May 19, 2010
M&A in the Blawgosphere
Perhaps his next article should be "Death of the Solo Blawg"
Given the synergies, I am sure this will be a fantastically successful combination. Congratulations.
May 18, 2010
Chancellor Strine on Board Effectiveness
Last night I attended a fascinating lecture at Stanford’s Rock Center for Corporate Governance by Delaware Vice Chancellor Strine about the lack of alignment in the corporate governance system. Speaking to a packed crowd, Chancellor Strine made a compelling case for a deeper understanding of what we are asking of boards through our various corporate governance reforms. Among his many interesting points, he made two important insights about the role of directors on boards. First, he asked academics to work on “a more or less study” that looks at (i) what more have we given managers to do? and (ii) what less have we required of them? His point was essentially that we have imposed stringent independent director requirements and then heaped more and more responsibility on these independent directors. One worry is of course that humans are bound to make mistakes especially when they have too much on their plates. The other worry is whether these independent directors have the time, skills and company-specific knowledge to effectively manage and monitor risks.
Chancellor Strine’s second point about independent directors was that the increasing push for independent directors has resulted in independent director politicians that serve on many boards and may be beholden to other interests outside of the interests of the particular company that they are serving. These latter comments made me think about a recent paper entitled, The Dark Side of Outside Directors: Do They Quit When They are Most Needed? by Rüdiger Fahlenbrach, Angie Low and Rene M. Stulz. It’s worth a read:
Abstract: Outside directors have incentives to resign to protect their reputation or to avoid an increase in their workload when they anticipate that the firm on whose board they sit will perform poorly or disclose adverse news. We call these incentives the dark side of outside directors. We find strong support for the existence of this dark side. Following surprise director departures, affected firms have worse stock and operating performance, are more likely to suffer from an extreme negative return event, are more likely to restate earnings, and have a higher likelihood of being named in a federal class action securities fraud lawsuit.
Tomorrow, I’ll post about how Chancellor Strine’s comments relate to some important issues in corporate governance reforms outside of the United States.
May 17, 2010
WGM on Mitigating Fraudulent Conveyance Risk
When an over-leveraged LBO turns out to have an unsustainable capital structure, creditors in an ensuing bankruptcy or other restructuring MAY seek to recover payments made to selling shareholders in the LBO as fraudulent conveyances. In this client alert, WGM describes what selling sponsors can do to mitigate the risk of successful post-LBO fraudulent conveyance claims.
For those of us on a university calendar, it's already summer. It's a great time of year to attack that pile of reading that's been accumulating on the corner of my desk. Funny, reprints no longer take up much space on my desk since I get most of that stuff online these days. I do have an increasingly large pile of books, however. At the top of that pile is Guhan Subramanian's Negotiauctions. Negotiauctions builds on an earlier work Prof. Subramanian did with Richard Zeckhauser on negotiations and the sale process. Subramanian defines a "negotiauction" as a process in which the seller is both a passive player (the auction component) as well as an active player (the negotiation component). During the auction component, Subramanian notes, the bidders do much of the work in terms of pushing up the price. During the negotiation component, which may be simultaneous with the auction component, boards of sellers take a much more active role in generating value. Although life would be easier if the merger process were simply a binary process, Prof. Subramanian is entirely correct in his set up. It's both. That's what can make it so complex. On the one hand deal protection measures can hinder an auction, on the other a well-motivated board can use the same measures to negotiate a higher value. It's a world of grey.
This book is steeped in the academic literature of auction theory and negotiations, but is written for a more general audience. It's well worth the read. The Kindle edition means that you can even read it on vacaction.