In the corporate system, businesses acquire or merge with certain businesses for various reasons such as increment in financial growth, amplifying their market shares, or strengthening their corporate position and image & respect in the corporate scenario, these financial transactions are referred to as Mergers and Acquisitions.
These transactions are very complex and time-consuming it can take months or sometimes even years to achieve a mutual agreement between both parties and to complete the series of administrative processes required for the completion of these transactions.
These transactions often rely on the ability of the larger company to assure the executives or shareholders of the targeted company to sell their shares or the whole company. These transactions are very influential and can cause dips or spikes in the company’s stocks. Given the substantial amount of complexity and influence these transactions hold, it gives frauds and unethical officials a huge scope to use unfair means to acquire and merge companies and businesses, increasing the need for legal protocols and regulatory rules to safeguard the interest of small businesses and shareholders. Corporate governance comes in with an attempt to counter these malpractices used for acquiring and merging businesses in this field of corporation.
Introduction to Corporate Governance.
Corporate Governance calls for a particular scenario of cooperative transaction that does not include any type of unfair advantage, fraud, or biases towards a certain individual or party over the other.
It is a framework of rules and processes that makes sure how a company is managed. It plays a very important role in making sure that businesses are operating ethically and promoting responsible and transparent business practices preventing corporate greed, and fraud, and that they operate in the best interest of those who are involved in the business.
Mergers and Acquisition transactions include several parties also including the board members, executives, directors, managers, etc. with different intentions and interests. Corporate Governance is a framework of decisions and bonds which is used by the parties to assist them in reaching a mutual agreement that aligns with legal and ethical necessities that the interests of all the parties are met and transaction is integral and transparent.
Key Legal Considerations in Corporate Governance During Mergers and Acquisitions
Several Corporate and Business Law Courses talk about the role of Corporate Governance in providing ethical guidance to Merger and Acquirance transactions while covering several Legal criteria, some of the key legal considerations that must not be ignored are as follows:
Regulatory Considerations
1) Antitrust and Competition Laws: These laws are meant to protect consumer interests, preventing unfair competition and the formation of monopolies by conducting an in-depth analysis of market share, potential barriers to entry, impact on pricing, and protection of consumer choice.
2) Data Privacy Regulations: With increasing breaches and hacker raids for customer data, companies must be aware of the legal requirement of transferring and handling customer or employee data during and after the transactions if they want to ignore the fines and damage to their reputation.
Shareholder Rights
1) Right to Information: gives shareholders the right to receive every information about the proposed A&M transaction be it the structure of the deal, potential risk, and how their share will be affected.
2) Right to Vote: gives shareholders the right to vote in favor of the A&M transaction or against it after receiving full and accurate information about how the Acquisition and Merger transaction will be affecting their shares.
3) Appraisal Rights: gives the dissenting shareholders (who are not in favour of the transaction) the right to receive a fair value for their shares. This right gives clear guidelines and protocols hence protecting the minor shareholders of the company.
4) Right to Fair Treatment: the role of this principle is to make sure that there are no biases towards one particular shareholder or group of shareholders, it ensures that the rights of minor shareholders are safeguarded and no partiality is done.
Due Diligence
A very important legal aspect that is distinctively mentioned in a lot of Law Courses including the one which I opted for when I was learning about the corporate sector is Diligence. While a business may look very glowing on the outside, the reality of the same can only be assessed when a comprehensive diligence process has been carried out. Diligence refers to the process of thoroughly investigating the details of the company, to analyze their credibility, legitimacy, and accuracy. From company evaluation to its overall position in the scenario, due diligence encompasses a wide range of investigations whilst providing a larger picture of opportunities, risks and helps assess the value of the company.
Conflict of Interest Management
Employees of a company can often fall into situations that cause a possible conflict of interest. An individual’s interest, be it family, friends, money, power or social interest can cause them to disrupt and compromise their decisions, actions, and behavior in their professional area and lifestyle. Conflict of interest is a clash typically between requirements and interests.
With the knowledge acquired from Business and Corporate Law Courses, some practices are advised to be practiced by companies to establish public & employee in your organization, they are:
- Establish a clear COI Policy
- Building Awareness
- Create Open Dialogue and Trust
Fiduciary Duties
They are legal obligations of an individual to act and make decisions which are for the benefit of some other party i.e. the beneficiary. A person having the fiduciary duty is called a Fiduciary and the individual to whom they owe duties is called the beneficiary.
Fiduciary duty in the corporate sector exists to ensure that those who manage other people’s money act in their recipient’s interests instead of serving their personal interests.