Much has been made of Elon Musk’s management of Twitter in recent weeks, after he grudgingly bought the social media company for $44bn. But what of Twitter’s decision to sell: was that entirely without fault?
One set of observers now argue that Twitter’s board “pushed its stakeholders under the (Musk) bus,” when they accepted and then took legal action to force the sale. A decision, they claim, that goes to the heart of whether stakeholder governance works.
The argument comes from Harvard academics, who argue that Twitter’s management did not “look after” employees affected by the deal—or even raise the topic with Musk. Since taking over, Musk has led a round of redundancies, including those of some of its most senior technical staff, at Twitter offices around the world.
The Harvard team, which includes renowned stakeholder governance researcher Lucian Bebchuk, says Twitter’s failure is yet another example of a management team who deployed stakeholder rhetoric but failed to follow through with action.
Anna Toniolo, Anete Pajuste and Bebchuk write: “Twitter’s leaders chose to allocate the very large monetary surplus produced by the deal entirely to shareholders and to the leaders themselves. They chose not to use any part of this surplus to provide any monetary cushion to the tweeps [staff] who would lose their positions post-deal.
“To illustrate, allocating 2% of the monetary gains that ultimately went to shareholders and corporate leaders to employee protections would have enabled providing a substantial monetary cushion to the about 50% of the tweeps who got the axe shortly after the deal’s closing.”
Talk is cheap
Though Twitter’s management may have fallen short on supporting staff, the Harvard trio point out that the episode says much about stakeholder governance and the value placed on defining corporate mission statements and value.
“Our findings further suggest that corporate leaders selling their company cannot be expected to look after the interests of stakeholders.” It has long been argued corporate leaders should have a veto over acquisitions so they can do just that.
Bebchuk has been in this area before. After the Business Roundtable, a club for CEOs of the biggest US companies, announced they were all stakeholder companies in 2018, Bebchuk conducted research which concluded their statements were “mostly for show”.
Stakeholder governance has been a hot topic in governance for some years now as a lack of public trust in corporates, following the financial crisis of 2008, has forced many business leaders to rethink their relationships with society.
Work in progress
The Institute of Directors Centre for Corporate Governance has a working group dedicated to investigating stakeholder governance, though its web page says “a consensus has yet to be reached on how such an approach might function in practice”.
Companies often hailed as good examples of “stakeholder” businesses include Patagonia, the outdoor sports brand. Last month, founder Yvon Chouinard transferred all the company’s voting stock to a Patagonia Purpose Trust in a move that created headlines across business pages.
The stakeholder debate will continue. The Twitter debacle doesn’t so much prove that stakeholder governance doesn’t work, more that managers seem ready to abandon it in a pinch. That doesn’t bode well for stakeholderism. But it doesn’t prove stakeholder governance has reached the end of the road.