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Comment by jspthrowaway2 | Hacker News Reader

If Systrom had an offer from Twitter on the table for an amount close to Facebook's offer, the state might view it as opportune to make Twitter and Facebook compete for the company, increasing the return for the investors (whose interest they are representing). If he ignored the Twitter offer but took the Facebook offer due to some personal gain, the state will have a problem with that if it wasn't disclosed to investors. The article discusses that near the end. The entire purchase was shaky -- remember the bit about Zuckerberg not talking to his board? -- so I suspect this isn't the last we'll hear of regulators poking around.

This regulation, which applies to all corporations everywhere, is there to protect investors from being swindled by executives. Without it, we'd have a very different corporate landscape. I don't know if it'd be better or worse, but it'd be very different.

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CEO has more responsibilities than just fiduciary duty, and as well it could easily be argued that a deal for $1 b in Facebook stock would be much better than $1.5 b in Twitter stock because of the general uncertainties of the market when dealing with private companies rather than companies that have undergone the fiscal requirements outlined for public companies. tl;dr: Facebook is stock is liquid, Twitter is not.

Unless there are some serious smoking guns here this case is going nowhere fast, Twitter doesn't really have standing in a fiduciary duty case as they are not a shareholder. Since the vast majority of shareholders have not complained it's a pretty easy argument that the vast majority of shareholders are happy with the performance of Instagram.

To nail Instagram they'll have to prove an anti-trust violation, and/or fraud/perjury. Given the underwriters for Facebook this is highly unlikely.

Exactly. If there is evidence that Systrom did not act in the best interest of shareholders for personal gain, that would be a severe violation of is fiduciary responsibilities, and that would be the under the jurisdiction of the State of California. That is probably the only reason the state would or should be involved.

If Systrom (and his cofounder) had a controlling interest in Instagram, are they even required to act in the best interests of the other shareholders? That's kind of the point of a controlling interest, no? To break ties when shareholders can't decide what's in the overall best interest of the company/shareholders?

IANAL, however what the majority of shares vote for is not the same as what is in the best interest of shareholders.

For instance, Zuckerberg controls Facebook. He can not decide to use all Facebook's cash as his own personal bonus. That is because it's a clear violation of his fiduciary responsibilities to minority shareholders.

Minority shareholders have a right not to be screwed, though it is VERY difficult to establish misconduct in private companies.

The CEO may not have a fiduciary duty towards minority shareholders, but the controlling shareholders do, in this case it sounds like they are one and the same.

If you have to break a tie, then you aren't a controlling shareholder. The idea behind controlling shareholding is that as long as you follow your duties to the minority you can install whoever you want (perhaps yourself) on the board, the board can then install whoever they want as CEO (perhaps yourself)

These things get really murky in private companies where the board, controlling interest, and CEO are shared by one individual.

"Breaking ties" was a poor choice of words.

It appears that Systrom and Mike Krieger (the other cofounder) together held a majority stake. Assuming the two of them decided to accept the Facebook deal, then they are indeed acting in the best interests of the majority of shareholders, no?

Why do things get murky when the CEO/board/controlling interest is the same? They started and built the company, and structured their funding deals such that they were able to keep majority control wrt voting rights. If they want to screw over the minority shareholders, I think that's pretty lame, but that should be their prerogative.

> If they want to screw over the minority shareholders, I think that's pretty lame, but that should be their prerogative.

The law doesn't really give you blanket approval to do that, though. There are a lot of legal ways to screw over minority shareholders, but lots that aren't. When you sell part of your company, you agree to be bound by certain responsibilities to those minority owners. If you don't like those aspects of contract law, and want to do whatever you want without obligations to other co-owners, you need to keep 100% ownership.

There are public policy reasons why a simple majority shouldn't be able to do whatever they like. It would be much harder to ever raise any investment if it were trivial for a majority to simply take everything for themselves and never pass anything back to the investors.

In such a scenario you end up with a boilerplate contract that any right-thinking investor will insist on, just to protect themselves in such a scenario.

Basically, company law has simply declared that those clauses are there by default.

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