High Performance Boards, 2nd Edition

CHAPTER 26The Board's Oversight Framework for M&As

Companies are looking beyond industry boundaries and national borders for external growth opportunities. While merger and acquisition (M&A) activity is cyclical, deals themselves have become increasingly complex and sophisticated. This is stretching the abilities of boards, and is compelling directors to devote more time, focus, and dedication to M&A oversight. M&A decisions are among the most important that a board must make. And for many directors, the M&A process is one of the most challenging, frustrating, and dangerous.

Decisions to approve or reject offers are closely watched and criticised by investors, public authorities, and other stakeholders. The directors of the acquiring company may face disapproval for paying too much and leaving money on the table, and must weigh concerns about empire building or egos. They also face mounting pressure from employees, suppliers, customers, the media, and regulators, all of which could be affected by an M&A deal.

In a fast-moving situation, directors are supposed to make all the most important decisions in a very short period of time. Their personal interests are also at stake, because directors of both the acquirer and target companies will often lose their board seats as a result of a deal. The M&A process is a stress test for boards – if anything goes wrong, the directors may be liable for damages for breaches of duty or other alleged transgressions in making the deals. Even ...