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Elon Musk won't have a board to watch him when he takes Twitter private – does that matter?

It appears Twitter's board of directors finally warmed to Elon Musk' hostile bid and agreed to a sale – but not before it took a severe beating from the Tesla and SpaceX billionaire, Twitter founder Jack Dorsey and other prominent users on their own social network.

Musk, who on April 25, 2022, sealed a deal to buy Twitter for US$44 billion, criticized board members for owning almost no shares of the company they oversee. Dorsey, who will step down from his seat on Twitter's board at the end of his term in May 2022, called it the “dysfunction of the company.” Conservative politicians derided the board as “scared” of free speech.

As experts on corporate governance, we believe this feud raises two important corporate governance questions: What purpose does a board of directors serve? And does it matter if a member owns company stock or not?

‘A bad board will kill'

“Good boards don't create good companies, but a bad board will kill a company every time.”

Venture capitalist Fred Destin wrote that in 2018, citing what he called an “old Silicon Valley proverb.” The quote has been making the rounds on Twitter recently in light of Musk's hostile bid. It even seemed to get a nod from Dorsey himself when he replied to a tweet containing the quote, “big facts.”

These tweets and the general conversation that has emerged have important implications for understanding boards and their role in shepherding a company.

Broadly speaking, a board's most important roles include hiring, paying and monitoring the chief executive officer.

Academic research suggests that board members at large companies – who typically receive generous compensation packages – may be limited in their ability to perform these tasks effectively. In our work, we found that boards often find it impossible to conduct adequate monitoring and rein in wayward CEOs because there's just so much information for modern boards to process with their limited time. And the social dynamics involved in the board also make it difficult for directors to speak up and oppose other directors.

In a separate study involving face-to-face interviews with directors, we were consistently told that directors take their board service seriously and operate with their companies' best interests in mind. But they do so with an eye toward collaborating with the CEO and the rest of the executive team rather than serving as impartial observers, as their “independent” status suggests they should.

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