Q: " I' m on the board of a growing manufacturing company, and our chairman/CEO is launching a strong acquisition program. He' s worked out a deal to buy out a certain target company, and I know that all the other board members are willing to approve the deal. I have some serious concerns with the firm though. We' ll be voting on the acquisition at our next board meeting, and I feel I should vote no, even though I' ll be the lone vote against. The deal will still go through? but would having a vote that isn' t unanimous send up a red flag to potential shareholder plaintiffs?"
A: You' ve read the situation well -- a single " no" vote on a major corporate decision can indeed draw negative attention. Take Wachovia Bank, for example. In a recent takeover battle, one director voted against rejecting a hostile takeover bid - a single dissenting vote that was newsworthy enough to grab an " A" section article in The Wall Street Journal. In your situation, a no vote " could very well give support to a plaintiff," notes Charles Demonaco, chair of the Corporate Compliance and Governance Group at the Dickey McCamhy Chillcote firm. " It can clearly be used to argue that the board decision wasn' t appropriate when bringing a derivative action." Yet the ultimate " test will always be your fiduciary obligation" -- if you believe the deal is a bad one, you must vote no.
Agreed, these aren' t the greatest of choices, but there are some alternative strategies. " I think in a situation like this there might be a problem with the supporting information," says Demonaco. Put in extra time and effort researching the target company, its strategic fit, and potential problems. This might allay your concerns, but if not, it will help in the next step: a sit down " sell me" session with the CEO. " Sit down with the chairman and express your concerns? make him satisfy you." If the deal still smells bad, you' ll need to vote your conscience, but at least you won' t be blindsiding the chairman.
By the way, a single " no" vote may not be as bad as it seems. If your board has a history of split votes on other issues, this can be cited as proof that one " No" is part of a pattern of overall boardroom independence (and this counts in your favor).
Copyright © 2001, the Boardroom Insider. No reproduction or forwarding of this material is allowed without legal permission. Views and advice ex pressed do not necessarily represent those of Ralph Ward or the Boardroom INSIDER newsletter, and should not be construed as legal or professional advice.
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