue. Don’t miss it.
Later in Larsson’s novel (and I must be careful not to give away the plot) there are serious questions about who should lead the Vanger empire, although the old man is still very much alive at the end of the story. It all comes out all right in the end, but there’s no doubt that their succession planning and executive evaluation process was sadly lacking. The company counsel, Frode, is pretty much a good guy throughout, but really questions must be asked about the board process and how he allowed it to become so compromised. HealthSouth director and law professor Charles Elson, Heidrick and Struggles’ Bonnie Gwin, and Peter Wiley, chairman and former CEO of Wiley and Sons, will discuss C-suite succession planning at the NACD Conference. Join them to find out how it should be done.
And if a girl with a dragon tattoo offers to invest in your latest venture, give her a wide berth. I have reason to believe her fortune was not made honestly.
An old comic strip in my office shows the character Ziggy in a car facing two billboards: “Highway of Life” and “ Expect Delays.” This sentiment seems to apply to Sanofi-Aventis’s prolonged merger negotiations with Genzyme.
According to published reports, the apparent source of the delay has been agreement upon price, given the manufacturing problems at Genzyme. However, a bigger question the board must assess is whether senior management can address these issues within a timeframe that provides the expected return on investment.
This situation is not unique. As opportunities for “bargain” deals resulting from performance problems become more plentiful in our rapidly changing business environment, it’s critical for boards to go beyond questioning the logic and price of the deal and also assess the potential impact of cultural issues that can make or break success.
Here are questions to ask senior management:
What are the business culture strengths and obstacles that will impact integration (e.g., speed of decision making, communication flow, etc.)?
What plans exist to deal with the natural organizational anxiety and resistance that comes with mergers?
What is the plan for communicating with stakeholder groups to gain their support before and during integration?
Asking these and other questions regarding culture, combined with questions regarding strategic fit, will enable your board to not only accelerate ROI in the short term but in the long term as well.
Pamela S. Harper
Pamela S. Harper
Pamela S. Harper is founding partner and CEO of Business Advancement Inc (BAI). and author of the book Preventing Strategic Gridlock (Cameo Publications). She is on the boards of two nonprofit organizations. Since 1991, BAI has collaborated with senior executives and boards to develop strategy, increase leadership effectiveness, and improve organizational engagement and capability for maximum innovation, growth and profitability.
When it comes to M&A information, flow is critical. The type, quantity, format, timing, and source of the information that fuels board knowledge will vary from board to board and will also change over time for a particular board. It will also vary among board members, who have different levels of experience and expertise with different topics.
Information flow is critical for directors with respect to capital allocation decisions—in particular, mergers and acquisitions. This area requires special attention to the long-term interests of the corporation and the ways in which management’s interests may affect transactions. As the report noted, the board and management need to regularly discuss the opportunities for and threats to the company, even in the absence of any planned or foreseen transactions, so that directors have an understanding of the business context in which these issues may arise.
Depending on the size and business context of the company, notes the report, directors should periodically receive information related to, and discuss with management, the following:
Comparative studies and analysis concerning whether the company would be more viable by merging with, or entering into alliances with, another candidate, or standing alone;
Possible acquisition candidates. When discussing the fulfillment of certain of the company’s business strategies, such as entering into new lines of business, directors should receive information on possible alternatives, such as an acquisition or strategic alliance, to achieve the same objectives; and
The merger activity of competitors, including the impact of recent activities on the company’s market share. Competitive analysis as to other suitors for the same potential acquisition candidates might also be warranted.
Maintaining an up-to-date understanding of these issues will help directors to remain prepared for the time when management actually proposes a transaction. This is particularly critical for directors of public companies, who should understand the company’s plans and legal options for responding to unsolicited takeover offers.
In evaluating a particular transaction, notes the Report, directors should seek specific information about the price, timing, and certainty of the transaction, and should be proactive in overseeing negotiations. Directors should understand how the transaction will be financed, and the projected financial impact on the company under reasonably likely scenarios. Where the sale of the transaction warrants it, directors should seek independent financial advice from outside experts to consider together with management’s financial assessment.
Directors should also obtain a high-level analysis of the merger documentation, including an understanding of the most important representations, covenants, and indemnities contained therein and their application to the company and the transaction. In addition, directors should receive input from market and investor relations experts about the best manner in which to position the transaction and the likely reception from investors and creditors. As with any other matter before them, directors should crucially evaluate all the information they have obtained and arrive at an independent assessment instead of relying exclusively on management’s views.
Directors should also be alert to differences between management and shareholder interests in negotiating a particular transaction. For example, shareholders will be far less interested than managers in knowing who will continue to work for the merged company and with what responsibilities. These employment issues are important but they should not override concerns about long-term returns to shareholders.
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.