Thursday, April 18, 2013

Corporate Governance, Acquisitions and the Interdisciplinary Connections of Business

Corporate Governance and Acquisitions are two distinct topics that cut across countless other topics - and certainly each other.   Acquisitions, for example, encompass so many different aspects of business.  First and foremost is finance.  We need finance to understand our financial projections, to make sure that the net present values are realistic and that the terminal growth and other assumptions are appropriate.  But that present value model of finance is derived from estimates of every other area of business.  Cash flow projections initially depend on sales projections from marketing.  Logistics are part of the marketing estimates as well.  If projections start with sales, they travel through accounting regulations on their way to cash flow.  Information systems are crucial avenue for decision making before, during and after acquisition.  Legal restrictions (regulatory and deal specific) permeate acquisitions.  Behavioral finance and the decision sciences are crucial for informed and unbiased decisions.

Last - and unfortunately often considered least - is the fact that all projections, all synergies, and ultimately all results,  are driven by people.  Numbers are essential, but without the proper personnel they are meaningless.  A business and hence its cash flow, work only through people.  It is true for the goods and services a firm delivers and it is true for the decisions executives make.  Numbers don't make decisions.  People make decisions.

Which brings us to Corporate Governance.  Corporate Governance involves the alignment of owners and managers and like acquisitions impacts (and is impacted by) virtually every area of a business.  It is certainly true that many deals are driven by an opportunity to increase value through better governance.  In private equity, for example, a firm may be taken private to better align incentives for owner-managers.  In other cases, internal governance structures have failed to maximize value - external governance mechanisms (like acquisitions) rush in to fill the vacuum.  

In (a) separate post(s), I'll write about two of Drexel's premier events held recently in Central Philadelphia.  The first is our 6th Annual Academic Conference on Corporate Governance.  The second is our 5th Annual Director's Dialogue, a program on governance by and for practitioners.

All the best,


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