The chaos around our favorite online platform –Twitter– demonstrates an important (and under-appreciated) set of destructive dynamics ultimately set in motion by corporate law. This in turn provides an object lesson for some current debates on the legal left. To generalize a bit, I’ve found that discussion around Twitter/Musk chaos has tended toward three dimensions, all of which have real salience, and reside at different levels of abstraction: 1) the overall/underlying profit-seeking and greed consciousness of our current age; 2) the personal agency of Musk, an arrogant, amoral chaos orc who seems to be in over his head; and 3) technical details of corporate law (that largely take its basic direction and purpose for granted). But there is another, somewhat distinct dimension–about the overall direction of the law, as it shapes and constrains various actors’ agency–that I’ll try to elaborate briefly here.
Currently, most people are aware that Twitter has “liquidity problems” and that these problems are causing Musk to erratically enact, abort, and move between various cost-cutting (mass layoffs) and monetization strategies. Some of this is truly hilarious; some is serious in terms of its effects upon the public as well as employees/former employees, and may even call into question the ongoing viability of a platform with real public dimensions. And while the specific decisions, and in a sense the entire situation, are the result of Musk’s personal agency (which, as a separate point, has been given far too broad a scope by our system), the liquidity problems themselves are ultimately also the product of particular legal rules.
Most people are also aware, though more inchoately, that these liquidity problems are not the ongoing or natural consequence of Twitter’s business model, the current market environment, or external technological change. Rather, they are the direct consequence of the debt service obligations incurred by Musk’s acquisition of the company. But this itself can be un-intuitive to the uninitiated. How can one, even conditionally, incur debt on behalf of a company one doesn’t own, in order to effect one’s personal control over that company in the future? While analogous in some ways to using real or other property as collateral for one’s purchase of that property, the difference is that a company is not an inert thing; it is, ultimately, a social coordination network of people and ideas, as well as some physical assets. (This is especially true for a company like Twitter, isn’t it?) Anyway, the destructive consequences of allowing this practice to run amok have been very well-documented. To note, in some cases, such an arrangement actually can bring in financial investment that does lead to real investment–in research and product development, production, and hiring, for example. But too often, it leads to precisely the opposite: disinvestment in production in order to service financial extraction.
One mechanism of that financial extraction is of course the debt service itself. Equally importantly, though, another mechanism runs through the often-inflated stock prices that form the basis for corporate acquisitions or takeovers, and which result ultimately from an oppositional (to some degree or another) dynamic between the board of directors of the acquired company and the acquirer. So, one mechanism of the destructive, extractive dynamic benefits the target company’s shareholders. Now, superficial commentary often tends to focus on the takeover artists or the ‘vulture capitalists’ while glossing over this part a bit. But while the target’s shareholders may mostly resolve (in the case of a public company) into a mass of ordinary nice people who haven’t brought this situation about, that doesn’t mean the dynamic is a good or healthy or beneficial in economic terms–either in the short run or the long run. (Also, plenty of already very-to-extremely rich people are further enriched in this process, both shareholders and various intermediaries.)
The tricky part, though, is that share price is an essential element of a company’s available weapons to fight off an acquisition that it actually thinks will be destructive to the company if consummated. So a target board might conceivably up the ante on price, while wanting or at least partially wanting to preserve the status quo of the company culture–which might include not monetizing everything under the sun; keeping a stable workforce; and (related to the first two) fulfilling what it sees as its public purposes or duties. While I (and others) would argue there is in fact space even under current law to bargain for the second set of things directly, it is not really controversial that current corporate law dynamics (sometimes collected under the label of “the shareholder primacy norm”) largely push boards to emphasize share price. Though it did not occur in the context of question over control over a public company (as Twitter was until Musk took it over), a court has at least once stepped in to rein in managers who wanted to maintain a lightly-monetized, public-oriented platform (in the face of efforts by an expansion- and monetization-oriented investor looking to expand its role).
Anyway, the point is that this overall legal backdrop strongly shapes the dynamics we see at play in the Musk/Twitter drama–but also probably in public companies generally, which may not currently be facing an acquisition bid, but could conceivably face one at any time … and might especially invite one if they act too Craigslist-y (i.e., if they ‘leave [too much] money on the table’, according to some analyst somewhere).
The bigger lesson here, in my opinion, is that the more abstractly we discuss the economy, the more natural it is to fall into very general explanations like “capitalism” (which I am not saying is not explanatory at some level … though personally, I am most sympathetic to versions of that claim that actually have to do with some kind of personal and intersubjective [moral] consciousness, as opposed to appeals to “structure” and “logic” that are posited to be ultimately independent of the market rules–law–we have allowed to grow up in particular ways). We can see here that some of the dynamics that we might be inclined to attribute to “capitalism” generally are actually traceable to law.
It is true that corporate managers who take their non-maximizing proclivities to the degree of Jim and Craig are probably somewhat exceptional. Nevertheless, their situation helps to dramatize a point that is always at work more subtly, pushing managers in the direction of more monetization and more financial extraction. In this instance and others, we could have a different set of rules, and it seems like a stretch to assume that everything would turn out close to the same if we did.
Of course, you could now say that these rules are the way they are precisely because they serve financial extraction, etc. I certainly don’t think the rules we have just fell from the sky. Interested groups push for certain rules–and interested groups already invested with a greater share of coordination rights or scope of agency, under the working of prior rules, are likely to see their desires effectuated more often. That happened with the origins of our corporate law, by the way.
Maybe the debates we seem to be mired in, on parts of the legal left today, about whether legal reform projects are worthwhile, just resolve into how much play we think there is in the joints here. While I think prior allocations of coordination rights and agency (going back to what? an original allocation of rights, or an original power dynamic existing independently of law? at this level, does it matter to our current practical debates?) exert a powerful effect on current political and legal contestation, I don’t think they are determinative. (I wonder if any of us really do, when pushed?) See this excellent recent essay by Noah Zatz in the LPE Blog “rais[ing] uncomfortable questions about LPE analysis of democracy, law, and courts,” where that analysis falls into “law-is-just-politics views.” We can say very similar things about ‘law-is-just-economics views’. Pushing whatever play there is in the joints in a positive, egalitarian, democratic direction will require as many people as possible exercising the agency they currently have–whether that is by organizing, lawyering, or pushing super-agents (courts and legislators and agencies and even business actors) in the right directions. It seems to me that the role of legal academics and social scientists interested in this is to help make room for “the transracial working-class majority” to exercise more of its agency, by clearing away paralyzing ideas of economic determinism as well as by pushing super-agents in the direction of constructive reform. We intervene in the cycle where we are best positioned to do so, but it would be a real shame to effectively abdicate the critical intervention point that legal reform represents.
Sanjukta Paul 