Dealmakers wanted: what directors really expect of their board colleagues who have M&A experience.

• Author: Hanson, Lee
• Position: HEIDRICK & STRUGGLES GOVERNANCE LETTER

As confidence in the economy increases, credit loosens, and CEOs turn their attention from managing the downturn to growing their businesses, the companies we talk to say that they are seeing an upsurge in M&A activity and other investments such as strategic partnerships and joint ventures. And, with organic growth likely to be slow, they anticipate such strategic investments continuing well into the future. As the importance of non-organic growth rises, so does the value of board members with investment banking or corporate development experience.

Independent directors will increasingly turn for guidance to their fellow independent directors who have been involved in such strategic investments and in making them work operationally. Yet some of these knowledgeable board members may have had little prior experience dealing with strategic investments as board members.

To find out what they can expect and what they should be prepared to do, we spoke at length with a number of executives and investment bankers who not only have extensive backgrounds in strategic investments but who have also brought that expertise to bear as board members.

The elements of due diligence and the checklist of questions that should be answered in assessing a deal are well known, say the people we talked to. But in the heat of the moment, some of those issues can be overlooked. Further, say our interviewees, what actually happens--and, in many cases, what should happen--can involve nuances and responsibilities that a director with acquisition experience, but not as a board member, may not have fully considered. Such directors, say our interviewees, should be prepared to:

* Assume a High Level of Responsibility: A former CFO and now the CEO of one of the foremost national retail companies who has served on two major corporate boards says that when an acquisition opportunity arises his colleagues expect him to take the lead in the board's consideration of the deal. On both boards he is the only independent director with operating and extensive M&A experience. And in smaller companies, with their typically smaller boards, there may be no such members. The same is true of boards heavily composed of directors with backgrounds in professional services, such as consulting. In all of those cases, much is expected of the lone director who has had an operating role or hands-on involvement in strategic investments.

Of course, a number of multibillion-dollar companies have...