Stakeholder Amnesia in M&A Deals

Abstract

The most fundamental and longstanding debate in corporate law—the purpose of the corporation—has found new energy in connection with broader discussions about the power of modern corporations and their role in society. Companies have increasingly embraced the consideration of employees, communities, and other stakeholders in the course of everyday business. However, these same considerations are virtually non-existent in merger and acquisition (M&A) transactions. Elon Musk’s recent acquisition of Twitter provides an illustration of this stark disconnect. Prior to the transaction, Twitter pursued numerous stakeholder-centric goals. In contrast, Musk had taken a skeptical, if not hostile, stance toward stakeholder governance. When Twitter negotiated its sale to Musk, the board succumbed to “stakeholder amnesia”—overlooking its stakeholder commitments in favor of the high-premium all-cash offer from Musk. Twitter is not alone: stakeholder amnesia is a widespread phenomenon in M&A.

In this Article, we argue that corporate boards have the legal and practical ability to consider stakeholder interests in their dealmaking. We examine three of the most significant barriers that might prevent a board from incorporating their stakeholder-related objectives into transactions—fiduciary duties, negotiation leverage, and contractual feasibility—and  demonstrate that, outside of the Revlon context, none of these are compelling barriers. Rather, boards that consider stakeholder interests in their dealmaking can be acting consistently with their fiduciary duties. Moreover, boards often have the negotiation leverage and capability to incorporate stakeholder protections into their contractual agreements. We conclude that stakeholder considerations can pervade all aspects of managerial decision-making, including decisions about the sale of the company. In doing so, we also provide specific recommendations for courts, boards, and transaction planners.

Keywords: stakeholder governance, ESG, environmental, social, governance, stakeholders, stakeholder capitalism, shareholder, shareholder primacy, corporate social responsibility, corporate purpose, Twitter, Elon Musk, M&A, deals, dealmaking, mergers, acquisitions, transactions, corporate law, SEC, climate, diversity, employees, boards, board of directors, directors JEL Classification: D21, G32, G34, G38, K22

JEL Classification: D21, G32, G34, G38, K22