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,
Ralph
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