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:
- M&A “IQ”
- Fiduciary Duties
- 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
- NACD Key Agreed Principles to Strengthen Corporate Governance for U.S. Publicly Traded Companies. Download a complimentary copy at www.NACDonline.org/LeadingtheWay.
- Report of the NACD Blue Ribbon Commission on the Role of the Board in Corporate Strategy
- Art of M&A Series, McGraw-Hill
- Report of the NACD Blue Ribbon Commission on Director Liability