How Twitter Pushed Stakeholders Under The Bus

Lucian Bebchuk is the James Barr Ames Professor of Law, Economics, and Finance and Director of the Program on Corporate Governance at Harvard Law School; Kobi Kastiel is Professor of Law at Tel Aviv University, and Senior Fellow of the Harvard Law School Program on Corporate Governance; and Anna Toniolo is Postdoctoral Fellow at the Program on Corporate Governance of Harvard Law School. This post is based on the authors’ recent paper. A post by the authors on their project and their take on the subject was published earlier here.

Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance (discussed on the Forum here); Will Corporations Deliver Value to All Stakeholders? (discussed on the Forum here), by Lucian A. Bebchuk and Roberto Tallarita; For Whom Corporate Leaders Bargain (discussed on the Forum here); Stakeholder Capitalism in the Time of COVID (discussed on the Forum here); Does Enlightened Shareholder Value Add Value? (discussed on the Forum here), all by Lucian Bebchuk, Kobi Kastiel, and Roberto Tallarita; and Corporate Response to the War in Ukraine: Stakeholder Governance or Stakeholder Pressure? (discussed on the Forum here), by Anete Pajuste and Anna Toniolo.

We just posted on SSRN a new discussion paper, How Twitter Pushed Stakeholders under the Bus.(An earlier post noting our work on this project and our take on the subject is available here.)

This paper provides a case study of the acquisition of Twitter by Elon Musk. Our analysis indicates that when negotiating the sale of their company to Musk, Twitter’s leaders chose to disregard the interests of the company’s stakeholders and to focus exclusively on the interests of shareholders and the corporate leaders themselves. In particular, Twitter’s corporate leaders elected to push under the bus the interests of company employees, as well as the mission statements and core values to which Twitter had pledged allegiance for years.

Our analysis supports the view that the stakeholder rhetoric of corporate leaders, including in corporate mission and purpose statements, is mostly for show and is not matched by their actual decisions and conduct (Bebchuk and Tallarita (2020)). Our findings also suggest that corporate leaders selling their company should not be relied upon to safeguard the interests of stakeholders, contrary to the predictions of the implicit promises and team production theories of Coffee (1986), Shleifer-Summers (1988) and Blair-Stout (1999).

Here is a more detailed overview of our paper:

An epic battle was waged between Twitter and Elon Musk in 2022. Twitter sought to secure the monetary gains Musk had promised to its shareholders and corporate leaders in the Twitter-Musk merger agreement. Musk tried to avoid meeting his original commitments. The battle ended with Twitter’s decisive victory. Musk bought out the company at the full offering price and Twitter’s shareholders and corporate leaders walked away with significant monetary gains.

Our focus, however, is on another group that was substantially affected by the deal—Twitter’s “stakeholders” (i.e., its non-shareholder constituencies). In particular, we argue that, when negotiating the deal, Twitter’s corporate leaders chose to focus solely on the interests of their shareholders and the private interests of corporate leaders themselves. With this exclusive focus, and despite their stakeholder rhetoric over the years, Twitter’s corporate leaders essentially chose to push their stakeholders under the (Musk) bus. We argue that our study of how stakeholder interests were disregarded by Twitter leaders has implications for three important corporate governance debates and discussions.

Our analysis proceeds as follows. We begin by examining for whom Twitter corporate leaders chose to bargain. Our findings indicate that shareholders obtained significant premiums, with a mean of 38% of the pre-deal market capitalization, and the aggregate premium obtained by all the non-Musk shareholders exceeding $10 billion. Corporate leaders also received large monetary benefits, both as shareholders and as executives or directors.

We then analyze how Twitter’s corporate leaders pushed the employees of Twitter—the so-called “tweeps,” whose interests Twitter had long promised to look after—under the bus. Twitter’s leaders did not attempt to allocate a share of the large gains from the deal to the company’s employees to cushion either laid-off employees or remaining employees from the adverse post-deal effects. Indeed, it appears that Twitter’s leaders did not even seek soft pledges or information regarding Musk’s plans for the post-deal treatment of employees. Instead, Twitter leaders chose to disregard risks to employees despite the clear presence of such risks at the time that the deal was negotiated.

We next turn to discuss how Twitter’s corporate leaders also pushed the mission statements and core values to which Twitter had pledged allegiance for years under the bus. In negotiating the terms of the transaction, Twitter’s corporate leaders did not bargain for any constraints on post-deal abandonment of these commitments. In fact, these leaders did not even seek soft pledges about maintaining some of these commitments. Twitter’s corporate leaders, we explain, chose this course of action despite indications that Musk could well elect to abandon or depart from pledges and core values to which Twitter had consistently committed.

Finally, we end with a discussion of the implications that our analysis of the Twitter case has for important corporate governance policy debates. First, contrary to the predictions of the long-standing implicit promises and team production theories advanced by prominent economists and legal scholars, our findings suggest that corporate leaders selling their company should not be expected to look after the interests of stakeholders. In addition, with respect to the debate on stakeholder governance and the increasingly influential view that corporate pledges to support stakeholders should be encouraged and relied on, our findings support the view that the stakeholder rhetoric of corporate leaders is mostly for show. Finally, whereas much attention has been given in recent years to corporate purpose and mission statements, our findings support the view that such statements should not be regarded as meaningful commitments that companies can be expected to meet.

Our paper is available for downloading here.

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