1. CORPORATE GOVERNANCE IN M&A
GLOBAL CORPORATE GOVERNANCE
Professor Anthony Palma
Jacopo Lorenzi | jlorenzi@fordham.edu
Davide Vioto | dvioto@fordham.edu
MSGF - 2015

2. Jacopo Lorenzi – Davide Vioto
OVERVIEW
I. THE ROLES OF BOARD OF DIRECTORS
II. BOARD STRUCTURE AND EXTERNAL TIES
III. CONFLICT OF INTERESTS
IV. CEO’S COMPENSATION

3. Jacopo Lorenzi – Davide Vioto
THE ROLES OF BOARD OF DIRECTORS
The Board of Directors should represent shareholders, hence act in their best interest
by monitoring management’s activity and through their role as advisors.
MONITORING ROLE
• Internal Governance procedures
- Use performance based
compensation
- Make sure management is
c o r r e c t l y e x e c u t i n g t h e
previously planned strategy
ADVISORY ROLE
• Directors should be able to
provide an addition of value
to the firm through their
expert advice
• The Board of Directors should establish the Governance mechanism to minimize
undesired effects of arising conflict of interests during takeover
• Due to the limited amount of time and resources, Board of Directors needs to
choose between one of these two functions
- Focusing on the Monitoring role lower return for the shareholders of the
acquiring firm

4. Jacopo Lorenzi – Davide Vioto
BOARD STRUCTURE AND SOCIAL TIES
Effects on near deal announcement date return for shareholders:
Tighter social ties between the CEO and the board can make
communication more efficient and complete, leading to sounder
acquisition decisions.
When the Target and acquirer’s share some board members (i. e.
are connected) acquirer shareholders have higher return. The
duration of the negotiation is shorter.
Independent Board members have minimal economic ties with their firms, that’s why they
are viewed as more objective and effective in their monitoring function.
Studies shows target firm shareholders receive higher bid premium when the Board as a
greater composition of independent directors.
The investment banker financial expertise usually favors the
number of acquisition that the board approves; this could lead to
inefficient decisions.
Acquiring Board
and Management
Acquiring Board
and Target Board
Investment Banker
on the acquiring
board
The presence of
independent board
directors

5. Jacopo Lorenzi – Davide Vioto
CONFLICT OF INTERESTS
M&As tend to intensify the conflict of interest between
management and shareholders of large companies:
• Some CEOs receive bonuses on the completion of acquisitions
• Due to the fact that there is a greater turnover in the target’s acquired
management, its likely that this will induce target CEOs to turn down favorable
deals for target shareholders
• When the CEO is powerful enough to appoint board members this might lead him
to choose directors with whom he has strong social ties.
There could conflict of interest also between shareholders and
employees:
• This doesn’t occur if the employees detain some of the firm’s equity, as it would
lead to their goals being aligned.
• After the take-over the acquirer could enforce downsizing and turnover of pre-deal
employees. In Continental Europe this risk is partially alleviated by the strong
presence of Unions.

6. Jacopo Lorenzi – Davide Vioto
CEO’S COMPENSATION
PERFORMANCE BASED COMPENSATION
EQUITY BASED COMPENSATION
When firms are characterized by intense acquisition activity, it
often occurs that one of the CEO’s performance measures is
the amount of take-over deals carried to completion.
• Quantity oriented vs. Quality oriented
• Equity based compensation helps to align managerial interests with
those of shareholders.
• Higher long-term stock performance and positively related to the firm’s
announcement return.
• On the flipside, high equity based compensation incentivizes
management to seek takeovers of riskier and higher growth potential
targets, to obtain a higher return.

7. THANK YOU
FOR YOUR ATTENTION!
Jacopo Lorenzi | jlorenzi@fordham.edu
Davide Vioto | dvioto@fordham.edu
MSGF - 2015