Last year, one of the most renowned US business academics and his team argued that the sale of Twitter sounded a death knell for “stakeholder governance”. Experts from around the world have now considered the claim, concluding that the sale of the world’s most influential social media companies “overstates” the implications for a concept that has come to dominate governance debate.

In a 24-page paper posted this week, Lucian Bebchuk, a Harvard professor, and his team repeated their claim that the sale of Twitter “pushed stakeholders under the bus”. Many Twitter staff were quickly made redundant, some with very little severance pay.

“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,” writes the Bebchuk group.

They add that corporates can also not be trusted to “safeguard” the interests of stakeholders in the event of a takeover.

The stakeholder message is one that Bebchuk has pursued since 2018, when the Business Roundtable, a club for leaders of the largest US companies, shocked the corporate world by publishing a statement claiming its members were now all “stakeholder companies”.

Despite his record, Bebchuk and co’s claims for Twitter have fallen flat in many circles.

According to Suren Gomtsian, a business law professor at Leeds University, the Twitter sale is limited evidence for a problem with stakeholder governance.

“Examples like Twitter do not tell us anything about the effectiveness of pro-stakeholder rhetoric and mission, and purpose, statements during normal times.

“All that such examples show is that the pro-stakeholder rhetoric gets overlooked during corporate acquisitions.”

A going concern

Gomtsian argues there are two structural reasons why stakeholders may be forgotten by boards at takeover time. Firstly, it’s the end of the road for boards; if they sell, then stakeholder concerns are “the problem of the new owner, not selling managers”.

Second, and perhaps more significantly, legal structures may not compel a board to consider stakeholders—the Twitter board had no option but to consider only shareholders once they were clear that their only option was to sell.

Richard Leblanc, governance professor at York University in Toronto, and author of The Handbook of Board Governance, echoes the point. He notes the Twitter board faced no “constituency statute” under Californian law that mandated consideration of stakeholder interests.

That said, Leblanc adds that investors in many jurisdictions are, nevertheless, placing boards under pressure to consider stakeholders as they come to accept that “customers, employees, suppliers, communities” are the “engines for shareholder value”.

“We will see where Twitter ends up,” says Leblanc. “It is a work in progress—a grand experiment—and we should exercise care in extrapolating any premature lessons.”

Better by design

Companies can choose to embrace stakeholders. Marco Meyer, a corporate ethics expert at the University of Hamburg and a director at Principia Advisory, an ethics consultancy, says both outdoor clothing brand Patagonia and OpenAI, a San Francisco-based artificial intelligence company, have set up governance structures to “explicitly” protect stakeholder interests. “Corporate governance needs to be designed with the ethical purpose of corporates in mind,” Meyer says.

In the UK, a campaign is under way to reform the law—the Companies Act—to ensure directors’ duties reflect stakeholders’ interests.

According to Roger Barker, policy director at the Institute of Directors and a supporter of reform: “A more balanced stakeholder approach will only move from rhetoric to reality when the privileged position of shareholders in company law is addressed.

“That’s the thinking behind the Better Business Act campaign in the UK—to change the underlying nature of directors’ fiduciary duties so that shareholders aren’t prioritised at the expense of everyone else.”

There are those, however, who believe the shareholder versus stakeholder row is redundant. Mark Goyder, co-author of the book Entrusted: Stewardship for Responsible Wealth Creation, argues that directors owe a duty to neither group, but to the company.

Takeovers raise a special question about directors’ duties. He cites the Kraft acquisition of Cadbury in 2010 as an example of where a board could have turned its back on an offer because the “decision was not exclusively about maximising the price they might get”.

Likewise the Twitter sale, because its “duty was to the company and through that to those with whom the company had long-term relationships, especially the employees”, adds Goyder.

Whatever the situation at Twitter, the stakeholder debate and what it means in practice will rumble on. In many jurisdictions, the concept is already well entrenched in governance thinking and that means the discourse on governance may well have changed for good. Stakeholderism may have taken a blow, but it’s far from dead.