At this morning’s meeting of the New England Chapter of the National Association of Corporate Directors, the panel of senior board members counseled a level of board activism that is at odds with the common wisdom that directors should set policy but not manage process or implementation.
Professor Walter Salmon, emeritus at Harvard Business School and an active board member of many public companies in the past, advised that in an acquisition the acquiror’s directors must evaluate whether the deal is a “bet the farm” play for the acquiror. If it is, he suggests that the board in effect hijack the project by establishing a special independent board committee, which committee in turn hires and receives the reports from the advisors to the company. The effect is to remove the implicit bias that outside experts feel when management hires those advisers to evaluate a deal proposed by management in the first instance.
Further, Professor Salmon suggested that a board committee be established to monitor the acquisition after it occurs, bearing in mind the many failures of acquisitions to enhance the acquiror.
Other panelists, Alan MacDonald (former CEO of Nestle) and Deborah McAneny (current lead independent director of a NYSE firm and director of another) each recounted serious corporate crises and counseled activist intervention by the board in fast-moving and unexpected situations where management might well be too close to the situation to have perspective.
We sometimes explain to directors that their job is “noses in, hands off” but the panel suggested that boards have a role, in crisis, in doing much more than suggesting strategic approaches to management, even though such activism can create tensions with the CEO.
And speaking of CEOs, Professor Salmon suggested that when things hit crisis mode a company was not necessarily well served to have sitting CEOs (a favorite choice of management) on the board because they may well not have the time that it takes to attend near-continuous board meetings that such a crisis may require.
Query whether the business judgment rule, that protects directors who exercise reasonable diligence from liability even for incorrect decisions, extends to protect directors who are at the cutting edge of board activism. The usual lawsuit against directors is that they did not pay attention and did not do enough. What if they jump in, fundamentally compel a prompt strategy, and that strategy is a failure?
It is not getting easier to be a corporate director….