Corporate Governance and the Twitter Board decision on Musk´s offer
Columbia University Law Professor Jeffrey N. Gordon recently starts a brief entry in the Oxford Law blog showing his surprise that the only reason the Twitter board apparently considered to accept Mr Musk´s offer was the interest of shareholders; moreover, he seems bewildered that public welfare, the forecast of Mr Musk´s management, the effect of the change in control on Twitter´s infrastructure had been ignored. Difficult to understand his surprise from a Shareholder primacy perspective, but mainly if fiduciary duties are considered, …, how should directors have acted? Let´s see how Prof. Gordon sees this.
According to his interpretation of Delaware corporate law, directors could have dismissed the offer on grounds of other stakeholders´interests, eventual externalities to be imposed by Mr Musk on society, or even on grounds of an eventual long-term valuation of the company which might have been considered higher than the offer price, (the last one seems to be reasonable, but board may well have analized and rejected this).
Prof. Gordon assumes that the Business Judgement Rule protects directors when deciding to run a company on standards beyond what is legally required, (pollution, employee welfare and so on), which we have referred before (2, paragraph 5). Accordingly, if the bidder is thought to run the company based on worse standards, the BJR protects directors if rejeting the offer. The Paramount & Time case was an example, Time rejecting a better cash offer in favor of one (Warner) that would defend the Time values and culture. A different thing happens when the company has already been put for sale, but this has not been the Twitter case.
What about the Twitter board? It is a classified one, (it only votes on reelection of a third of directors every year, a proposal for de.staggering having been rejected in 2021), so Musk will eventually take control only in 2024. This could have allowed directors to introduce restrictions on the changes to be imposed by the new owner. Why does Prof. Gordon consider this?
Because he starts with an apriorism (that he only introduces at the end of the article): Mr Musk will probably harm the public and the board should have acted to protect it; he considers Twitter is right when it introduced speech restrictions and other policies.
A question for me very relevant for freedom of speech to be wider than Twitter has permitted is the need to avoid anonimity; anonimity prevents Justice to prosecute certain excesses, (foreign manipulation, fake news, etc). This is something Mr Musk wants also to introduce. Couldn´t it be the case that some of these facts have actually been considered by the Twitter board? Could it be the case that they considered Twitter´s private restrictions and policies worse than the ones Mr Musk is thinking of?
Having recently listened to Mr Moises Naím (with Mr José Juan Ruiz) explaining how easily our democracies are being led into autocracies, with the help of social media, my views are not totally coincident with Prof Gordon´s ones.
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