Procter and Gamble’s merger with Gillette, and the close scrutiny given to bids by Deutsche Borse and Euronext for the London Stock Exchange have provided analysts with plenty of high-profile proposals and financial structures to ponder recently.
But while talk of what offers, prices and synergies would be needed to push deals through grabs the spotlight, one seemingly innocuous but potential deal-breaker seems to have gone unnoticed – the executive ego.
In short, who gets the best seats at the boardroom table. And the big three always at stake are the chairmanship, the chief executive’s office and last, but by no means least, the finance director’s job.
‘The aim of a major deal is to enhance shareholder value, but sometimes ego can interfere with the desire to do so,’ says Mark Freebairn, partner at Odgers Ray & Berndtson, the executive recruiters.
Perhaps the most infamous case of an executive personality clash getting in the way of a huge deal was the spat between Richard Sykes, the then chairman of Glaxo Wellcome, and Jan Leschly, who was the CEO of SmithKline Beecham.
Talks to merge the two pharmaceutical behemoths collapsed twice in the late nineties, because Leschly and Sykes could not come to terms on who would lead the board of the new company. Shareholders had to wait until 2000 for the two to work out their differences and agree terms for the merger.
In the end, Sykes prevailed and took the presidency of the new company. Leschly moved into private equity.
The Sykes/Leschly showdown is the perfect example of how a valuable merger can be threatened when two powerful executives face-off and refuse to budge – even if it means halting the creation of what eventually became the third-biggest company in the world.
According to Freebairn in any merger and acquisition, there is always a ‘winner’ and a ‘runner-up’ and the company that ends up on the top of the dais is reflected in the structure of a new board.
When there is not space for everyone, it is unavoidable that some high-flyers will have to step aside for a rival, not something that comes easily to ambitious, driven executives.
According to Freebairn, the three top jobs generate the fiercest competition. As the key positions on any board, they are the most important to finalise to prevent personality from preventing a deal from going through.
‘You will usually see representation from both companies across these three positions,’ says Freebairn.
He says the chairman and CEO usually come from the ‘winning’ company, while the financial directorship is usually reserved for the ‘runner-up’.
Former Stakis hotel group FD, Neil Chisman, however, says it is crucial for FDs not to let their emotions or the possibility of being replaced rule their judgement.
‘As an FD your duty is to shareholders. You can’t afford to think about the security of your job,’ he says. ‘You need to work out the value of a company and its long-term prospects and if a suitable offer comes in then it is your duty to advise shareholders to take it.’
The consolation for any executive leaving a company because of an acquisition is that it is ‘one of the best ways to leave a business’ Freebairn says.
‘An executive who is set to leave after a merger will have to spend a few months helping to integrate the two businesses first. After that it is a happy leaving.
‘The outgoing executive will get good support and a good severance package. There is no stigma attached to this kind of departure,’ Freebairn says.
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