O'Neal at Merrill: Authority to Negotiate?

CEO Stanley O'Neal of Merrill Lynch is in hot water because, among other things, he approached Wachovia about a merger without informing his board of directors of his intentions.  At issue is whether this is a breach of his legal duties to the board.  I my view it is not, with a very important caveat.  Initiating merger discussions does not itself require board authorization.  When a CEO attempts to sign a confidentiality agreement on behalf of his company, however, he may not be authorized to do so without an express resolution of the board -- it is a close question.  The board must, however, sign any deal negotiated by the CEO. Of this there can be no doubt.  And when the CEO leaves his board out of the loop in the negotiations, this decision to sign may be viewed by courts as a fait accompli rather than an independent business decision, well-informed and deliberated.  This is the rub.  The court may not respect the boards decision to sign.   Whether a CEO negotiates without board notification is best practice is another matter.