In today's column, Matt Levine uses Twitter as a hook to talk about belief in shareholder maximization: [...] [...]
In today's column, Matt Levine uses Twitter as a hook to talk about belief in shareholder maximization:
I’m just saying you could imagine the CEO of a company, who had just voted to sell that company, telling the employees of the company that that was the right decision for the company, whatever that means. You could imagine some enthusiasm. You could imagine the CEO thinking that the person who values the company the most and will pay the most for it — Musk — will do good things with it. Agrawal said the opposite. The implication is that Twitter has interests as a company that are distinct from the interests of its shareholders, but that Twitter’s board felt it had no choice but to do what was best for shareholders even if it was worse for the company.
This is a traditional story, but it sounds a bit strange in 2022. Ten years ago if you had said that the job of a board of directors was to maximize the stock price, a lot of people would say “well sure yes of course,” but now we have stakeholder capitalism and environmental, social and governance investing.
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Being nice to stakeholders and having a purpose and being environmentally friendly and so forth are all things that probably improve the long-term sustainability and profitability of a company, and shareholders can prefer them for purely financial reasons. Still they seem to have some independent weight in modern corporate thought.
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And then Twitter’s CEO shrugs and says, in effect, “meh look this deal might be bad for our users and employees and product and mission, but we can’t think about that; the price is right and my only duty is to shareholders.” It’s strange!
One thing to say about this story is that, as a description of the board’s legal duties, it is debatable.[2] The foundational Delaware hostile-takeover cases from the 1980s explicitly say that a board can consider “the impact on ‘constituencies’ other than shareholders (i.e., creditors, customers, employees, and perhaps even the community generally),”[3] or “the preservation of [a media company’s] ‘culture’” and “editorial integrity,”[4] in rejecting a takeover offer; shareholder value is not the only valid consideration. More recent cases focus more purely on shareholder value maximization, finding that “promoting, protecting, or pursuing non-stockholder considerations must lead at some point to value for stockholder,” and that a court “cannot accept as valid … a corporate policy that specifically, clearly, and admittedly seeks not to maximize the economic value of a for-profit Delaware corporation for the benefit of its stockholders.”[5]
So if Twitter’s board had said “Twitter is not worth $54.20 per share and never will be, but we declined Musk’s offer anyway because we think it is bad for users and the product,” that would have been at least a risky move. But if it had said “we declined Musk’s offer because we think it is bad for users and the product, and we think that if we continue to improve the product and user experience then in the long run this obviously important social network should be worth more than $54.20 per share,” that would have been a defensible position even if, like, three-year earnings projections did not really support a $54.20 price.
It would help, in making that case, if Twitter’s board and managers had a long-term plan. [...]
In today's column, Matt Levine uses Twitter as a hook to talk about belief in shareholder maximization:
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