Corporate & Securities Law

Standing Mergers & Acquisitons Board Committees: Few and Far Between

By broc

Standing Mergers & Acquisitons Board Committees: Few and Far Between

Recently, a member asked if we had any board committee charters for M&A Committees. We conducted some search and we were able to find a few - that we have posted in our "M&A Board Committees" Practice Area - but it clearly is a pretty rare phenomenon. This is understandable - even for those companies that regularly engage in M&A - as the larger deals would need to come before the full board, and the smaller deals could fall to a group of employees to analyze and negotiate, under a delegation of authority from the full board.

Many of the companies that have established M&A committees don't appear to have adopted formal charters (or at least they haven't made them publicly available). Charters for these committees aren't required under stock exchange rules and formal charters aren't necessary under state law in order for other directors to rely on a committee's recommendations.

However, the charters for those committees that do have them make for interesting reading. Some are very detailed and spell out in fairly precise terms the scope of the committee's authority (see, for example, Cisco Systems and Hewlett Packard's charters), while others take a more general approach (see, for example, EMC Corporation's charter). Some charters provide that the members of the committee must be independent, while others do not contain an independence requirement.

It is not all that unusual for a company that is looking at a large potential acquisition to form a special board committee to oversee that process. Often, there is a subset of directors who have unique skills or expertise that makes them well suited to take the lead on the board's behalf in such a transaction. Standing M&A committees take this concept a bit further, and are a tool that some corporations have opted to use to formalize and help define the board's oversight role in corporate acquisition efforts.

While the use of standing M&A committees doesn't appear to be widespread, it should be noted that some commentators have advocated far more aggressive approaches to oversight of corporate M&A. For example, Prof. Sam Thompson of UCLA Law School has suggested the use of an SEC-appointed committee of outsiders – a "Change-in-Control Board"- to oversee significant corporate M&A by a public company.

In support of this idea, Prof. Thompson cites empirical data suggesting that buyers frequently overpay in corporate acquisitions. He states that this could result from, among other thngs, "the hubris of [the buyer's] managers or the desire of its managers to enhance their compensation by operating a larger firm." Prof. Thompson contends that these potential conflicts of interest, together with what he views as the inadequate remedies available to a buyer's shareholders under state corporate law, make the far-reaching changes to M&A oversight that he advocates appropriate. Thanks to John Jenkins of Calfee Halter & Griswold for his thoughts on this one!

Full post as published by DealLawyers.com Blog on April 28, 2009 (boomark / email).