In a recent article from the Harvard Law School Forum on Corporate Governance and Financial Regulation, Alexandra R. Lajoux, chief knowledge officer at the National Association of Corporate Directors, discusses the role of boards of directors in M&A deals. Emphasis is made on readiness and oversight.
According to Dealogic, the value of M&A activity is at its highest since the global financial crisis with July 2015 totalling $549.7 billion globally, the second highest monthly total value since April 2007. A more detailed review of global M&A trends may be found here.
According to Ms. Lajoux, boards must consider M&A transactions as part of its routine corporate responsibility. In doing so, Holly J. Gregory suggests that boards must evaluate whether a transaction is in the best interests of the company and its shareholders.
The extent of a board’s involvement in such evaluation will depend on the size of the acquisition and the potential risks. Boards should, however, be involved at all stages of an M&A transaction, from the strategic stage to evaluation and execution of deals.
Ms. Lajoux and Ms. Gregory both emphasize the importance of engaging with management and advisors in order to ask key questions in the following areas: strategic considerations of the company, risk profiles, capital and cost implications, industry-specific M&A trends, and resulting opportunities and obstacles.
From the perspective of corporate governance, boards must consider whether specific measures should be implemented to ensure an independent process of evaluation. Options may include appointing a special committee of independent and disinterested directors to evaluate and negotiate the transaction on an arm’s-length basis.
By taking an active role in the consideration and execution of M&A transactions, boards execute their director responsibilities and duties and contribute to the creation of optimal value for the company and its shareholders.