The Name on the Door

THE CASE

Smith & Nephew, the London-listed maker of hip and knee implants, spent much of 2026 courting Johnson & Johnson's orthopaedics business, DePuy Synthes. The Financial Times reported on 23 October that the two sides had agreed the main financial terms. J&J's unit was valued at up to $22 billion, its shareholders would have held 50.1 per cent of the combined company, and an announcement had been pencilled in for mid-October.

Then, the FT says, the talks collapsed at the last minute, several weeks before anyone outside the room heard. The question was who would run the merged group. J&J wanted Namal Nawana, who heads its orthopaedics division. He is also a former Smith & Nephew chief executive who left in 2019, when, according to the FT, the company could not meet his pay demands. Smith & Nephew wanted its current chief executive, Deepak Nath, to stay. People familiar with the talks say the chair, Rupert Soames, made Nath's retention a condition.

Neither company has commented, and the account rests on unnamed sources. J&J now says it favours spinning the unit off on its own, and one analyst said a return to the table would not be surprising.

At the centre is a former chief executive and the firm he left, with a sum close to double that firm's own market value on the table. The reports do not say who asked what the combined company needed from its leader.

THREE QUESTIONS FOR THE PSYCHIATRIST

1.The chair of a listed company tells you that in a merger negotiation he made keeping the current chief executive a condition. Afterwards he cannot tell whether he was protecting the company or a colleague. How would you help him find out?

2.Suppose an executive who left a company years ago over pay is now asked to lead it, through a deal he sat across the table from. What should he ask himself before he accepts, and what might the old firm hear in his name?

3.The board of a listed company has watched a deal worth nearly twice its market value fall away over one appointment. Shareholders will ask questions. How should the board test its own decision, and how should it decide whether to reopen talks?

MODEL ANSWER GUIDE

"Better to reign in hell than serve in heav'n." John Milton, Paradise Lost, Book I.

Question one. A chair who digs in over one person often feels loyal and sensible at once, which is why the two are so hard to tell apart afterwards. Ask him what he would have done if the incumbent were someone he disliked. Mthombeni and Chizema (2022) interviewed board members at financial firms and found that trust and distrust are separate things. The best chair and chief executive pairs held warm personal trust alongside a cool, task-based scepticism. Kakabadse and colleagues (2006) add that how the relationship began shapes the board for years. So ask how this one began, and who tested the condition before it was set.

Question two. Going back to a place you left on bad terms is rarely neutral. Pride, a wish to be proved right, a score to settle: any of them can pass for ambition. White and colleagues (2004) found that negotiators who react strongly to threats to their image reach worse deals for both sides, largely because they turn competitive. Hold that as a pattern, not a verdict. Our hypothetical executive can ask a plainer thing: would I want this job if nobody remembered how I left?

Question three. Losing a big deal over one name stings, and boards tend to defend a choice more loudly the more it costs. Hayward and Hambrick (1997) studied 106 large acquisitions and found that inflated self-confidence pushed prices up, most of all where boards checked the chief executive weakly. Turn that round. A watchful board wants someone in the room whose job is to ask whether the line held for the company or for a person. Then decide on reopening talks separately, on the numbers.

READING

Mthombeni M, Chizema A (2022) Recasting trust and distrust in the boardroom. Corporate Governance 22(5):1004-1025. Kakabadse AP, Kakabadse NK, Barratt R (2006) Chairman and chief executive officer (CEO): that sacred and secret relationship. Journal of Management Development 25(2):134-150. White J, Tynan R, Galinsky A, Thompson L (2004) Face threat sensitivity in negotiation: roadblock to agreement and joint gain. Organizational Behavior and Human Decision Processes 102(2):102-124. Hayward MLA, Hambrick DC (1997) Explaining the premiums paid for large acquisitions: evidence of CEO hubris. Administrative Science Quarterly, doi:10.2307/2393810.

STORY SOURCES AND NOTE

Financial Times as relayed by AJ Bell, 23 Oct 2026; Becker's Spine Review, 23 Oct 2026; TIKR, 23 Oct 2026. Teaching case drawn from public reporting. Some claims are contested.