What the board actually owes
In a divestiture the board carries the duty to act in the interests of shareholders, and that duty attaches to more decisions than most directors expect. Not only whether to sell, but how the process is run, who advises on it, and whether the offer accepted was the best reasonably available.
The practical consequence is that a board which delegates the whole transaction to management and then approves the outcome has not discharged the duty, however good the outcome happens to be.
The decision to sell at all
Before the process, the board should have tested the alternatives and recorded why they were rejected.
Continuing to hold and invest. A spin-off or listing rather than a sale. A partnership or licence that captures some of the value without a disposal. Or a partial sale that keeps an interest in the upside.
This matters for two reasons. It produces a better decision, because several of those options are properly competitive with a sale in particular circumstances. And it produces the record that protects directors afterwards, because the question a claimant asks is not whether the price was good but whether the board considered the alternatives before deciding.
Choosing advisers
The board should approve the appointment rather than ratify it, and should look at three things.
Relevant experience, meaning transactions of this type at this size rather than a general M&A practice.
Conflicts. An investment bank with a lending relationship to a likely buyer has a position that needs disclosing and possibly managing.
The fee structure, which shapes behaviour. A success fee weighted heavily toward completion creates pressure to complete. A fee with a meaningful component tied to price creates pressure on price. Neither is wrong and the board should understand which incentive it has bought.
Where a fairness opinion is needed, the provider should be independent of the adviser running the process.
Overseeing without running
Day-to-day execution belongs to management and the adviser. The board's role is to set the parameters and hold the decision points.
Agree the reserve price before bids arrive. A board that decides its walk-away number after seeing the offers is anchoring on the offers.
Meet on a regular cadence through the process rather than only at signing. A board that sees the process once has no basis for judging whether it was well run.
Retain the right to redirect. If the field narrows to one bidder, or a bidder starts retrading, that is a board matter rather than a process detail.
Conflicts, which are normal rather than exceptional
Management conflicts are the most common and the least discussed. Executives frequently have retention packages, equity that vests on a change of control, or an interest in which buyer prevails because it determines their own future. None of that makes them dishonest. It does mean their advice on which offer to accept is not disinterested, and the board should know the size of each executive's transaction-related interest before weighing their recommendation.
Director conflicts, where a director has a relationship with a bidder or a competing interest, are handled by recusal and disclosure.
Adviser conflicts, as above.
When a special committee is needed
Where the conflict is structural rather than incidental, particularly in a management buyout or where a controlling shareholder is on both sides, a committee of independent directors should take the transaction.
It needs real authority to be worth having: its own advisers, the ability to evaluate without management present, the power to negotiate directly, and the power to say no. A committee that can only recommend is a formality.
The record
Contemporaneous minutes recording what was considered and why, not a summary written afterwards. The adviser presentations and analyses. Written resolutions for anything decided between meetings. The fairness opinion where one exists.
Documentation written after the fact is worth very little, and the difference is visible.
Practical points that get missed
Engage transaction counsel early, before the process rather than at the letter of intent.
Give every director the same material. A board where two directors have been briefed and the rest have not is a board that cannot deliberate.
Check the directors' and officers' insurance actually covers a transaction of this kind, and check it before signing rather than after a claim.
And be honest in the minutes about the things that were uncertain. A record showing that a board understood the risks and decided anyway is far stronger than one implying the risks were not visible.
Editorial Team · Published for orientation, not as advice on a specific transaction. Any figure cited is orientation, not a valuation. See market notes.