The Real Story of How Dick Costolo Kicked Investors Off Twitter's Board
The dribs and drabs of news about the shakeup of Twitter's board last year has produced a confusing picture. The message I was hearing from sources while I was out on maternity leave amounted to: "Nothing to see here. Some people just decided to leave. That happens all the time. What's the big deal?"
I'm sorry, on what planet does an entire company's investors voluntarily give up board seats on a hot, $11 billion company that's finally getting its act together? I'm hard pressed to think of one example where that's happened in the 15-years I've been a reporter in the Valley.
Here's what happened, as we've confirmed from two very well-placed sources: The board was one of the many dysfunctional things Dick Costolo inherited when he took over as the company's third CEO. Meetings were crammed with board member entourages and observers and that was leading to a substantial problem: Board room leaks. One source tells us that some attendees were openly texting from the meetings.
Costolo lost it and made a unilateral decision to kick all of the investors off the board-- something I've heard of CEOs wanting to do before, but never actually pulling off.
Why on earth would they agree? He had leverage: Some of the investors were counting on selling their shares and needed his permission to do it in the next employee liquidity round. He said he'd only give permission if they all agreed. One-by-one they all caved.
Bijan Sabet, Fred Wilson, the Kleiner observer seats, IVP's seats, even Benchmark Capital's seats: All gone. Benchmark partner Peter Fenton kept a seat, but it's not a Benchmark seat. It's an independent board member seat that is up for election every year. The remaining board members include Costolo, Twitter's first two CEOs Jack Dorsey and Evan Williams, Valley veteran and CEO whisperer Peter Currie, FlipBoard's Mike McCue and former DoubleClick CEO David Rosenblatt.
Investors negotiate board seats at the time of funding for a reason: It's a good way for them to keep an eye on the company and have an important say in decisions around key hires and liquidity. CEOs aren't just going to give them away later.
I've seen companies push back on giving out board seats to begin with, particularly in the dot-com bust aftermath. Mark Zuckerberg famously controlled three of five board seats of Facebook the first few years of the company's existence. And I've seen investors rotate off a board if a company is struggling. But I've never heard of a CEO kicking all his investors off just as the company was starting to thrive and getting away with it.
It highlights two things. The first is all the unseen ripple effects of the rise of secondary markets and pre-IPO liquidity. When a CEO controls it well, he has a powerful carrot to use with employees and investors to get his way. The second is that Costolo-- who's often dismissed as more of a nice guy COO-type than a visionary CEO-- has some serious, serious cojones.
Separately, I've heard over the last month that a lot of internal turmoil in the company's conflicted and passive-aggressive culture has been brought under control by Costolo's no-nonsense management style.
Costolo is here to stay and with the board move, he's signaled this is his company, and he's in charge. Twitter may well start to finally live up to its huge potential this year as a result.
It seems the revolving door of the Twitter CEO has finally stopped.