Platt Perspective on Business and Technology

Joining, serving on and leading a board of directors – 24: mergers and acquisitions, and serving on a board in transition – 2

Posted in job search and career development by Timothy Platt on November 27, 2011

This is my 24th installment in a series on joining, serving on and leading a board of directors (see my Guide to Effective Job Search and Career Development – 2, postings 179-201 for parts 1-23) and it is my second to look into the challenges and issues that arise particular to boards of organizations entering into mergers and acquisitions (see Part 1 of this.)

In that Part 1, I outlined some of the basic factors and considerations that would enter into any decision to merge or acquire, and more generally to combine businesses. I selected details to at least touch upon there with their impact on boards in mind, so I recommend reviewing that posting before delving into this one. I add that Part 1 focused primarily on the situation where two relatively equal businesses enter into a merger and I will continue building out that model here. With that posting as a working foundation for further discussion, I turn here to consider the impact of combining businesses on board functions and activities, and on oversight, advisory, management and due diligence responsibilities that board members hold.

Effective boards are run, and they conduct business through an interconnected maze of interpersonal relationships. Turning for a moment to consider my board taxonomy and its three board types:

• For rubber stamp boards, effective working relationships mostly arise between individual board members and the person of the CEO with very little productive discussion or action arising from interactions and relationships that would develop between board members.
• For ruggedly independent boards, you can and usually do see cliques formed, but everyone is pretty much deciding and acting unilaterally so in a fundamental sense these boards are burdened with a lack of effective board member interaction or communications too.
• For strategically aligned boards, members of the board work together and develop rich, productive relationships in doing so. This does not necessarily mean they all become close friends, or even friends per se at all. This simply means they come to know each other and to develop effective ways of working together, while working together on that board. And these board members effectively connect with and communicate with the CEO, and through two way conversations and exchanges of opinion and perspective.
• For rubber stamp boards, these conversations all tend to be one way with the CEO doing all of the talking.
• For effective board, formal dialog with the CEO may very well be structured and guided by overall board decision, but it is active and it is a two way interaction.

Now a merger happens, and board members are simultaneously coming to terms with a new, and perhaps still forming corporate culture and leadership in the newly organizing business they are to advise. They are probably coming to know each other too, with familiar faces gone and new ones present – and with everyone actively learning who does what and who can contribute what in the ways of skills and experience. And I toss one more complexity into the mix.

Lets assume (reverting to my company A and company B designators from Part 1) that company A enters the merger with a strong and controlling CEO and a rubber stamp board. Some of its board members will end up on the newly combined post-merger board, and that may even include the board chair with them still holding that position. Unless that board has had members in effect silently struggling to break free all of these board members have simply followed orders, and even board members who have wanted to resist and speak out have never developed any real skills or experience in serving on an effective board – and they do not know how to do that.

In this, rubber stamp boards and ruggedly independent boards are very much the same. Board holdovers from a company A with its pre-merger ruggedly independent board are precisely as inexperienced in working on a functioning board as are their rubber stamp board counterparts. And I will add that those rubber stamp board members who decide to break out of that mold, are more likely to become ruggedly independent than anything else as they will still be lacking in experience or skills needed to serve on an effective board.

I am not saying that people coming from these stultifying backgrounds cannot learn to be effective board members. I am just saying that they will have real learning curves, and they will probably resist that fact, at least at first, from the fact that they have had X number of years of tenure on one or more boards per se. And this creates challenges as members of these boards seek to work with others.

When boards combine there are always going to be learning curve challenges, and even when all members are drawn from effectively run strategically aligned boards. Some of this can be expected to come from simply learning their way around the new terrain of who is who, and from coming to agreement on how things will be done now. Obviously, any conflicts or misunderstanding in the newly organizing senior executive team or coming from its leadership will compound that. And in this, it does not matter if this comes from strategic or operational disagreements, or from differences in assumed corporate cultures.

• Board members in an emerging post-merger board have to be prepared for change with all of its rough edges and misunderstanding and with all of its emerging differences of opinion – and on all of the issues that no one realized in advance would become issues, but that day to day reality would bring to the front.
• And this brings me back to what I have repeatedly cited as the board’s and board member’s primary role and responsibility – that of advisor.
• Board members need to work their way through their own intra-board learning curves and they need to establish new working relationships with each other. This can and probably will mean both mentoring and learning, and for all of the members of this new board.
• Board members have to begin reaching out to the senior executive and their perhaps still coalescing executive team to build bridges and work with them.
• And I bring up a possibility I have not really discussed all that much in this blog – the situation where a business has a President, usually with senior operational oversight responsibilities and a separate CEO with strategic oversight, in effect dividing leadership at the top of the table of organization into two separate positions.
• Boards and board members have to learn who to work with and on what issues and according to any division of labor at the top arrived at in the executive suite.

I am going to turn next to consider asymmetric acquisitions, where A is a larger, well established business and B is a much smaller company that holds resources and capabilities of real long term value and importance for A.

I have been posting on the general topic area of jobs and careers to my Guide to Effective Job Search and Career Development directory. I have recently started a second, continuation page to that directory at Guide to Effective Job Search and Career Development – 2 and you will be able to find this and subsequent series on jobs and careers there.

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