25 September 2020

Bloomberg: “Twitter Owner wants Full-Time CEO”

There is a story you could tell here about how in hot markets investors were willing to put up with a lot, but the unicorn IPO market has cooled, a lot of recent tech unicorns have not worked out that well for investors, and those investors are now asserting themselves and demanding more normal governance. They have learned that, if they give founders total control, they can get burned. If things at dual-class companies get ugly, expect more investors to push back against the next one.

But the founders get to observe the market too. An Elliott-led ejection of a public-company CEO is not a pretty sight. (One CEO deposed by Elliott memorably commented that when he began to research Elliott online, the experience was like Googling this thing on your arm and it says, You’re going to die.) If you’re a public investor and you bought shares of Snap in its IPO, the experience might lead you to object to dual-class stock in future IPOs. But if you’re a tech founder and you watch Elliott wage an ugly proxy fight to get rid of Jack Dorsey for the venial sin of working half-days at his company, the experience might lead you to insist on dual-class stock in your own IPO. Twitter is a little bad, and its founder is in the crosshairs of big scary Elliott; Snap is worse, and its founders are fine because they had the foresight to prevent this.1 The whole point of dual-class stock is to protect tech founders from Elliott so that they can follow their bliss in a long-term visionary way! If things at Twitter get ugly, expect more founders to demand dual-class stock in their IPOs.

Matt Levine

Speaking of Twitter, the company got into a tough spot earlier this year when a hedge fund tried to remove Jack Dorsey as CEO. While they eventually settled and Dorsey maintained his role at Twitter for the time being, the situation highlights how different share structures of various tech companies influence their leadership and decisions. As mentioned above, dual-class stock shields tech founders from some of the normal responsibilities and accountability expected of a typical CEO. This is precisely the reason why Mark Zuckerberg can maintain control over Facebook without being challenged – and why the company has become such a toxic influence in democracies and all around the world.

Personally, I found the timing of this move suspicious. I have a feeling the real reasons behind it have less to do with Twitter’s business performance, and more with controlling a powerful media channel ahead of this year’s US elections. Since then, we have seen Twitter taking a stance against Donald Trump’s public abuses of truth and democracy; I have to wonder if that would have happened under a new CEO, if enabling Donald Trump was the actual reason for Elliott Management’s actions. Facebook’s management is untouchable because of its dual-class stock, not to mention it is already as aligned with Trump and the Republican Party as it gets. Eliminating Twitter’s opposition would have given Trump a nice boost in media coverage in an election year.

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