Stakeholder Amnesia in M&A Deals

Public companies have increasingly embraced environmental, social and governance (ESG) factors in the course of everyday business. However, these ESG considerations are virtually non-existent in merger and acquisition (M&A) transactions. Elon Musk’s recent acquisition of Twitter provides an illustration of this stark disconnect. Prior to the transaction, Twitter pursued numerous ESG goals. In contrast, Musk had taken a skeptical, if not hostile, stance toward ESG. When negotiating the sale, the Twitter board succumbed to “ESG amnesia”—overlooking its ESG commitments in favor of the high-premium all-cash offer from Musk. Twitter is not alone: ESG amnesia is a widespread phenomenon in M&A.

In this Article, we argue that corporate boards have the legal and practical ability to consider ESG in their dealmaking. We examine three of the most significant barriers that might prevent a corporate board from incorporating ESG objectives into transactions—fiduciary duties, negotiation leverage, and contractual feasibility—and demonstrate that, outside of the Revlon context, none of these barriers offers a compelling justification for ESG amnesia. Rather, boards that consider ESG objectives in their dealmaking can be acting consistently with their fiduciary duties. Moreover, boards often have the negotiation leverage and capability to incorporate ESG protections into their contractual agreements. We conclude that ESG considerations can pervade all aspects of managerial decision-making, including decisions about the sale of the company. In doing so, we also provide specific recommendations for corporate actors in M&A deals.