Assessing Corporate Governance in M&As

Date01 January 2015
AuthorDavid M. Shapiro
DOIhttp://doi.org/10.1002/jcaf.22017
Published date01 January 2015
35
© 2015 Wiley Periodicals, Inc.
Published online in Wiley Online Library (wileyonlinelibrary.com).
DOI 10.1002/jcaf.22017
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David M. Shapiro
This article considers how to assess whether the
leadership of a merger and acquisition (M&A)
target includes essential human resource from
the acquirer’s point of view. After all, M&A should
be seen for what it is: a primarily privately con-
trolled reordering of economic, financial, and
human resources that occasionally leaves sig-
nificant disruption in its wake. M&A needs to con-
sider more than accounting and financial issues,
thus becoming more professionalized, broader
minded, and less exploitative and parochial.
© 2015 Wiley Periodicals, Inc.
A ssessing Corporate Governance in M&As
INTRODUCTION
TO CORPORATE
GOVERNANCE
We have not reached the
level from which we may
confidently conclude
that the best commercial
and not-for-profit enter-
prises run themselves
well independently of
the stewardship of their
governing responsible
individuals and commit-
tees.
Flatness in organi-
zational structure is appealing in
its offer of superficial efficiency
and unbridled innovation. How-
ever, most participants in merger
and acquisition (M&A) transac-
tions are characterized by hier-
archical governance structures
led by senior and executive man-
agement and board committees
(collectively, the target’s formal
leadership).
The objective of this article
is to explore how to assess
whether a given target’s formal
leadership comprises essential
human resource talent for the
acquirer. However, the results of
exploration apply generally to
change management in acquirers
and other corporations.
Financial reports and
other figures prepared by the
target’s leadership contribute
significantly to an acquirer’s
decision-making process in
M&A. These accounting data
are comparatively hard beside
the information available to
assess leadership talent; the
tempting inference that the tar-
get’s leadership has exceptional
talent because it was nomi-
nally in charge while the target
enterprise apparently obtained
certain financial scores is a glib
conclusion that may result in an
unfavorable decision. Whether
and how the leadership contrib-
uted to financial success are still
material issues.
Enterprises are character-
ized by the doers, the supervi-
sors, and the strategists (i.e.,
rank-and-file, middle manage-
ment, and senior leadership,
respectively). However, stake-
holders in the enterprise include
other interested persons such
as shareholders,
creditors, employees,
key suppliers and
customers, local
communities, and so
on. Corporate gov-
ernance described
herein is primar-
ily an endogenous
activity conducted
by the corporation’s
agents (e.g., high
managerial agents)
and not an exog-
enous activity within
the domain of regu-
lators. Specifically, the quality
of governance of the board over
management as well as manage-
ment’s oversight of the other
employees and agents are key
internal variables for sustain-
ability of excellence of corporate
performance. It is M&A that
serves as a catalyst for the reex-
amination of governance and
management in both acquirer
and target; it is M&A that pro-
vides an exit strategy for many
stakeholders, including directors
and officers and key employees,
willy-nilly or voluntary.
SPECIAL GOVERNANCE ISSUES
IN M&A TRANSACTIONS
As the acquirer’s commit-
ment has high monetary value
accompanied by consider-
able risk of financial loss, the

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