Close Silicon Valley Ties Pose Hurdles for Twitter Bidders
Sep 27, 2016 | Bloomberg
Close ties between directors and executives in media and technology may present conflicts of interest for companies weighing offers for Twitter Inc.
Walt Disney Co., which is said to be working with a financial adviser to evaluate a possible bid for the social media company, would have to work around at least two. Among its directors are Twitter’s co-founder and Chief Executive Officer Jack Dorsey and Sheryl Sandberg, chief operating officer at Facebook Inc., a Twitter competitor.
Such connections are increasingly common with the convergence of the media and tech worlds -- and help drive M&A activity. Yet they also require close attention by boards to avoid a breach of fiduciary duties, according to Robert J. Jackson, a professor at Columbia Law School.
“Dorsey would have to recuse himself from all discussions since he’s in possession of confidential information of both” Twitter and Disney, Jackson said in a telephone interview. “Making sure you follow the right process once you identify the opportunity is critical if you don’t want to end up on the wrong side of a shareholder lawsuit.”
Spokesmen for San Francisco-based Twitter and Disney, based in Burbank, California, didn’t immediately respond to e-mails sent outside of regular business hours.
A board weighing deals typically form a special committee to evaluate opportunities. The group hires its own legal counsel and financial advisers to ensure independence. Dorsey shouldn’t serve on any such committee at either company, Jackson said. Nor should Sandberg, whose fiduciary duty to Facebook shareholders would make her “badly conflicted” in the event she’s allowed to obtain confidential information on Twitter, he said.
Decisions about deals made solely by independent board members “greatly reduce” the risk of fallout from shareholder lawsuits, which have become a part of mergers, according to Robert Daines, a professor at the Rock Center on Corporate Governance at Stanford University.
Speculation that Twitter will be sold has gathered steam in recent months, including last week’s news of Salesforce.com Inc.’s interest, given the social-media company’s slumping stock and difficulties in attracting new users and advertising revenue.
Like Disney, Salesforce might also need to navigate a conflict-of-interest issue. Susan Wojcicki, CEO of Alphabet Inc.’s YouTube, sits on the Salesforce board. Alphabet’s division Google has often been rumored as a potential buyer of Twitter. Neither of the three companies have confirmed that they’re working on bids.
A representative of Salesforce declined to comment. Spokeswomen at Alphabet didn’t immediately respond to e-mails seeking comment.
“I am not surprised by these interconnections -- media and technology have been converging for some time,” Paul Sweeney, an analyst with Bloomberg Intelligence, said in an e-mail. “Disney has been adding tech savvy directors to their board in an effort to be well-informed on how technology may impact their business.”
Relationships between executives who serve on boards can help companies “grow businesses in a mutually advantageous way,” but merit close scrutiny by compliance officers and legal advisers, said Peter Metzger, vice chairman of DHR International Inc., an executive-recruiting firm.
In one notable instance of a board conflict, Google CEO Eric Schmidt resigned as an Apple Inc. director in 2009, amid an intensifying rivalry between the two companies and concern that sharing directors may hurt competition. Apple’s iPhone was increasingly coming into conflict with Google, which helped develop phone operating system Android and apps that competed with Apple’s own software.
“The corporate secretary has to keep very careful minutes to ensure anytime conversation gets into a dangerous area, it’s stopped or there’s legal counsel present,” Metzger said.