Slopping Wordsmithing by the WSJ or Bad Corporate Governance?

Cite this Article
Elizabeth Nowicki, Slopping Wordsmithing by the WSJ or Bad Corporate Governance?, Truth on the Market (May 17, 2007),

As we know, News Corp. has made a bid for Dow Jone, offering $60/sh for the outstanding Dow Jones stock.  The Bancroft family, however, who controls at least a majority of the Dow Jones voting stock, has indicated clearly that it will not vote in favor of this offer, such that the offer, as it currently stands, has no chance of coming to fruition.  News Corp. can up the offer, change the offer, make the offer again, but, without the majority vote from Bancroft (or some percentage of the 52% of votes controlled by the Bancroft block), the News Corp. offer is dead in the water.

The WSJ reports that:
The [Dow Jones] board’s position is that to assess the offer at this point would be futile if the controlling shareholder would vote it down anyway. That is a safe haven — legal experts agree that the board has no obligation to act — but legal precedent indicates that the board could make a recommendation at any time.

Not quite right.  The board absolutely has the obligation to look at the offer.  The judiciary is very deferential only to boards as a presumptive matter.  If a complaining minority shareholder can show that the board did not act in good faith, was not grossly negligent in becoming informed, or acted irrationally, the board may find itself under close scrutiny.  Not assessing an offer at all does not seem to be an act in good faith.

I understand the point that the controlling shareholders have indicated that they would vote down the offer.  That, however, does not change the board’s obligation to do its job.  Mind you, I am not saying a company has to put itself up for play whenever a bid comes in, particularly if the majority of the s/h make clear they are not going to support the bid. Moreover, I am not saying that the DJ board needs to pull in a raft of investment bankers to do fairness opinions on the offer being made.  However, the board members cannot just e-mail each other and say “we’re not for sale, right?â€Â  Even if the board cannot stop the majority s/h from acting or cannot force the majority s/h to support a bid, a board acting “in good faith†is going to at least keep an internal assessment of the offer ongoing, such that if the offer reaches a point where it is just too good too ignore, the board can speak up.  The question at that point then becomes how far the board has to go in agitating in favor of the bid….
Stay tuned.