Conflicted Advisors Causing Trouble

Philadelphia partner Doug Raymond’s latest column for Directors & Boards, written with the assistance of associate Peter Wolf, was published in the Second Quarter 2011 issue of the magazine. It focuses on the need for boards to look out for potential conflicts of interest involving not just directors, but advisors, also.

Doug, a partner in the firm’s Corporate and Securities Practice Group, and Peter discussed in the article the case of In re Art Technology Group, Inc. Shareholders Litigation, a recent Delaware Court of Chancery case involving investment banks in M&A transactions. The court enjoined a deal until the parties had made supplemental disclosure, because it was concerned about an undisclosed relationship between the target’s financial advisor and the proposed buyer.

Doug and Peter also examined In re Del Monte Foods Company Shareholders Litigation, in which the court enjoined the sale of Del Monte due to its finding that the board had likely breached its fiduciary duties.

In light of these decisions, Doug and Peter outlined steps a board can take to minimize the risk that its decisions will be undermined by the conflicts of its advisors. They recommended that boards take precautions to ensure full disclosure from advisors regarding potential conflicts; require advisors to disclose relationships with potential counterparties; be wary of contingent fee arrangements where advisors are hired to provide a fairness or valuation opinion; and give meaningful consideration to all decisions being made.