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The role of directors in acquisitions: directors should do more than is minimally required under the business judgment rule.

Article Excerpt
Directors are often requested to approve significant acquisition proposals, which typically are accompanied by rosy management projections which more than justify the purchase price. Directors should be skeptical of acquisition proposals which promise significant cost savings, major synergies and considerable growth potential. A recent example is the purchase by a specialty retailer of another specialty retailer for approximately $517 million in February 2006, with a press release claiming "significant growth potential,' enhanced "shareholder value," and "cost synergies," and the subsequent sale announced on June 2009 of that same company for approximately $75 million, which was claimed to be a "significant strategic step forward " to enable the acquirer to focus on its core of business.

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Director skepticism is more than justified by numerous academic and other studies which indicate that more than a majority of mergers and other acquisitions "fail," depending upon your definition of failure. Moreover, some have argued that the rise in CEO and other executive compensation is directly linked to...

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