Leo E. Strine, currently the chief justice of the Delaware Supreme Court, and a familiar face to financial experts involved in cases in front of the Delaware Court of Chancery, has written a discussion paper, “Documenting the Deal: How Quality Control and Candor Can Improve Boardroom Decision-Making and Reduce the Litigation Target Zone.” It is scheduled to be published in the May issue of The Business Lawyer.
Keep careful records: The focus, he says, is to show what legal and financial advisors can do to improve the M&A process and as a result take themselves out of the target zone of plaintiffs’ lawyers. Among his recommendations is that any business advice a financial advisor gives to the board of directors must be in the record so that there is no room later—often quite a bit later—for plaintiffs’ lawyers to second-guess the directors. He writes:
If key financial assumptions, such as base case projections, need to be revised, the reasons why should be made clear, the process for revising them should be included in the record, and the oversight of the revision process, including the role of the financial advisor in that process, explained.
It all comes down to accurate and complete board books, Justice Strine says. They allow the board to trace the evolution in the financial assumptions that management and the financial advisor used and assure itself that changes were principled and based on objective factors, not self-interest.
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