Last month we raised concerns that BCE’s management —rather than its board— appeared to be leading the auction process that the company had embarked upon. Some days after our posting, the board issued its first statement about the process and made it clear that it was in charge. We see from yesterday’s Globe and Mail that Judge Leo Strine of the Delaware Chancery Court has similar views on the role of the board in the kind of events now unfolding at BCE:
Judge Strine says boards today have to take control of negotiations immediately because managers run the risk of being biased in favor of powerful private equity buyers that typically offer rich contracts for the bosses to remain if their bids succeed. Another worry is the reluctance of private equity buyers to compete with each other in takeover auctions, thereby limiting the potential for bidding wars.
Judge Strine’s observations about boardroom conduct should make directors at BCE Inc. blanch. The communications company’s board waited until last week to form a special committee of directors to oversee takeover talks, months after private equity buyers had come calling and more than a week after New York buyout giant Kohlberg Kravis Roberts & Co. collared three of Canada’s largest pension funds for a syndicate that is studying a potential takeover.
Judge Strine is not advancing new law. For at least two decades, the Delaware court has followed the position that boards, and especially independent directors, must ensure fairness, value and objectivity when a company finds itself, or places itself, in play. It evolved out of the early days when corporate raiders threatened to upset management’s grip on power, prompting management to find more friendly suitors —occasionally at the expense of the best deal for shareholders.
An interesting side note— our comments on the tardy entry of BCE’s board were also made to newspaper reporters before they were even introduced here. Apparently they weren’t seen as an issue by the reporters who had called me and there was no mention of this concern appearing anywhere prior to its being raised at Finlay ON Governance. It’s another example of where blogs often outpace more turgid mainstream media, and where reporters are often less clued in to the concerns of ordinary stakeholders and investors than they profess to be, and the practices of sound corporate governance than they ought to be.