M & A issues raise the governance bar: board members operating in this more stringent era should apply their experience and counsel to help their companies improve the likelihood of acquisition success.

• Author: Cookson, Ian
• Position: Boards of Directors - Merger and acquisition

Governance responsibilities for boards of directors have expanded significantly in merger and acquisition activities--moving well beyond simply obtaining a fairness opinion to being entrusted with evaluating strategic rationales and reviewing the adequacy of post-acquisition planning.

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Directors are being held to this higher level of governance, both in the courts and by new legislation such as The Sarbanes-Oxley Act of 2002. This is a reaction to behavior at the peak of the financial cycle--the rising stock market, bursting bubble, accounting restatements and weak governance--that eventually retreated, revealing the problems.

As the level of merger and acquisition activity picks up--fueled by an increased availability of capital--the impact of these changes on the acquisition landscape is starting to be felt. In no area is the importance of an independent board arguably greater than in carefully evaluating acquisitions.

In this environment, boards should use their expanded role to not only monitor management, but also to increase the probability of successful acquisitions by adding value through their additional guidance and experienced counsel. This more rewarding position--helping to build the business and pass on lessons from their own experiences--is, after all, presumably the reason they joined the board in the first place.

History demonstrates that transformational acquisitions are almost unrivaled in their staggering ability to destroy value for shareholders--with AOL Time Warner one such example in a long list. Boards should, therefore, focus enormous attention on evaluating acquisitions, particularly addressing the reasons most commonly given for past failures.

In recent Grant Thornton LLP surveys, three reasons were most frequently cited for acquisition failures: poor integration planning, lack of strategic rationale and weak cultural fit. Conversely, the reasons most frequently cited for acquisition success include: a good match, thorough planning and effective personnel. It's clear that a comprehensive review of elements related to an acquisition success or failure is integral to the board's role.

The question then becomes: What can and should directors do in each of these areas?

* Integration. Directors should ask to review post-acquisition integration plans and determine who is accountable for its implementation. This would likely cover three areas: 1) the actions immediately necessary after the transaction closes, frequently a laundry list of housekeeping items; 2) the communication plan, covering not only short-term communication with customers, shareholders and employees but also ongoing communication to address primary concerns of key stakeholders, based on solicited feedback; and 3) the plan for delivering intended synergies, not only in regards to cost savings through...