Board Processes and Oversight in M&A Transactions
Under both corporate laws and corporate norms, the board of directors plays a central role in managing the company. A function of the board is to guide and monitor corporate officers in significant decisions, particularly extraordinary financial events like mergers and acquisitions (M&A). M&A deals are often initiated by corporate officers, but it is the board that must decide whether a potential material transaction should proceed. In some instances, corporate law statutes give directors the primary responsibility for the negotiation of a merger transaction and approval of the decision to enter into the transaction. Directors are viewed as exercising their fiduciary role when undertaking such decisions. In the US, for example, the courts have developed robust doctrines and case law examining the duties and functions of directors of target firms in an acquisition. Similarly, scholars have long probed the fiduciary obligations and the proper role of the board of directors of the target in an M&A transaction. There has been significantly less guidance about and review of the processes undertaken by boards of bidder firms. This is in part because courts in the US have historically given directors substantial discretion. With respect to acquisition decisions in particular, the courts have viewed a board’s decision to acquire another company, no matter how large the transaction, as an ordinary business decision that is protected under the business judgment rule. While the litigation risk for bidder boards is low, what should be the board’s involvement in and oversight of an acquisition deal? This paper addresses the role of bidder boards in a deal process. It examines leading commentary on best practices for bidder boards in acquisition decisions, and queries whether and how boards of bidders should be held accountable for acquisitions.