The New Frontier of M&A and Corporate Boards.

• Author: Elson, Charles
• Position: Mergers and acquisitions

My retirement from teaching lasted less than a year.

I am now teaching the mergers and acquisitions (M&A) course at the University of Pennsylvania's Carey Law School--something I haven't done before. In preparing for the class, I began to review the history of M&A in this country over the last 150 years, particularly focusing on its legal course since the 1980s. I was in for a surprise.

I started as a young corporate lawyer in New York during the heyday of the M&A craze in the mid-1980s. It was the era of the notorious swashbuckling corporate raiders and their target corporations' heated responses. Creative takeover defenses, designed by brilliant corporate lawyers and investment bankers --and sanctioned by the courts--acted to frustrate the asset-collecting ambitions of many a raider.

All of this helped spark the corporate governance revolution of the past 30 years, which has dramatically changed how we now view M&A and provides an interesting lesson for today's corporate directors.

In the 1970s and 1980s, the courts were highly deferential to corporate management and boards, which were generally dominated by managers. The thought was that shareholders with little information and sophistication were best protected in their investment by management, which was viewed as being made up of generally faithful fiduciaries. This explains the support courts gave to boards during the takeover battles of the era and the judicial support of various anti-takeover vehicles, such as poison pills. The idea was that the "raider" was trying to expropriate shareholder wealth at an inferior price.

Regrettably, these actions acted to insulate poor management from the marketplace, and with "captured" boards providing little oversight, executives faced little accountability to anyone other than themselves. Results at many bluechip companies predictably fell and respected businesses such as GM, IBM and American Express found themselves in great difficulty.

The shareholders of these entities, though, were no longer the small retail investors of yesteryear but large institutional investors. To return managerial accountability and accompanying better results, they began to push hard against management-insulating anti-takeover mechanisms. And, more importantly, they began to demand independent...