September 2024

Chris Clark conducts interviews with leading corporate directors and subject matter experts for Stuart Levine & Associates, a global consulting and leadership development company. The Planet Governance™ interview series features the views of corporate directors, chief executives, and governance experts on timely issues from succession planning to board dynamics to stakeholder activism.

Alexandra (Alex) Reed Lajoux, Ph.D., M.B.A., founding principal of Capital Expert Services, LLC (CapEx), serves the National Association of Corporate Directors (NACD) as chief knowledge officer emeritus. In addition, Dr. Lajoux has conceptualized and authored/coauthored all nine titles in the McGraw-Hill Art of M&A series, as well as books on valuation with Robert A. G. Monks (Wiley, 2010); on money with Peet van Biljon (De Gruyter 2020); and on municipal sustainability (De Gruyter 2021). Her works are cited in more than 900 academic studies. Dr. Lajoux serves as Secretary of the board of the Guardian ad Litem Foundation of Florida’s First Coast as well as the advisory boards of Campaigns & Elections magazine and the Caux Round Table.

This well-known governance expert believes corporate directors need broad knowledge to properly oversee M&A transactions…

Alexandra Lajoux

Chris: To write six editions of “The Art of M&A” required great effort and dedication. What draws you to M&A?

Alexandra: Sometimes I ask myself the same question, Chris! It’s been a long-running engagement in the field—from 1981 to present. In addition to the main title “Art of M&A” in six editions which you kindly plugged, I have also authored or coauthored eight more titles—deep dives on strategy, valuation, financing, structuring, due diligence, and integration, as well as distressed M&A and bank M&A.  

On a personal level, I can see how important M&A has been to my family’s livelihood. During my formative years, I saw my father, Stanley Foster Reed, go from wealth to near-poverty and back to wealth –all through M&A. During World War II, he founded Reed Research and was doing well by the time I was a child in the 1950s. In 1960, he sold it to a larger company in a stock-for-assets deal, but the stock became worthless, so he went from being rich to being broke. That is when he founded Mergers & Acquisitions: The Journal of Corporate Venture in the early 1960s.

As a teenager, I worked on the “M&A rosters,” one of the world’s earliest M&A databases. My father was so successful that he and my mother were able to pay my tuition at Bennington College. I went there in the late ’60s and early ’70s to study drama and literature and then went on to obtain a Ph.D. in Comparative Literature from Princeton. In those days I had no intellectual interest in M&A; that would develop only later, after circumstances forced me out of the ivory tower and onto my father’s payroll, eventually becoming editor of M&A magazine in the early 1980s.    The rest—the aforementioned book series—is history.  

On an intellectual level, I am drawn to M&A because it covers such a broad terrain of meaning.  I happen to be volunteering at a local library these days, so I will rattle off some of the M&A relevant classifications under the Dewey Decimal system: 100 psychology; 300 social sciences (law, economics, and commerce, including accounting and finance); 500 mathematics; and 600 technology. Researching and writing on M&A means delving into all these realms.

Chris: Alex, that’s certainly the case for boards. So, with this in mind, what are your top two M&A lessons for directors based on your decades-long journey in the field?

The first key lesson is to know your company’s value. This is especially important for a first-generation private company.  The American dream is to build a business and pass it on to the next generation. This does not always happen.  For a variety of reasons, many founders sell their businesses during their lifetimes. When they do sell, it is important to have a working board that can help them determine a range of values for their company all along the company’s history—not just at the end when the brokers and bankers arrive.  At any given time, the board of a private company should have a rough idea of the company’s value range based on a diverse set of metrics (replacement value, asset or liquidation value, comparative transaction value, discounted cash flow, etc.).

The second key lesson is knowing your role as a director.   Chris, you have worked with boards for years, so you have seen how the board enters the M&A process at various points in time — from strategy to integration. We don’t have time to travel through the whole process together, but here are some highlights of the board’s role.

When holding strategy sessions with senior management, always be sure to factor in the possibility that the company may buy, merge, or be bought.  Now let’s make it real. If there is a pending transaction involving the company, directors need to be sure they have an independent committee looking at the deal to make sure the price is reasonable (whether buying, selling, or merging). Directors need to work closely with counsel to anticipate the judicial standard that will apply to them if the deal is ever questioned. As long as the company is not closely controlled, the business judgment could apply, as long as the board is well-informed and free of conflicts.

But in a controlled company situation, the stricter standard of entire fairness applies, requiring a rigorous process and expert valuation in setting a fair price. And once the company is for sale, it if is a public company, the Revlon standard may apply, making the board responsible for ensuring optimal price. In the case of a board that implements an antitakeover measure (such as a poison pill), the Unocal standard for judging antitakeover actions may kick in. Directors should insist on a thorough briefing from counsel on such matters.  

Chris: Given your experience with the governance of nonprofit organizations (Guardian ad Litem Foundation, NACD, and others), what value do you think a board can bring to a nonprofit?

Alex: This is a great question, Chris. I have nothing but good things to say about the nonprofit boards I have known over the years.

I’ll start with the National Association of Corporate Directors (NACD). I’ve made presentations to the NACD board and for a brief time served as corporate secretary, but for the most part, I saw the impact indirectly from meeting preparation and meeting outcomes.

Without exaggeration, I have to give NACD Olympic gold for practicing what it preaches about governance. Name any governance practice considered salutary and NACD has practiced since the association’s founding years—including an independent chair, manageable size, diverse membership, committee charters, rotation of committee leaders, and board refreshment (through term limits).

Many of NACD’s successful initiatives came out of board discussions led by Chairs who insisted on full and engaged participation by all.  For example, in 1992, one director, who happened to be 80 at the time (we have never had age limits, thank goodness) suggested that instead of only publishing a newsletter and quarterly monographs, we develop a publishing and research wing. This inspired founding President John Nash to convene our first Blue Ribbon Commission—an influential series that continues to this day.  And it inspired NACD to publish its first of many corporate governance surveys, as well as a handbook series and much more.

In all the years I observed the NACD board I don’t think I ever saw or heard about the board being unsure of its role. Somehow the board members knew how to help the CEO achieve good results and hold the CEO accountable without micromanaging – “Nose in, fingers out,” as John Nash used to say.

Now for the smaller nonprofits where I have served as a board member, the experience has been different. Unlike NACD’s board, composed of seasoned directors, both boards were composed of community leaders. So, our governance has been a little more rudimentary. And frankly, we have been so focused on our mission that we only deal with governance issues as they arise.

The first example is the Nassau Racial Equality Coalition (NREC), founded in 2020. We had a formal “board” for only a brief period; the board launched us. NREC began as an informal initiative driven by committees (education, economic empowerment, health). Committees were led by the heads of local institutions. The Coalition voluntarily dissolved as a formal organization after the conclusion of several initiatives, but the friendships live on. The biggest value add of this board was to launch the Coalition at a time when our community needed a greater feeling of unity.

My second example is the Guardian ad Litem Foundation of Florida’s First Coast, Inc., which I joined earlier this year. We are currently broadening our mission and renaming ourselves to include general advocacy (“Voices for Children, Incorporated), but that is not yet official. 

The Foundation supports children in the foster care system in a variety of ways, including meeting their “normalcy” needs—paying for things they normally might not be able to afford.  Like NREC, most action is happening in committees (normalcy, scholarship, awareness, governance). The board is all volunteer and most of our overhead expenses are being donated. We have one part-time liaison for the scholarships we award to youth who have aged out of foster care. This amazing woman networks to find out who needs scholarship help and sends their applications to the board.

Here I think the biggest impact on our board is financial. We recruited a volunteer treasurer out of the investment banking community. He has found significant cost savings that will be going directly to the children we serve. Meanwhile, other board members (including yours truly) have been applying for grants. All the money will go to children.

Chris: Alex, from start to finish, your insights are remarkable. Thank you.

Chris Clark joined Stuart Levine & Associates as a senior consultant after distinguished tenures at Texas Monthly – The National Magazine of Texas, Capital Cities/ABC, Forbes, and the National Association of Corporate Directors (“NACD”).

He is known for his prominent role in the creation of NACD’s “The Power of Difference”, “The Leading Minds of Compensation” and “The Leading Minds of Governance” conference series, “The Directorship 100”, and NACD Private Company Directorship.

Chris’ expertise includes corporate governance with board assessments, committee charter reviews, and strategic communications as cornerstones.