[Editor's Note: We asked selected Xconomists a series of questions designed to zero in on the big issues of the year, including "What would you be willing to throw a punch over?"]

In both of my fields of distributed renewable energy infrastructure and environmental composites, I would throw a punch at corporations and/or public sector entities, agents, or elected officials who have an environmentally destructive agenda, yet make no real effort to alter that agenda—and to add insult to injury, lie about their activities in the interest of power or profits. “Greenwashing” is rampant in most industries and sectors and needs to be targeted. It is a particularly disingenuous form of false advertising.

Plundering our environment is a type of crime, and in most cases it is done, not out of ignorance, but out of a singular focus on profit above all else. This is unacceptable by any standard.

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Imagine a world where technology companies are more successful and grow faster because of the strategic help and guidance from their boards of directors. Or, at least imagine a world where they don’t suffer from unhelpful, or worse, problematic boards that consume management’s precious time. Some commentators like Steve Blank, Jeff Bussgang, Brad Feld, and Fred Wilson have suggested board meetings could be better by changing the format, process, or content.

Here’s a more fundamental recommendation: change the board.

Operational changes such as rethinking the meetings might create some temporary benefit. The company and shareholders, however, are still working with the same components. Further, in nearly any technology company, the board not only has an opportunity to change, it’s necessary.

Why take the time to address a potentially painful subject like the composition of the board of directors? Because only a small percentage of companies backed by angel investors and venture capitalists achieve success through a profitable acquisition or initial public offering. About half end in failure; others underperform initial expectations. If the board can at least not contribute to failure, or better yet, be neutral or even beneficial, we not only increase the likelihood of success for a few companies but also create a disproportionate effect on GDP because of the high economic value these companies create.

Boards not only are part of the company, but ostensibly, leadership starts at the top. The companies themselves evolve-or at least they should-and so should the board. We want technology companies that make new and innovative products and services to grow quickly, take over the world. If they aren’t achieving high growth, something is usually wrong. Whether they are growing rapidly, stagnating, or struggling, the company’s strategy, division of labor, operations, and team members change or need to change. The board should change, too, evolving in structure and skills to match the company’s situation and needs.

I was discussing this subject recently with a CEO friend, who responded, “The problem with your argument is you presume boards add any value at all. I see why investors need to look after their investments…but they shouldn’t try to do management’s job for them.” I told him I thought we were in agreement: Too many boards don’t actually add value, and their job shouldn’t be to micromanage the CEO.

(Above, a short video with additional information about building good boards.)

Good boards can help capitalize on opportunities and provide strategic perspective, complementary business development connections for management, and stability through transitions-good and bad-and have positive signaling value for other stakeholders. Further, they perform roles requiring independence from management such as serving on audit and compensation committees. But how does a company achieve a good board? First, let’s take a look at how things go wrong.

Creating and Evolving the Board: What Often Happens in Practice. When founders, CEOs, and investors create boards, they at least want an amicable board if not one that really creates benefits. Nobody starts out wanting to have a bad board, and like a lot of relationships, they tend to start out well. There’s an initial honeymoon period when the company is founded or gets its first investment. Alternatively, if boards are formed out of obligation to external stakeholders, usually investors, the selection process usually happens through the capital matchmaking process. Getting a “yes” from an investor and accepting the investment tends to be a mutual qualification process, albeit with some compromise on both sides.

Management and investors typically draw from their respective social networks to recruit board members. Doing so may create a relatively good fit, and may be necessary to persuade highly skilled and experienced people to join the board of an unproven company. However, this often creates … Next Page »

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Cambridge, MA-based Neohapsis, a maker of software for governance, risk, and compliance, announced today that received a $4.5 million investment, led by New Venture Partners, a firm with offices in New Jersey, Silicon Valley, the U.K., and the Netherlands. The funding round included existing Neohapsis backers, Trident Capital and Paladin Capital Group. Neohapsis revealed that it had acquired the assets of Dallas, TX-based Texert, another company in the governance, risk, and compliance software space, which is also funded by New Venture Partners.

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Yesterday, IBM announced it is acquiring Waltham, MA-based OpenPages, a corporate governance, risk, and compliance software company. That’s an interesting story in itself, but it’s also part of a prominent business trend that has major impact on the New England software and computing ecosystem.

OpenPages is IBM’s 17th acquisition of a company based in Massachusetts (or with substantial operations in the state) since 2003. That was around the time when IBM chief executive Sam Palmisano began executing the company’s strategy of growth through acquisitions. To give some perspective, Big Blue (NYSE: IBM) says it has spent $22 billion on a total of about 100 company acquisitions worldwide since 2003—around 60 of them in software. And 17 of those were in the Bay State (see full list below).

Eyeballing the list, it seems safe to say that IBM has spent in the neighborhood of $10 billion on acquisitions in Massachusetts over the past seven-plus years. Not surprisingly, the most prevalent sector has been data storage software (5 out of 17 deals), followed by software development (3), governance, risk, and compliance (3), analytics (3), security (2), and social/communications software (2). (There is some overlap between these areas; some companies fall under more than one category.) In some cases, IBM has entered a market almost entirely by way of acquisitions—which happened, for example, in Web application security through its purchases of Watchfire and Ounce Labs.

For more on the reasons behind IBM’s activity in the state, the firm’s broader acquisition and integration strategy, and the impact of these deals on its growth and business, stay tuned for another story soon. (You can also take a look at our prior analysis of IBM’s acquisition strategy here and here, as well as a map of IBM’s operations in the state here.)

Meantime, here’s the list of 17 Massachusetts companies acquired by IBM since 2003. It includes the year and size of each deal (a question mark means the amount was reported in the media but is speculative and unconfirmed), plus a brief description of each company’s focus. The great majority of the companies had headquarters in Massachusetts; Cognos was based in Ottawa, Canada, but had substantial operations in the Boston area.

Rational Software (2003, $2.1 billion)
Modular architecture and iterative development tools for software engineering

Ascential Software (2005, $1.1 billion)
Data integration software for building data warehouses … Next Page »

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Waltham, MA-based OpenPages, a maker of business software for managing corporate risk and compliance activities, is being acquired by IBM for an undisclosed sum. Armonk, NY-based IBM announced the news in a press release this morning.

Once the acquisition closes, IBM (NYSE: IBM) says it will integrate OpenPages into its Business Analytics software portfolio. This will be Big Blue’s 17th acquisition of a Massachusetts-based company since 2003. The most recent one—marketing and Web analytics firm Unica (NASDAQ: UNCA)—was announced last month.

OpenPages was founded in 1996 (and formerly called American Computer Innovators). The company started out making content management software, but is now a leader in the field of governance, risk management, and compliance—software that helps businesses comply with regulations to be more transparent and accountable. It has raised an undisclosed amount of venture funding from Goldman Sachs, Globespan Capital Partners, Matrix Partners, Mesirow Financial, Sigma Partners and North Hill Ventures.

OpenPages has more than 200 corporate customers, including Allianz, Barclays, Carnival Corporation, Duke Energy, SunTrust, TIAA CREF and Williams. IBM and OpenPages previously have worked together on risk management software for the banking, financial services, and insurance industries.

“The combination of IBM and OpenPages software, business process insights, and industry expertise” will help businesses “tackle their complex risk challenges,” said OpenPages CEO Michael Duffy, in a statement.

Big tech companies across the board are paying more attention to governance and risk management as a business. In January, Hopkinton, MA-based EMC (NYSE: EMC) acquired Archer Technologies and said it would integrate the compliance company within its RSA security division. Other companies in the sector include eIQ Networks, Lumigent, Protiviti, and giants like Oracle, SAP, and Microsoft.

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Cascadia Capital is optimistic that the resurgence of information technology M&A and financings in late 2009 and early 2010 will continue throughout the remainder of the year. The evidence for this activity is supported by the market data and the sentiment of cautious optimism expressed by the CEOs with whom we regularly collaborate as part of our “thematic” business model.

Under our thematic approach, Cascadia’s IT Practice has identified 11 technology themes. We build an ecosystem for each theme, comprising companies, financial sponsors, and potential transaction counter-parties.

There has been a material improvement in the number of IT M&A and financings in the third and fourth quarters of 2009, offsetting, to some extent, record weaknesses earlier in the year. Second half 2009 IT M&A spending increased 50 percent from the first half, as the markets saw an increase in valuations, with higher multiples returning. More specifically, deal activity in the global technology sector grew for the third consecutive quarter in Q4 2009. Deals done in the technology sector rose by 13 percent, to 553 in the quarter, compared with 488 in Q3 2009. Total deal value also quadrupled in Q4 2009 ($35.4 billion), compared with Q4 2009 ($9.2 billion). M&A in January 2010 alone show 83 completed deals, a healthy pace if considered a run rate for the remainder of the year.

Cascadia believes that the number of IT M&A and financings will gradually ramp up throughout 2010 from the economy-induced hiatus of 2008 and the first half of 2009. Recent M&A activity by major public company “aggregators” suggests that the market is re-emerging and will pick up momentum as 2010 unfolds.

Our view is that the strategic acquirers will stimulate the majority of M&A in 2010, as private equity still lacks leverage, with growth equity funding future M&A targets. The need to acquire leading technology companies to round out software and service offerings, rather than building these technologies and services in-house, will drive M&A. Additionally, stronger balance sheets, improving credit markets and market valuations will help to narrow bid-ask spreads. All of this will combine to improve prospects for strategic deal making over the next 12 months.

Here we assess 2010 prospects for two of Cascadia’s IT Practice themes:

Governance Risk and Compliance

We believe that the Governance Risk and Compliance (GRC) market is at an inflection point as regulatory changes and increased compliance requirements are forcing companies to look for enabling software and services to help manage their businesses. We also see that the market for GRC software and service companies is fragmented and ripe for consolidation; currently, there are at least 13 privately held GRC companies that have revenues in excess of $25 million. Several of the large consolidators are focusing on the GRC space and as 2010 unfolds, we expect that several of these acquirers will move to strengthen their presence in what continues to evolve into one of the most mission-critical software categories of the next decade.

In January 2010, EMC announced that it will acquire Archer Technologies to add IT-centric GRC capabilities to EMC’s RSA Security product line and position the company against infrastructure software competitors IBM, HP, CA, McAfee, and Symantec, who have, so far, remained … Next Page »

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Lumigent Technologies, an Acton, MA-based company that produces automated governance, risk and compliance software, announced that it has closed $3 million in funding from Waltham, MA-based North Bridge Venture Partners. The new Lumigent funding comes on top of a $6 million Series A funding round from North Bridge, secured in January 2009, a company spokeswoman said.

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It turns out regulation and government mandates aren’t always bad for business.

A generation of new software companies is emerging to serve businesses who need to comply with a skein of regulations put in place over the last decade to fight financial and accounting fraud, prevent database breaches, and generally make businesses more transparent and accountable. These software companies are offering big businesses more efficient ways to keep track of governance, risk management, and compliance—a set of mandates that’s come to be known as “GRC.”

Boston is home to a major cluster of GRC companies, with names like eIQ Networks, Lumigent, and OpenPages leading the list. But Hopkinton, MA-based EMC, one of the leaders in data storage, has decided to reach well beyond the local area—all the way to Overland Park, KS, in fact—to acquire enterprise GRC specialist Archer Technologies.

The acquisition, which was announced Monday and is expected to be completed before April, will turn privately owned Archer into a part of RSA, EMC’s security division. It’s a sensible pairing, since many of RSA’s products, such as technologies for authenticating computer network users and documenting security incidents, generate reams of reporting data that Archer’s metrics, analytics, and documentation software can make more comprehensible.

Many customers use both companies’ systems, and the software will presumably now be integrated in a way that makes it unnecessary to, for example, manually cut and paste information from RSA’s enVision, a security log management system, into Archer applications. Todd Graham, a senior technologist in the office of the chief technology officer at RSA, cited this practice in a blog post Monday explaining how the Archer acquisition willl help RSA customers.

According to Graham’s post, the Archer acquisition is the outcome of a two-year effort within RSA to define how the division should help customers manage their IT-related GRC needs—everything from defining policies for dealing with hacker attacks to tracking how computer passwords are issued and revoked to demonstrating compliance with privacy and accounting regulations. RSA apparently concluded that Archer’s tools for documenting company policies, tracking incidents, and the like—which are already used by one-fourth of the Fortune 100 companies—are better than anything EMC has built internally. And when EMC lacks a technology in-house, it’s well known for its willingness to acquire it.

The fact that Archer is landing inside RSA, rather than some other part of EMC, brings more clarity to EMC’s overall GRC strategy. Back in June, when I asked RSA president Art Coviello whether he viewed GRC software as an important market for EMC, he sounded somewhat dismissive of the category. “It’s a big, amorphous term that could mean anything to anyone,” he said. “You could stick a ham sandwich under the umbrella of GRC.”

It was so amorphous, in fact, that different divisions of EMC were vying to be known as the company’s main providers of GRC software and services. “Even within EMC, you’ve got our resource management group saying, ‘We are the GRC of EMC,’ and you’ve got the content management and archiving group saying, ‘No, we’re the GRC of EMC,’” Coviello said.

Well, it turns out that RSA is going to be the GRC of EMC. Coviello hinted in that June interview that … Next Page »

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Veteran software entrepreneur and investment banker Michael Orbach is joining Seattle-based Cascadia Capital today. As a new managing director in the investment bank, Orbach will focus on mergers and acquisitions, as well as capital raises, in software and services—all in the mid-market range of $20 million to $500 million deals. The new hiring looks to be a strategic move to strengthen Cascadia’s national and global presence in information technology.

Orbach comes most recently from Palo Alto, CA-based Pagemill Partners. But he is a Seattle-area resident and says he has been commuting to Silicon Valley for 12 years. In the early 1980s, he co-founded Simulation Sciences in the U.K. (he’s a native of Manchester), and took the company public in the early 1990s. After Simulation Sciences was bought by Invensys, Orbach joined Aspen Technology and handled mergers and acquisitions, moving to the Seattle area with that company’s purchase of Industrial Systems, Inc. in Bothell, WA, in 1995.

“We liked the place,” Orbach says. “My family was suffering major culture shock between Manchester and California.” Orbach also got his MBA at the University of Washington.

The professional rationale for Orbach’s latest move is equal parts opportunity and timing. “There’s a very large opportunity to build a software and services practice here at Cascadia,” Orbach says. Cascadia Capital has a strong national brand in capital raising, and it can use that strength to grow its mergers and acquisitions business. That sort of leverage between M&A and capital raising expertise, he says, “is very appropriate in the market today.”

And why is that? “You tend to build out new business models and get the best growth strategy when you’re coming out of a recession,” Orbach says. And because of the dearth of IPOs, startups looking for an exit have little choice but to get acquired, he says. That, of course, gives buyers the upper hand in negotiations. “The economics of buying companies has never been better. For the Oracles, SAPs, and Microsofts, less and less will they make internally, and more and more will they buy,” he says. What’s more, how they’re buying has changed radically in recent years. “M&A has become a national/global practice,” Orbach says. “The days of looking at specific geographies or specific verticals are gone, because the technologies cross those.”

What all this means is that the precise skills of bankers making deals in the technology space are more important than ever. “The days of watching lawyers doctor the deal are long gone,” Orbach says. Bankers have to position a company’s financials to a prospective buyer in the right way, which means having a deep understanding of where the technology and the business model fits into the market, and of what the buyers want. Orbach says he draws on his experience as an entrepreneur, as well as having lived in many parts of the world with diverse cultures (the U.S. and U.K., France, Germany, Switzerland, and South Africa).

We didn’t get a chance in this conversation to dive deep into software M&A trends yet, but Orbach did offer a hint at what he’s looking at. “Venture capitalists are focused on triage. Many businesses need something done. Not only here, but everywhere,” he says. “As we come out of this recession, the dealmaking will be done in countercyclical markets.” He points to a few specific areas to watch: IT infrastructure, virtualization, legal, and corporate governance, risk, and compliance. We’ll be watching to see what effect this all has on Cascadia’s dealmaking, and the broader IT world.

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Acton, MA-based Lumigent, a nine-year-old company long handicapped by a dwindling market for its database auditing software, said today that it has secured $6 million in new funding from Waltham, MA-based North Bridge Venture Partners to help with its new mission of helping companies lower the cost of complying with financial regulations such as Sarbanes-Oxley. The company said the funding will help it market its recently revamped products in the area of compliance auditing for enterprise resoure planning applications such as Deltek CostPoint and PeopleSoft Financials. We’ll bring you more on the story of Lumigent’s turnaround under new CEO John Capobianco later this week.

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The recent downturn in the economy is having—and will continue to have—a significant impact on the ability of many companies to raise money and fund continued growth. This in turn will have significant ramifications on exit strategy. Luckily, for some at least, there are still potential buyers out there with sufficient cash to fund acquisitions. The Wall Street Journal, for example, reported that Oracle CEO Larry Ellison said at the company’s October shareholder meeting, “Acquisitions that we have been looking at for some time may now be more attractive.” As the current economic conditions are likely to move M&A towards a buyer’s market, potential targets should be asking themselves what they can do to make themselves more attractive and to make it easier for a buyer to close the deal.

Let’s face it—many smaller companies don’t spend a lot of time or resources getting their houses in order. They are focusing their primary efforts on R&D and marketing and sales, as they should. But if at some point a potential buyer is interested enough in your business to take a look at you, it would be in your best interest to be prepared as an organization. This includes the formalities related to the business’s legal existence and its relationships with other parties such as customers, vendors and employees.

At the top of the list are corporate organization documents (e.g., charter, bylaws and stock records), corporate administrative records (e.g., shareholder and board minutes and resolutions), contracts (of both the vendor and customer varieties), and employee and contractor agreements. A company has to ask itself: If a buyer knocked on the door tomorrow and wanted to start due diligence, could I find all of these documents? Are they up to date? Has everything been properly signed and dated?

The inability to produce these materials for due diligence could cause a buyer to worry about the state of the business. A lack of shareholder and board minutes books can call into question whether the company’s actions have been conducted with all necessary approvals. A buyer needs to be able to rely on the fact that all prior actions taken by the company or its officers were properly authorized. Without this knowledge, the buyer faces a risk that some prior actions could be challenged. For example, the buyer wants to be assured that critical material contracts have been properly handled.

Improperly maintained stock records prevent proper determination of the various ownership stakes in the company. A buyer needs to know exactly who owns what, which will ordinarily determine how the money is divvied up when the deal closes. Without this information, the buyer doesn’t really know what it is buying and runs a significant risk of becoming embroiled in an ownership dispute involving founders, investors and other stockholders.

Failure to organize properly signed contracts can have numerous ramifications. Do you have all necessary rights to the intellectual property used in your business? Do you own it? A careful review of your contracts with vendors and licensors will be necessary to make this determination.

The buyer will also want to verify that your employees and consultants have signed agreements confirming that the company owns (in the case of employees) or at minimum has sufficient license rights (in the case of contractors and licensors) to all intellectual property used in the business. If it takes a few weeks to find these documents and get them to the buyer’s due diligence team, the team may rightfully wonder whether you have a handle on things.

Demonstrating to a buyer that your company has adequate contracting practices for customer deals is equally important. Your (and eventually the buyer’s) ability to recognize revenue – and the timing of revenue recognition—will be highly dependent on the existence of properly signed and dated contracts. A serious buyer will very likely want … Next Page »

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