Daniel J. Morrissey: Musk’s tender odder raises large issues of corporate responsibility
Elon Musk, the world’s richest man, has apparently succeeded in his attempt to acquire the social media platform Twitter and take it private. At first Musk announced that he owned 9% of the Company’s stock and seemed ready to join its board. Then he reversed course and in an all-or-nothing move said he wanted to buy it outright. At first observers questioned whether Musk could raise the cash to buy all Twitter’s stock for $54.20 per share, a purchase price of $44 billion for the firm – making it the biggest takeover of a public company in at least two decades.
But Twitter’s board has now announced it will recommend that its stockholders accept the eccentric billionaire’s offer which will be 38% over the company’s share price. Given the directors’ duty to maximize value for their stockholders they probably believed they could no longer keep resisting Musk with defensive tactics like poison pills which make target companies prohibitively expensive for hostile bidders.
Yet this high-profile acquisition of the social media firm has brought several important issues of corporate law front and center. These unwelcomed tender offers have been controversial since they emerged in the 1960s and ’70s as major factors in our economy – with concerns about whether they actually benefit society. While workers in the target companies often suffer layoffs and forced staff reductions, studies question whether they even accomplish what they claim to do: create wealth for their shareholders. Musk’s full ownership of Twitter, a platform employed by, among others, politicians and celebrities to communicate with 217 million daily users raises even more troubling issuers.
Musk’s opposition to Twitter policy
The founder of innovative companies, Tesla and Space-X, says he wants to shake up the social media site. Claiming to be a “free-speech absolutist” he wants to make Twitter the “de facto town square.” He says it should be more reluctant in taking down tweets or banning users.
Along those lines, conservatives and libertarians for the most part have seemed pleased with Musk’s move. For instance, the Wall Street Journal editorialized that Musk’s ownership would be an appropriate market approach to the control of “internet giants” rather than their government regulation. It also said it could break the culture of “progressive conformity” that seems to permeate them.
Twitter’s current management, however, has long sought to promote what it considers healthy discourse on its site. Among other justifications for that Twitter officials stated that is good for their business which of course derives its revenue from advertising. The platform has therefore not been allowing a variety of messages like violent threats, disinformation and sharing of private facts. It famously canceled President Trump’s use rights for comments he posted involving the Jan. 6, 2021, storming of the Capitol.
Many Twitter employees also expressed alarm that if Musk got control of the site he would change the company’s culture that prohibits abusive use of the platform for things like bullying. Given those concerns, Twitter’s board original reluctance to fend off Musk with a poison pill was well justified.
Trends promoting corporate social responsibility support that approach. For instance, the Business Roundtable has stated that corporate goals should include not just maximizing shareholder value but also embrace broader purposes like the protection of the environment and the benefits for society at large. Along those line, leading commentators like Thomas Piketty have emphasized that a corporation is a community that includes all its stakeholders, most importantly its workers who are indispensable to its success.
Musk’s ownership of Twitter could also cause problems for the company with the Securities and Exchange Commission, the federal agency that enforces the securities laws. In 2018 Musk consented to an injunction in an action brought by the SEC for misleading statements he allegedly made in Tesla’s stock. That settlement forbade him from denying those charges but he has recently called the SEC “bastards” and claimed that he committed no fraud in the Tesla matter. But Musk’s denials there could invite an action to hold him in contempt which might result in a court imposing severe sanctions on him.
The larger ramifications of Musk controlling Twitter
And even more all-encompassing concerns are at play here that involve the threats that uncontrolled social media firms pose to our cohesion. To that end a fine article by Jonathan Haidt in this month’s Atlantic describes their dark effects – how they have contributed to the fragmentation of our society and fomented distrust of our political system that is endangering our democracy.
Musk may have some legitimate concerns about Twitter’s current policies but he has refused to join its board and engage in a meaningful dialogue with its current management about them. His all-or-nothing attitude therefore amply gave Twitter’s board the legal and moral justification to block his hostile takeover. But now they are ready to give the company to Musk. One would hope that he follows the lead of Twitter’s current officials and continues to operate it in a socially responsible manner.
Daniel J. Morrissey is a professor and former dean at Gonzaga Law School.