international analysis and commentary

The Musk factor: Twitter’s stakeholder paradigm test

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By now, Elon Musk should be used to stepping down. The last time the world’s richest man was forced to step down was as Tesla’s Chair, this time he may be doing so voluntarily as Twitter’s CEO. Back in 2018, the US Securities and Exchange Commission (SEC) had reached a settlement with Elon Musk and Tesla concerning his Twitter statement regarding taking the company private, which explicitly forced him to renounce his role as the company’s Chair.

 

If Tesla was not headquartered in United States, where the cumulation of CEO and Chair roles is still legally possible, the regulator would not even have step in to get Musk to step down, thereby reducing his influence on the company by separating these roles. Indeed, in OECD countries, the percentage of jurisdictions requiring or encouraging the separation of the board chair and the CEO has doubled in recent years to 76% in 2021, compared to 36% in 2015.

At the time, Tesla was also required by SEC to appoint more independent directors and for these directors to specifically oversee Mr. Musk’s communications. Since then, much has changed: the American and European regulators have asked companies to make explicit to shareholders what social media channels will be used to communicate company developments, in part to prevent these types of situations from arising again.

It is hence rather ironic that since then Elon Musk had acquired Twitter – the means he used to make his Tesla announcement – and taken it private. As a result, neither SEC, nor any other regulator for that matter, has a say on what he does or not say on Twitter. This also prevents the SEC in getting involved in Twitter’s ailing governance, where apart from Musk, an eclectic combination of investors including a Saudi royalty and Blackrock are still at the table.

In the meantime, tables have indeed turned. It is now Elon Musk who controls what is and is not being said on Twitter – beyond his own statements – even if its controversial acquisition has cost him an entry in the Guinness Book of Record for the largest ever loss of personal fortune in history. He has cemented his control of Twitter by dissolving Twitter’s board of directors and assuming the role of the CEO – the so-called “Chief Twit Officer”.

The Twitter saga has all the elements of a corporate governance drama – a takeover resisted through a poison pill, Musk’s subsequent withdrawal of the offer, and finally, the removal of the board post-acquisition. To add to the fire, Musk already has a shaky governance track record beyond the aforementioned SEC settlement, not least of which is a pending shareholder lawsuit over his compensation package at Tesla.

And yet, something interesting happened since last December at Twitter as users have begun to openly criticize the Chief Twit Officer, leaving the platform in droves. In his consistently controversial manner, Elon Musk has created a Twitter poll asking users to vote on whether or not he should step down as the CEO. The results were probably as unexpected to him as the Brexit referendum outcomes were for then UK Prime Minister David Cameron. In retrospect, both seem to have been gambles larger than their orchestrators had imagined.

Close to 60% of the 17 million who voted on Musk’s question have pointed their fingers to the door. To that the Chief Twit Officer responded with “I will resign as CEO as soon as I find someone foolish enough to take the job.” Since then, no succession plan for Twitter has been announced. And yet, assuming Musk intends to honor his word, this poll was a first-of-a-kind adventure into the realm of stakeholder capitalism, where users were given the opportunity to participate in a key governance decision.

Credit to Musk should be given where it is due. This move could not have been further from prevailing governance practices at other Big Tech companies, controlled by founder-shareholders through multiple voting rights which preclude other shareholders, let alone other stakeholders, from having a say. For this reason, Elon Musk’s poll is both an unusual and significant, indicating that stakeholder democracy is possible even in private companies. Furthermore – if it is acted on – this move could pave the way to a more participatory governance processes in Big Tech, long overdue.