The theory of executive severance goes something like this. The chief executive officer of a public company wants to run the company. Running the company pays well, it’s prestigious, it makes the CEO feel powerful and important. Also the CEO has probably devoted much of her career to the company, cares about it, and has strong views on how it should be run; she’d be sad if someone else took it over and ran it differently.

But the CEO does not, in the general case, own the company. The company does not belong to her. She works for the shareholders and has a fiduciary duty to do what is in their best interests. Sometimes, it is good for the shareholders — though bad for the CEO — to let someone else take over the company. In particular, sometimes public companies get hostile takeover bids: Somebody else offers to buy all the stock, for cash, at a premium to the current stock price. Sometimes this is bad for shareholders (the company is worth more in the long run, on its own, with current management, than the hostile bidder is willing to pay), but sometimes it is good: The hostile bidder might be willing to pay more for the company than it is worth under current management.

QOSHE - Twitter’s Executives Want Their Money - Matt Levine
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Twitter’s Executives Want Their Money

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05.03.2024

The theory of executive severance goes something like this. The chief executive officer of a public company wants to run the company. Running the company pays well, it’s prestigious, it makes the CEO feel powerful and important. Also the CEO has probably devoted much of her career to the company,........

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