In a new study, we examine whether, in negotiating the sale to Elon Musk, Twitter’s corporate leaders took into account the commitments to employees and core values that they had put forward during the years preceding the deal. We find that Twitter’s corporate leaders chose to disregard these commitments and to focus exclusively on the interests of shareholders and those of the corporate leaders themselves. We discuss the implications of our analysis for the heated debate on stakeholder governance.
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). We argue that when negotiating the deal, Twitter’s corporate leaders elected to focus solely on the interests of their shareholders and the private interests of corporate leaders themselves.
With this exclusive focus, and despite their pro-stakeholder rhetoric over the years, Twitter’s corporate leaders essentially chose to push their stakeholders under the (Musk) bus. In particular, Twitter’s leaders pushed under the bus the interests of company employees, as well as the mission statements and core values to which Twitter had pledged allegiance over the years.
“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 repeatedly committed.”
Twitter’s leaders carefully negotiated a merger agreement with Musk and subsequently held him to the agreed-upon deal, after he had tried to back out of it. Thus, we begin our analysis by examining for whom Twitter corporate leaders chose to bargain. Our findings indicate that shareholders obtained significant premiums, with a mean value 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. Overall, we find that the Twitter deal produced about $215 million in total gains for the four top executives.
What about Twitter employees? Prior to the Musk deal, Twitter had long promulgated commitments to look after the welfare of its employees—the so-called “tweeps.” Once Twitter’s leaders turned to negotiating the deal with Musk, however, they seem to have disregarded their commitments to “take care of the whole” of their employees as well as their assurances that employees will have “no worries.”
First, the Twitter deal terms placed no constraints on Musk’s freedom of choice regarding the scale and speed of post-deal layoffs. Moreover, and most importantly, Twitter’s corporate leaders did not attempt to allocate a share of the large gains from the deal to the company’s employees in order to cushion either laid-off employees or remaining employees from the adverse post-deal effects. These leaders did not even seek soft pledges or information regarding Musk’s plans for employees’ post-deal treatment. Instead, they chose to disregard risks to employees despite the clear presence of such risks at the time they were negotiating the deal.
Just one week after the Twitter deal finally closed, the ax fell on Twitter employees. Musk conducted mass layoffs, firing about 50% of the company’s workforce of 7,500 employees. It is notable that relatively vulnerable employees seem to have been disproportionately affected by the layoffs. Musk also swiftly took measures that worsened key elements of the employment terms and working environment of continuing employees. For example, in his first post-deal communication to Twitter’s employees, Musk stated that he expected 80-hour work weeks, and he effectively made it impossible for any employees to continue working without consenting to increase the scope and intensity of time spent on Twitter work.
Twitter’s corporate leaders also disregarded the mission statements and core values to which Twitter had pledged allegiance for years. Prior to signing the merger agreement with Musk, Twitter had consistently expressed strong pro-stakeholder rhetoric and commitments to mission statements and core values.
For example, prior to signing the Musk deal, Twitter had long upheld a clear and strong Hateful Conduct Policy aimed at preventing speech that could promote violence, attacks, or threats against others. Shortly after closing the deal, and to further implement his policy of reducing restrictions on free speech, even when that speech rises to the defined level of hateful conduct, Musk reinstated nearly all previously banned Twitter accounts, including those that had been suspended for offenses such as violent threats and harassment. Notably, Musk also fired several outsourced content moderators who had been working with the company’s civic integrity team to track hateful conduct. According to media reports, the volume of hate speech on Twitter witnessed a sharp increase following the closing of the deal, with the number of racist, misogynistic, homophobic, and anti-Semitic tweets soaring.
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 them. 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 repeatedly committed.
Prior to signing the Musk deal, Twitter had also expressed a strong commitment to using its platform to defend and respect human rights. Clearly, it could have been concluded even prior to closing the deal and during negotiations that Musk’s support for reducing content moderation could pose risks to the human rights discourse on Twitter. However, Twitter’s corporate leaders chose not to negotiate any constraints or even seek any soft pledges with respect to this issue. As a result, Musk’s control of Twitter now appears to be posing risks to the protection of human rights on the company’s platform. Indeed, following the deal closing, Musk reportedly fired Twitter’s entire human rights team. This action alarmed the UN High Commissioner for Human Rights, who issued an open letter to Musk urging him “to ensure human rights are central to the management of Twitter.”
Our study of how stakeholder interests were disregarded by Twitter’s corporate leaders has implications for three important corporate governance debates and discussions. First, our findings 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).
Second, with respect to the debate on stakeholder governance and the increasingly influential view that corporate pledges to support stakeholders should be encouraged and relied upon, our analysis supports the view that the stakeholder rhetoric of corporate leaders is mostly for appearances and is not matched by their actual decisions and conduct (Bebchuk and Tallarita (2020).
Finally, whereas considerable attention has been given in recent years to corporate purpose and mission statements, our findings indicate that such statements should not be regarded as meaningful commitments that companies can be expected to meet.
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