Optimizing post M&A boards

Optimizing post M&A boards

An often overlooked critical post-M&A shareholders task is determining the company’s new board of directors’ optimal composition.

In Asia and particularly ASEAN, many companies that successfully attracted overseas institutional investors are now adding independent directors that can specifically address forward-looking long-term issues that are crucial to their business’s future prosperity.

We began experiencing this need from 2005 to 2007 just prior to the US sub-prime crisis.

Changing specifications

In the past, most directors were chosen for their industry experience and connections and more often for their relationships with owners.

Our institutional investors now insist that directors should be capable of engaging in strategic discussions, forming independent opinions and most importantly are able to work closely with executive teams to ensure long-term goals are well formulated and completed.

Some of our successful forward-looking boards include directors that have previously guided their companies to adopt cutting-edge technologies or successfully resolved market disruptions.

Too much focus on rear-view mirror

Many of our institutional investor partners insist some boards of directors concentrate too much time on rear-view issues such as quarterly reports, audit reviews, budgets and compliance.

During the recent European and US economic recessions, many companies were undermined by negligent, over optimistic or ill-informed boards prior to the ensuing crisis.

Governance, suffers most when boards spend too much time looking in the rear-view mirror and not enough scanning the road ahead.

Agendas for dynamic forward-looking boards

Many of our investee companies are now developing dynamic forward-looking board agendas and ensuring that their directors have the ability and sufficient time to thoroughly address the issues during each annual period.

As a matter of practice, boards should look further out than anyone else in the company because in many cases CEO’s are the last ones to see changes coming.

Sustainable companies must also successfully address long-term economic,technological and demographic trends that are radically reshaping the global economy.

This continuously evolving environment makes overseeing successful multinational businesses much more complex.

Too many distractions

Institutional investors also realize that many current boards are constantly distracted by compliance and new detailed regulations and simply don’t know enough about the company’s fundamentals and long-term strategies to add value and avoid trouble.

Rather than viewing their role as always supporting CEOs, these directors should engage in strategic decisions, form independent opinions, and work closely with executive teams to ensure long-term goals are formulated and subsequently completed.

The best boards should be able to act as effective coaches and sounding boards for top management teams.

Making strategy part of board’s DNA

A board’s central role should be to co-create and ultimately agree on the company’s strategy. Instead of having a CEO presenting his strategic vision once a year, a much more fluid strategy development process is required.

The board and management should jointly define a broad strategic framework, before management defines options for board review.

At the beginning of all annual planning processes, the board should help management broaden the number of strategy options.

Strategy should also provide context for proposed acquisitions or standalone investments because without reference to long-term objectives, stand-alone investment proposals don’t make much sense.”

Studying external landscapes

Forward-looking boards should formally conduct market and competitive landscape reviews. In a globalized world, informed and knowledgeable directors may be able to help identify often dangerous “unknown” competitors on the horizon.

Many companies also invite renowned experts and professional in various field including technology, regulatory matters and economics to talk about specific topics at board meetings.

Some of our investee companies hold regular overseas board meetings that often apprise directors of new company-strategy relevant technologies and market developments.

Our institutional investment partners suggest that directors should regularly compare internal performance data with those of competitors across a range of indicators, so they can challenge management with appropriate critical questions.

Anticipating unseen risks

Although all companies take significant risks, boards and companies often overlook unpredictable yet probable risks.
Periodic political instability and avian flu crises are good examples of unpredictable recurring risks affecting businesses in Thailand.

Accessing top board members

Incoming board chairmen are now often asked to imagine what his or her board might look like, ideally, three years from now.

They should assess what types of skills and experience are required to develop a winning-team to fulfill the company’s long-term strategy.

Danai Pathomvanich is Founder and Managing Director of Hatton Capital Ltd, an investment banking and fund management company with offices in Bangkok, Shanghai and Hong Kong.

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