Win Swenson: If the target of the acquisition is indeed an excellent fit then, under normal circumstances, the board actually would have an affirmative duty to Globetech’s shareholders to allow this deal to proceed. On the other hand, Ms Smyth has a conflict of interest with respect to this acquisition, something that is a concern under general governance principles and, if Globetech is following best practices, would be strongly discouraged under Globetech’s own conflicts of interest policies.
Not only are actual conflicts a problem but the appearance of a conflict also raises concerns, and here the appearance of a conflict surfaced from the moment Ms Smyth recommended the deal.
Both apparent and actual conflicts can be dealt with through transparency and proper controls. The best approach here is for the board formally (ie, at a formal session of the board and reflected in its minutes) to recognise the apparent conflict and establish a procedure for pursuing the acquisition that bars any involvement whatsoever by Ms Smyth.
If the deal goes through, the company should consider including an acknowledgement of the issue and description of the approach taken as part of any external communication on the acquisition. The public is leery about director self-dealing (see the recent issues involving Thomas Coughlin, Wal-Mart’s vice chairman, allegations involving Richard Pearle at Hollinger, and options backdating scandals that have touched several company boards).
One remaining issue must be considered, however. Under some corporate policies and external regulations (the New York Stock Exchange’s listing requirements, for example), a “waiver” of a company’s conflict of interest policy must be externally reported. If the conflict of interest policy has been properly drafted, the board’s adoption of a procedure along the lines of what is recommended above would not be a waiver. However, some conflicts of interest policies are drafted so tightly that this could be a waiver, requiring public disclosure.
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