Elon Musk sealed a deal to buy Twitter Inc for US$44 billion on April 25, 2022. (Reuters)
College Station, United States:
Looks like twitter Board of directorsElon Musk finally heats up for hostile bidding And agreed to a sale — but not before Tesla and SpaceX were severely defeated by billionaires, Twitter founder Jack Dorsey, and other key users on their own social network.
Musk, who signed a deal to buy Twitter for US$44 billion on April 25, 2022, Board members criticized Because of holding almost no shares of the company they oversee. Dorsey, who will step down from his seat on Twitter’s board at the end of his term in May 2022, This is called “company dysfunction”.Conservative politician mocked the board as the “fear” of free speech.
as experts Feather corporate governance, we believe this dispute raises two important questions of corporate governance: What purpose does the Board of Directors serve? And does it matter whether a member holds company stock or not?
‘Bad board will kill’
“Good boards don’t make good companies, but a bad board will kill a company every time.”
Venture Capitalist Fred Destin written that 2018, citing what he called an “old Silicon Valley adage.” The quote has been doing the rounds on Twitter lately, in light of Musk’s hostile quote. It even seemed to have got approval from Dorsey himself. when he replied to a tweet Containing the quote, “Big Facts.”
These tweets and the general conversations that have emerged have important implications for their understanding of the board and their role in running a company.
Roughly speaking, a most important role of the board Including hiring, paying and monitoring the Chief Executive Officer.
Academic research shows that board members in majors – who generally receive generous compensation packages May be limited in their ability to perform these tasks effectively. In our work, we found that boards often find it impossible to adequately oversee and rein in snarky CEOs because that’s all there is to modern boards to process with them Limited Time, And the social mobility involved in the board also makes it difficult for directors to speak up and oppose other directors.
A separate study included face-to-face interviews with directors, we are constantly told That the directors take their board service seriously and act with the best interests of their companies in mind. But they do so with a view to collaborating with the CEO and the rest of the executive team, rather than serving as impartial supervisors, as their “independent” position suggests they should.
While our work did not focus on this, if the board and CEO fundamentally disagreed about the direction of the company – which was often the case. Between Dorsey and the Twitter Board – This will certainly be problematic and may lead to less-than-optimal decisions.
In other words, a board that is not functioning effectively can certainly destroy the value of the company. And Some reporting shows This is what happened with Twitter, whose Shares were trading at less than half His 2021 peak was before Musk revealed acquired a 9% ownership stake,
an assailant’s lament
This brings us to the next question: Does not having a significant stake in the company you oversee makes it more likely that you will drive it into the ground, as Musk suggested?
a few days later is offering its takeover Billionaire on April 14, reply to a tweet Showing how many shares Twitter board members hold, it posted that the “economic interests of its directors simply don’t align with those of shareholders.”
Musk’s arguments harken back to takeover bids from the 1980s in which active investors – or “corporate raiders” – would argue that the interests of executives did not align with shareholders, “Wall Street” as Gordon Gekko Famous raids against officers About a business he wanted to take, “Today, management has no stake in the company!”
Musk’s words echo Gecko’s “greed is good” speech regarding independent directors, who the vast majority are involved of corporate boards. The simple definition of an independent or external director is those who do not have an executive role in running the company, such as the chief executive officer or chief financial officer.
In fact, Twitter’s board share ownership is similar to that of other companies.
Excluding Dorsey, independent Twitter director held an average ownership stake of 0.003%, For comparison, we looked at the equity ownership of independent directors of companies listed on the S&P 500 stock index in 2021. We found that the average stake was less than 0.01%, and a handful of directors held less than 1% of the company’s stock. , Median ownership of Musk The company Tesla is similarly minuscule at 0.23%,
Whether this makes any difference to the company’s success is difficult to assess because research on the subject is scant, in large part because board members have so little equity.
mixed research
Academic Researcher on Effective Corporate Governance in the 1970s argued that the external director Avoid owning multiple shares in the companies they oversee in order to maintain fairness. more recently, Management scholars have suggested that could be high stakes provide a way to inspire Directors to oversee management and make decisions more in line with shareholder interests.
Some researchers have found that large proprietary boards can improve A Company’s operating performance And Better align external directors with him interests of shareholders,
But many studies have examined other working directors’ impact of stock ownership. best mixedSome studies suggest that high stakes potentially lead to negative outcomes, such as excessive executive and director compensation,
Since the passage of the Sarbanes-Oxley Act of 2002 After the massive accounting scandals At Enron, WorldCom and elsewhere, corporate governance issues such as board oversight have become increasingly important, It made several changes aimed at aligning the interests of managers and shareholders, including a focus on board independence and adjusting executive compensation.
Although our research shows that boards are limited in their ability to oversee management, they’re still better than nothing,
In its letter to shareholders announcing its bid, Moscow Pledge to “unlock” Twitter’s potential In form of private foundation, without a public board. We may soon see if he is right.
,Author:Michael WithersAssociate Professor of Business, Texas A&M University And Steven BoivyProfessor of Management, Texas A&M University,
This article is republished from Conversation Under Creative Commons license. read the original article,
disclosure statement: The authors do not work to consult, own shares in, receive funding from any company or organization that would benefit from this article, and have not disclosed any relevant affiliations beyond their academic appointment.
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