AOL Time Warner and the False God of Shareholder Primacy

The blockbuster merger between AOL and Time Warner, in the twilight of the dot-com boom, is now characterized as perhaps the worst business combination ever. Shareholders lost over $200 billion in value; the deal's architects were forced out in disgrace; and the surviving executives jettisoned the AOL name as if to wipe clean our collective memory. Despite the merger's seismic effects, relatively little has been written about its potential legal ramifications. In this article, I suggest that the collapse of AOL Time Warner is a cautionary tale for those who would advocate greater adherence to the norm of shareholder primacy. Before the merger, AOL and Time Warner represented opposite poles on the shareholder primacy scale. AOL's leadership took shareholder primacy to heart; in fact, the goal of maximizing share price took on an almost religious fervor. At Time Warner, by contrast, there was a long history of sublimating shareholder concerns to protect the company, its culture, and its executive cadre. The failure of the merger between these two opposites, ending in the ultimate ascendancy of Time Warner executives, is instructive. Those who advocate for a norm of shareholder wealth maximization must contend with the sins of such a normative structure, as AOL (circa 2000) amply manifested: overly generous stock option grants, a zealous focus on meeting Wall Street targets, a willingness to bend or even break accounting rules, and a resulting cavalcade of phony numbers and empty promises. These sins are what doomed the new company to failure. Although the Time Warner approach also has its pathologies, the AOL Time Warner debacle should force shareholder primacists to at least recognize the dangers that the primacy norm may engender, and may counsel for a more nuanced approach to corporate governance principles