The Circus – The Final Act

Prudential’s bid to acquire AIG’s Asian operations is coming to a close as talks are close to collapse.

 AIG’s board has voted against a revision to the Pru’s revised offer of $ 30.375 billion, rejecting the recommendation of its CEO, Robert Benmosche. AIG is now looking at the possibility of disposing of part of its stake in AIA by selling shares publicly in Hong Kong.

Prudential is now asking itself whether it wants to retain the services of its CEO and chairman and maybe other members of its board.

In the interim, the UK insurer is likely to be worse off to the tune of $ 750 million in the form of adviser fees and a break up charge of $ 250 million payable to AIG.

 Whilst the deal is not yet formally dead, the post mortem will certainly start, so let me help in the process.

 A company’s strategic control process surely exists to assist a business in avoiding this type of calamity. It is surely the job of risk managers, compliance officers and internal auditors to challenge and escalate issues that make them feel uncomfortable in this context.

We clearly do not know what these functions did in terms of the due diligence process leading up to the decision to make a bid. We can however ask some questions:

•  Were they involved at all?
• Was there a structured strategic control process for making the decision?
• Did the process include the absolute requirement to consult institutional investors and the regulator in terms that make sense?
• Is there a requirement for the risk managers, compliance officers and internal auditors to get involved in the post mortem?

If the answer is no to all of these questions, then one has to ask why these functions exist?

As readers may have noticed, I am keen to provoke a positive debate on the future of the sector’s corporate governance functions and their added value. The Prudential – AIA deal provides an interesting case study.