"G" of ESG could not be ignored: Twitter's poison pill defence on Elon Musk's response

If you follow the markets, you'll find that corporate governance issues make headlines on a regular basis and here it is another strong example of why G pillar matters in ESG. -Twitter’s Poison pill and ELON Musk

Me being an ESG practitioner from quite some time have often felt that G is the least talked pillar across E,S & G.?When it comes to ESG, all attention is on the ‘E’ with COP26 on the horizon and post COVID we must have read a lot of articles highlighting– the rise of ‘S’ However, for business, what must not be omitted from general discourse is the ‘G’, governance.?

In the past there have been several examples which has shown direct impact of G on share price/valuation of companies, to name few:

• Volkswagen negative consequences of poor governance in 2015, on cheat emissions tests. Volkswagen had to pay billions in criminal and civil penalties related to the scandal
• Executive compensation issue of HSBC of 2012 which led to huge reputational and financial implications and was slapped hefty fines

Recently Elon Musk is again in news for trying to take control of Twitter Inc., In response to it Twitter has adopted a defensive strategy. Before getting into details of what has happened it is necessary to understand how strong governance can help in mitigating such risk. If a company already has set guidance against shareholders rights and shareholder rights plan these situations could be avoided.

We at Sustainable sapiens studied Twitter’s proxy report, articles of incorporation, bylaws and other governance related document. In our research we found that Twitter has revised its shareholder right plan and adopted Poison pill defence mechanism to avoid hostile takeover which was not very clearly defined in previous documents.

Now what is Poison pill and how it could help Twitter is maintaining its ownership structure?

Poison pill was first introduced in 1980. It refers to a defence strategy used by the?target firm?to prevent or discourage any potential?hostile takeover. In most of the poison pill strategies companies issue new stock and sell it at a discount (or even give it away) to all shareholders except for the person pursuing a takeover.?Special rights could also be given to board of directors. In case of Twitter, if one person buys 15% of the stock without the board’s approval—all other shareholders will be afforded the opportunity to buy up more shares. Musk currently owns 9.2%.

On April 18, Twitter filed an?8-K form?on SEC detailing the plan: Shareholders will be able to pay $210 for one-thousandth of a share of Twitter preferred stock stock for each share of Twitter common stock they hold. Each share of preferred stock would confer voting rights, and would immediately be worth double the purchase price, or $420.

Will it stop Elon Musk is still questionable but definitely a lesson to be learnt that G is an equally important pillar for ESG analysis and company’s long term growth.?#poisonpills?#twitter?#elonmusk?#GofESG?#governance