Lawyer salary

Local lawyer hits out at Twitter over layoffs

Everything Elon does is reckless.

Here’s a really long quote from Matt Levine in his last week talking about how reckless it is, and also why golden parachutes exist.

Parag Agrawal has an employment contract that says he gets a huge bag of money if (1) Twitter is acquired and (2) then he is fired.[3] He has been CEO for less than a year and is expected to earn tens of millions of dollars. Why did Twitter’s board agree to this deal? Why do almost all public companies accept this agreement?

The answer is that sometimes public companies would be better off being acquired, but that would rarely improve the situation of their CEOs, unless they were paid. Earlier this year, Parag Agrawal had a good job as CEO of Twitter. He was well paid, he managed people, it was good. Then Elon Musk came along and said, more or less in so many words, “I want to buy Twitter and fire the CEO as badly as possible. Agrawal could have reasonably said, no, I like my job, I like getting paid, I like being the boss, I don’t like people being rude and firing me. And then, as CEO of Twitter, he could have tried to prevent the merger. It might not have worked: Musk could have (and almost did) make a hostile bid to try to buy Twitter without the CEO’s approval; hostile offers sometimes succeed. But in general, if a CEO wants to block a deal, it makes it harder to get the deal done.

But the deal was clearly (especially in hindsight) really good for Twitter shareholders: They got $54.20 per share, which is way more than the shares would otherwise have. And Twitter’s board had incentives in place so that if a deal was good for shareholders but bad for Agrawal, Agrawal would say yes. The incentive is that Agrawal would get roughly fired, but he would get a big check to make up for it. I once wrote about the general theory:

CEOs tend to receive huge “golden parachutes” for selling their company, even if they’ve only been around a short time and haven’t done a very good job. Every time this happens people complain about it, but you shouldn’t consider the golden parachute as a reward for being the CEO. It’s an incentive to stop being the CEO: if the CEO knows he’ll be paid $100 million for quitting in a merger, that might overcome his natural aversion to doing the merger.

Here, the golden parachutes worked perfectly. Agrawal and his management team clearly didn’t like Musk or wanted him to buy the company, and they clearly knew he would fire them, but they negotiated a deal with him anyway, because it was in the best interests of shareholders. They place shareholder value above their own careers and interests, perhaps because they are noble people who love shareholder value, but perhaps also because they stood up for huge sacks of money as a reward for this sacrifice.

And then he tried to get out of the case! Elon Musk, a semi-hostile acquirer who clearly had a grudge against Agrawal et al., was like, “Okay, too bad, I won’t buy Twitter.” They could have let him walk! They could have said “okay, he doesn’t want to buy Twitter and we don’t want to work for him briefly before he fires us, so that worked out really well for us, goodbye Elon”. But instead they took legal action to force him into the deal and faced a lot of stress and abuse online, even though Musk didn’t want to buy Twitter and they didn’t. didn’t want him to buy Twitter. But they did it anyway, because their shareholders wanted Musk to buy Twitter, and they were working on behalf of the shareholders. And because they were incentivized by their severance packages to do so.

Let’s just say Musk is absolutely right that “Twitter was mismanaged and without his offer, the company’s stock value would have plummeted.” That’s why golden parachutes are here! If Twitter was well run and worth more than his bid, he wouldn’t have bought it and they wouldn’t need severance! And anyone can mismanage a business and cause the stock price to drop, then not sell the business to continue earning a salary. Agrawal et al., suppose, mismanaged Twitter and drove the stock price down, but because they were good stewards of shareholder value, they still managed to get a ton of money for shareholders. They should be rewarded for that!

The fundamental problem with Musk’s efforts to walk away from his deal to buy Twitter — beyond the transparent nonsense of his actual arguments — was that if he could walk away from that deal, no merger deal would be binding. ; every buyer could change their mind and go to court and say “meh, contracts, they don’t matter.” It didn’t work for him; the system held.

The fundamental problem with Musk’s efforts to walk away from those exit agreements — beyond the lack of real arguments — is that while he can stiffen those leaders, no golden parachute is binding. The point of a golden parachute is that a CEO with a golden parachute will sell his company to a buyer he doesn’t like, if that’s what’s best for the shareholders. If the buyer can stiff the CEO on the parachute payments because they don’t like each other, then no buyer will ever pay severance and no CEO will ever trust them.