Effective Governance and M&A

This chapter explores the role and structure of governance in three business models: the public company, private equity and family businesses. Through examination of three high-profile cases, it questions why governance often proves ineffective in the public company approach, to the extent that activist investors have intervened in a bid to moderate the behaviour of CEOs. Following on from earlier considerations as to the differing qualities demanded of CEOs, this chapter endeavors to identify how CEOs persuade their boards and shareholders to support large high-risk acquisitions. It also examines the frequent instances in which public companies fail to communicate the outcome of their M&A strategies and offer little real transparency, accountability or insight. Michael Jensen’s views on governance and the role of debt in holding management to account are reviewed. These are compared to the traditional approach of Non-Executive Directors who often have limited knowledge of the industry. The chapter concludes with guidance on how to create effective incentives for management when there is a clear separation between business ownership and management.