It's a big bar.
From Matt Stoller's BIG substack, June 15:
The FTC blocked a genomics technology merger, leading to the firing of a CEO. The deal involved Bill Gates, Barack Obama, China and Jeff Bezos. And corporate America is in shock.
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One of the most famous lines from progressive muckraker Upton Sinclair has to do with incentives. “It is difficult to get a man to understand something,” he said, “when his salary depends on his not understanding it.” Typically, this line is used to promote the idea that corruption makes it impossible to get good ideas implemented. But there’s a more optimistic flip-side. If you can create a scenario where the incentives are to operate a company prudently, then attitudes at the top will shift in a positive direction.
With that in mind, it’s worth taking a look at one of the biggest recent stories in corporate America that went largely unnoticed by the political world. Last Sunday, Francis deSouza resigned from his position as the CEO of Illumina, which is one of the most important medical technology firms in the world. Since 2019, deSouza had pursued a string of failed acquisitions, and ultimately his shareholders revolted. His most recent was an attempt to buy cancer test producer Grail, which was ruled unlawful by both European antitrust enforcers and the Federal Trade Commission’s Lina Khan.
You may not have heard of Illumina, and you probably haven’t heard of deSouza. But deSouza is now the second CEO to lose his job due to Biden antitrust enforcers, after Penguin Random House CEO Markus Dohle resigned last year in the wake of a failed merger with Simon & Schuster. In C Suites, and within the antitrust bar, deSouza, and Dohle, are now cautionary tales of empire building gone wrong.
More than any other possible penalty, the prospect for CEOs that they could lose their job is going to change corporate behavior. Here’s the front page story in the Wall Street Journal on deSouza, noting that behavior across corporate America is changing.*****
And this brings me to Microsoft, which is pursuing a somewhat irrational acquisition of game giant Activision, a bank shot attempt to monopolize gaming. The merger is on the rocks, because Great Britain ruled that it’s illegal, and the combination is also being challenged by the FTC. And yet Microsoft won’t relent. A few weeks ago, in an essay called Corporate Temper Tantrums, I noted that there’s an open question about whether large corporations or democratic governments set the rules for our societies. Microsoft is the key example. Its threat to combine operations with Activision, despite the British government calling the transaction illegal, looks completely crazy, akin to civil disobedience by a Fortune 500 firm. There’s no reason for it, since the firm has a great path ahead embedding AI in its products. Gaming is a sideshow. Why would the firm destroy its political reputation with this scorched earth campaign?The answer, I believe, runs straight through the resignation of Illumina’s CEO. When a merger gets announced, someone in the corporation is responsible for the deal, like the general manager of a football team’s choice to bet the future of the team on a high-profile quarterback. If that quarterback turns out not to be good, the general manager who picked him is likely to be fired or lose credibility. So often, even if the quarterback struggles, he will still get playing time, because the football executive who made the call to draft that player needs him to succeed. Similarly, with a merger, the executive who pulled the trigger needs to close the deal, even if that deal stops making sense to the corporation. In other words, it may not be in Microsoft’s interest to be this aggressive, but corporations are run by people. And in this case, it’s possible that a specific person - Microsoft President Brad Smith - might have his job on the line. That is, if Smith doesn’t manage to break the democratic state and close the Activision deal, he will lose power within Microsoft.
With that in mind, let’s take a look at Illumina, because it illustrates the stakeholders involved in arranging power within corporate America (and as we’ll see, China)....
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