What Block’s ‘Terrible Business Decision’ Means

We have lots of news today, including Disney’s change of heart on Hulu (see below) and Google’s blizzard of new product announcements at its annual developer conference. For more on Google, see here. But arguably the most important though little-covered news story this week was a Delaware court’s decision on Tuesday to reject a shareholder lawsuit over Block’s boneheaded purchase of musical streaming service Tidal. While finding that the roughly $300 million purchase was a “terrible business decision,” the judge affirmed the right of independent boards to do stupid things as long as they’re acting in “good faith,” whatever that means. That’s not good news for any investor who wants company boards to push back more strongly against tech founders doing crazy things (think Adam Neumann).

The ruling is worth a read, but here’s the short version. A group of independent directors on the board of Block, the Jack Dorsey–controlled owner of Square and CashApp, unanimously approved the Tidal purchase Dorsey proposed even though senior company executives opposed it and there was every reason not to do it. The judge rejected a Block shareholder lawsuit that argued the board’s approval was a breach of its fiduciary duty, because the shareholder hadn’t proved the directors acted in “bad faith.” This isn’t exactly progress for corporate governance. (Incidentally, the directors in this case included Sequoia Capital’s “senior steward,” Roelof Botha, whom we profiled last Friday).