Takeovers and Corporate Governance: Whose Interests Do Directors Serve?

Using internal records of board meetings, this research explores issues relating to the motivation of directors' action during takeover negotiations. The records relate to a time period when regulation was low and directors had ample opportunity to engage in adverse selection and moral hazard. In such circumstances, it might be supposed that they would have sought to protect their own tenure rather than seek to maximize shareholder wealth by recommending acceptance of a bid. However, in the case study under examination the directors worked hard to maximize the bid price by auctioning the company despite having little equity exposure themselves. The directors also sought to protect the interests of the staff when negotiating with bidders. Intentionally this behaviour was not disclosed to the shareholders and, on occasion, threatened the success of the negotiations. The article concludes that the actions of the directors were motivated by strong reputational effects not widely recognized in the contemporary literature as being a force that powerfully drives corporate governance.