Tuesday, April 7, 2009

Marsh Carter on defending your company against a hostile takeover

Marsh Carter, the former CEO of State Street, was faced with a takeover attempt from Bank of New York that he felt had to be defended.  In class today, he discussed some of the strategies that he utilized to keep his organization unified and fend off the takeover.
  • Use a non-approval strategy if the offer is not even a consideration: No negotiations or contact with the other party.  There is one issue with this strategy - it may open you up to a lawsuit if shareholders feel you are not representing their best interests and ignoring an offer that offers substantial value.  
  • Prepare to communicate to your shareholders how you will create more value: If it goes to the shareholders, you must be able to persuade them that you can increase the share price more if they vote for you to retain control  
  • Provide clear guidance to your negotiating team: Executing on a strategy like non-approval requires clear instructions from the top down on what exactly to say and do.  
  • Work to increase stock price: Focus on operations, merge business units if necessary - this makes it harder for shareholders not to support you, and more expensive for the potential acqurier to buy you.
  • Poison pills aren't easy: They require shareholder approval and this is not easy.
  • Take advantage of your corporate structure and classification: State Street was and still is a Massachusetts Commonwealth bank, meaning state banking commission must approve any acquisition.  This means that the hostile acquisition must have material benefit to the residents of these state to be approved.  State Street was and still is one of the biggest and best employers in Massachusetts, with an 85% university educated workforce.  The state wouldn't let go of these jobs without a big fight. A great lawyer can be of great value in understanding these types of issues. 
  • Prepare in advance for crisis: Take classes that prepare you for stressful situations, perform "war game" type simulations
  • Get communications right: Carter and the State Street board had a small, expert communication firms manage all statements to make sure they were tuned perfectly.
  • Set clear objectives for your organization: Everyone in the organization should know what they are working towards and why it is important for the organization to remain independent.
  • Manage your board tightly: Carter received a tip that BNY was going to call their weakest board member and try to win him over and get him to speak up at the next board movement.  Carter knew who the weak board member was and moved at the next meeting to quash any board dissent.
  • Consensus management whenever possible with your top 25 managers: The challenge as a CEO is to know when to put your foot down and make a decision.
  • Protect yourself from the beginning: With the NYSE, share ownership over a certain percent can only vote a half share (20% ownership can only have 10% of the voting rights)
  • Set up a way of controlling rumors:  State Street had a rumor control number that employees could call to find out whether they were something was real.  This allowed management to deal with any heresay quickly.  
  • Your motivation as a CEO cannot just be money: Protecting your company and people should be one of your values.  The MCI folks sold out to Bernie Ebbers when their stock was around $20 for a $38 offer.  When you're a Fortune 500 CEO, it shouldn't be about the money. 
  • Life balance: It should be a three legged stool with a balance between work, family and a strong outside interest.  The fourth leg can be religion for those who are into that.  This is essential to be able to deal with the stress.

Marsh Carter Bio

A leader in the banking industry, a Marine Corps officer, and a decorated Vietnam veteran, Marshall N. Carter took over as chairman of the New York Stock Exchange (NYSE) in April 2005. Carter’s 25 years in banking include a nine-year stint as chairman and CEO of the State Street Bank and Trust Co. and 15 years with Chase Manhattan. 

A veteran of mergers such as Chase Manhattan’s 1984 acquisition of Lincoln First Bank and a key player in State Street’s evolution into a global leader in the financial services industry, Carter has witnessed the challenges first-hand when a company grows more than six-fold under your watch. 

As NYSE chairman, he is transforming the Exchange from a company with “85 percent market share in a product sold one way” to a company with an expanded product base and widened global reach. With characteristic understatement, he adds, “We are in a global industry.”

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