First Look

July 18, 2006

A classic case-based examination of business ethics has been updated in a fourth edition. Policies and Persons: A Casebook in Business Ethics was written by HBS professor Laura L. Nash and coauthors Kenneth E. Goodpaster and Henri-Claude de Bettignies. The book, which will be released shortly, builds on case studies used at Harvard Business School.

Also highlighted in First Look this week: William E. Fruhan Jr.'s notes on the process of selling companies with value of more than $100 million and on the role private equity firms play in M&As. Professor Srikant M. Datar and coauthor J. H. Friedland recently published a paper in the International Journal of Disclosure and Governance on how D&O (directors and officers) liability insurance can be a tool in driving corporate governance.

— Sean Silverthorne

Working Papers

None available this week


Cases & Course Materials

The Company Sale Process

Harvard Business School Note 206-108

Lays out the steps, timeline, and process by which a company is sold. Focuses on the sale of companies with enterprise values greater than $100 million. These transactions are large enough to require the help of a financial adviser and attract both strategic and financial bidders. The sale process described is that of a private auction, including a confidential information memorandum and a "roadshow" to sell the high-yield debt needed to fund the transaction. Covers issues such as identifying and attracting bidders; dealing with the concerns of the managers of the selling company; negotiating issues in a definitive merger agreement; and post-sale issues.

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The Role of Private Equity Firms in Merger and Acquisition Transactions

Harvard Business School Note 206-101

Explores the importance of private equity firms in merger and acquisitions activity around the globe. In many countries, these firms now account for one-quarter of the total merger and acquisition activity of all firms. The larger private equity firms generate fees for investment banking firms that exceed $350 million per year. Shows how the general partners and limited partners of the fund financing the acquisition and the management team running the acquired firm for the private equity sponsor share the shareholder value creation in a successful leveraged buyout.

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Policies and Persons: A Casebook in Business Ethics, Fourth Edition

Publisher's Abstract

This comprehensive collection presents a case-method approach to teaching business ethics. It contains a wide range of individual, managerial, and corporate cases, many with an international perspective. All cases have been classroom-tested at the Harvard Business School; most have been developed in the field rather than in the library. Twenty-seven new cases of the total fifty-nine cases cover such topics as labor-management trust, product liability, foreign child labor, business e-ethics, the oil industry and climate control, and more. A new appendix, "Corporate Self-Assessment and Improvement," provides a corporate self-assessment tool for senior management and boards of directors aimed at increasing ethical awareness and avoiding potential threats to an organization's reputation. The second appendix, "Bridging East and West in Management Ethics," has been revised and updated to discuss certain basic similarities between Asian and Western ethical ideals through the Caux Round Table Principles of Business Conduct.

Governance-Linked D&O Market-Based Governance: Leveraging D&O Insurance to Drive Corporate Governance

Publisher's Abstract

In an earlier paper the authors discussed how D&O insurance can be used to reduce the governance risk facing insurers, by linking coverage to contractual obligations to follow best practice governance controls. In this paper they place governance-linked D&O insurance within the broader context of the way in which the conflicts of interest between owners and managers of firms are managed by the key intermediary institution of the board of directors. There has been increasing controversy over whether directors are playing the role they are meant to in governance or whether they have become excessively beholden to chief executive officers. Regulation and the use of the legal system have been the predominant means of disciplining directors, but each has its drawbacks, particularly in terms of the disincentives they create for qualified individuals to serve as directors in the first place. What is missing is any role for market forces in governance, with their promise to achieve better cost effectiveness and innovation in governance practice. The authors argue that governance-linked D&O insurance is a means toward that end of market-based governance, with process-based coverage bringing together the tools for better governance risk management with the motivation for directors to exercise their fiduciary responsibilities.