Elon Musk, the CEO of Tesla and self-described “free-speech absolutist,” is now Twitter’s largest shareholder. The day after he announced his purchase, he was appointed to Twitter’s board of directors.
After these announcements, political conservatives flooded their Twitter feeds with calls for the reinstatement of former President Donald Trump’s Twitter account. Meanwhile, some Twitter employees lamented that Musk’s views on free speech could weaken their effort to make Twitter a place of healthy, civilized discourse.
Elon Musk may influence Twitter’s policies. But even as its largest shareholder and board member, can he really change them?
Twitter and Musk
Let’s start by taking a look at Twitter. Twitter is a publicly-traded company with one class of stock. The top ten holders of Twitter stock own a combined percentage of 46%. There are 12 board members. The CEO is Parag Agrawal. Twitter’s founder is Jack Dorsey. Both sit on the board.
Now let’s look at Elon Musk. Musk currently holds 9.1% of Twitter’s shares. He too is a board member. When he disclosed his shares, Musk declared himself a “passive investor” in the company. According to the Securities and Exchange Commission (SEC), the term “passive investor” refers to stockholders owning more than 5% of a company who must certify that:
- They didn’t buy the shares in an attempt to change or control the company
- They didn’t buy the shares as part of a deal to change or influence the control of the company
Passive investors don’t have to follow a lot of the requirements or submit the paperwork that active investors do.
Musk Doesn’t Seem Fond of Twitter’s Speech Policy
Notwithstanding his SEC filings, Musk certainly isn’t acting like a passive investor. Indeed, his tweets suggest that he is, in fact, interested in influencing, if not changing, the company’s policies.
The SEC will look at whether Musk follows the law, but assuming he has, the question arises: Does Musk, as a major Twitter shareholder and board member, have the power to change Twitter policy?
Board of Directors
There are two ways of looking at the question. The first is to focus on Musk’s legal power. A company manages its business under the direction of its board of directors. Although the company’s officers manage its day-to-day affairs, directors make major decisions, including:
- Appointing officers and setting their compensation
- Setting the policies that officers implement, including those relating to products, services, wages, and labor relations
- Issuing new shares
- Declaring dividends
- Making other financial and capital changes
- Proposing extraordinary matters, such as mergers, acquisitions, or dissolutions
Limits on Board Powers
However, directors do not have unlimited powers. Directors cannot act outside the company’s articles of incorporation. They cannot break the law. And some actions first require shareholder approval, such as amending the company’s articles or merging with another company.
The board acts by vote. Generally, board members have equal voting rights. In other words, it’s one person, one vote. Any action on the part of Twitter’s board requires a majority vote.
So where does that leave Musk? He’s one of twelve. As a board member, he can vote and serve on committees. But that’s the extent of his power as one director.
And while Musk owns a lot of Twitter shares, his power as a shareholder is also limited. Shareholders have the power to own, buy, and sell shares. They have the right to inspect company documents. They also have the power to vote at shareholder’s meetings based on the number of shares they own. But that’s it. While Musk holds a lot of Twitter stock, he really cannot change company policy on his own without owning a majority of the stock.
What About Musk’s 90 Million Followers?
Which gets us to the second question. Musk may have limited legal power as a director and shareholder, but his real power lies in the fact that he has literally 90 million Twitter followers. He has tremendous reach and is active on his account. His followers are particularly loyal.
Musk’s tweets move markets. So much so that he is bound by a 2018 consent decree to have lawyers review certain tweets before he sends them (Musk has asked a judge to terminate the decree).
The scope of his audience, not his corporate powers, gives Musk the ability to influence, maybe change, Twitter policy. If he does believe that Twitter has been suppressing free speech, we may end up seeing Trump back on the platform.
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