My big mistake

I want to tell you a story about corporate governance, a mistake I made, and the lessons learned.

Years ago, I was a member of the Board of Directors of a publicly traded company. Our CEO and senior management presented us with a take-over offer from another company. We did our due diligence, and we determined that the deal was in the best interests of our shareholders, and we approved the buy-out.

But, here was the mistake. The Board acted as a passive recipient of the CEO's proposal, leaving us only with the ability to "take it or leave it" or perhaps suggest minor modifications. We had not insisted on an opportunity to participate in the negotiations independently of the CEO while discussions were going on with the ultimate purchaser or with other possible suitors.

Part of the deal included a very generous payout for the CEO and a few other senior managers. That payout added no value to our shareholders, and indeed reduced the value to them. In essence, we had let the self-interest of the CEO drive a portion of the transaction that reduced its value to the public. We had not recognized the potential for a conflict of interest, to the detriment of the people we were supposed to represent. We failed in an aspect of governance responsibility.

I believe that this problem may be common in corporate takeovers. If a Board does not do its job properly, the public is left only with the power of elected officials or regulators to make sure that this kind of conflict of interest does not result in personal gain for a CEO and reduced value to the public.