Protect Stakeholders' Interest With Corporate Governance During M&A

In the modern business framework, Mergers & Acquisitions (M&A) have become one of the major tools to expand a business, whether within the country or internationally. However, with lucrative business opportunities, this also brings along the risk of losing millions of funds that are put on stake, should the deal go wrong. It is important that in an M&A deal, the deal should not end up risking the money of the company. It is this risk that needs to be mitigated, and corporate governance audit practices can play a vital role in this.

When a company decides to takeover another company, one of the key considerations that it has, in addition to the business model and financials, is the quality of senior management personnel and general management of the company. The Board of a company has a huge role in selecting the senior management. Also, effectiveness of management at the top is another related important criteria.Since proposal and approval for M&A transactions is done by senior management personnel and the Board, the quality of persons is very important. Good corporate governance structure will not only ensure a good management team but also a good quality of Board members. It would also ensure good and proper practices exist throughout the company, including for identifying deals such as M&A deals, which would be beneficial for the shareholders. Reputation of the company is another important criteria that is looked at in such deals. The custodian of reputation is the Board, and a Board comprising good Directors, would be very careful in preserving the reputation of the company.if all these factors exist, the valuation of the company increases. As it is, there is a governance premium attached to good companies. This premium ensures that the market capitalisation of the company is high because markets believe that the company is well governed and does the right things in a transparent manner. All this in turn benefits the shareholders of the company who are the owners of the company.

Consequently, a failed M&A deal may raise questions on the management and the governance of the company, thereby adversely impacting on its reputation. Effective governance processes will help establish proper, functioning and adequate enterprise risk mitigation systems that will help develop a firewall against risks, especially those that could arise out of failed M&A deals. Better governance can help reduce the risks of unsuccessful or over-priced M&A deals as well as reducing the likelihood of harm to minority shareholders. For more information: https://www.excellenceenablers.com/