Good deals, bad deals: the role of the Board

How important is good corporate governance to getting good deals done and stopping duff ones?? I consulted four colleagues involved in deals and Board governance on a daily basis, Angela Toner , Laura Schmuttermeier , Natalie Ord , and Paul Jennings , for their insights.

Earlier this week, I posted their thoughts on due diligence and preparing for the deal here: Post | Feed | LinkedIn

What about the role of the Board, and any advice to my fellow Board chairs?

The role of the Board in deals

“No deals, in fact no successes in business, are possible without taking some risk,” points out Angela.? So the job of the Board is to stand back and consider risk at a holistic level, look long term and ask whether the proposed deal is in line with the strategy.? This needs the Board to function properly as it does on routine matters:? well led by the Chair who makes sure that all voices are heard, with Board members – both executive and iNED – stepping out of their day-to-day shoes and asking whether the deal is right for all stakeholders. “Good Boards stop deals that are not on strategy,” affirms Laura.? “We definitely see good corporate governance stop bad deals”

A risk factor in some deals is a disconnect between management and Board.? Management may want a deal that is personally rewarding but not strategically aligned; Boards may want a deal that is value accretive for shareholders but stands no hope of successful implementation without the active support of management, which may not be forthcoming. Buyers must always ask “are management on the bus?” warns Natalie.? Paul agrees:? “Are the senior leadership, the exco, aligned with the Board?? It’s a crucial question.”

Ultimately, in the current environment, with high interest rates causing valuation uncertainty and causing a more cautious approach to deal-doing, continues Natalie, “anything that adds to the risk profile of a deal can put a buyer off. That includes poor corporate governance.”

“Of course,” points out Laura, “good deals will have an incredible effect on a business and bring it to new heights, so the effort is worth it in the end.”

My advice to fellow Board chairs

So having listened to my four expert colleagues, what are some learnings for myself and fellow Board chairs and iNEDS?

First, particularly if you are likely to be on the sell side, be ready, do your prep and don’t let due diligence on your Board and corporate governance point out shortcomings which you could have fixed last year.

Second, if you are on the buy side, insist that your management take the corporate governance aspects of due diligence seriously and see failures there as the warnings signs they are.

Third, it’s the Board’s job to stand back and take an all-round look at the deal.? It’s not its job to replicate detailed questions about the target or buyer or the deal which management should already have seen, understood and dealt with.? Don’t add to everybody’s deal fatigue.

Fourth, make sure the Board discussion and its decision follows the usual rules of good governance, no matter how urgent and inevitable the deal may be asserted to be.? Is everybody on side? Have they had their say? Is the deal right for the firm in the round? Are management ready and motivated to execute??

And fifth, if a deal is incoming and you need counsel and support, contact us at the earliest opportunity!