Elon Musk Twitter Board Of Directors Ownership

Information technology appears Twitter’due south board of directors finally warmed to Elon Musk’s hostile bid and agreed to a sale – only not before it took a severe chirapsia from the Tesla and SpaceX billionaire, Twitter founder Jack Dorsey and other prominent users on their ain social network.

Musk, who on April 25, 2022, sealed a deal to buy Twitter for US$44 billion, criticized board members for owning almost no shares of the company they oversee. Dorsey, who will pace down from his seat on Twitter’south lath at the finish of his term in May 2022, chosen it the “dysfunction of the company.” Bourgeois politicians derided the board as “scared” of free voice communication.

Every bit experts on corporate governance, we believe this feud raises two important corporate governance questions: What purpose does a board of directors serve? And does it matter if a member owns company stock or non?

‘A bad board will impale’

“Skillful boards don’t create good companies, but a bad board will kill a company every time.”

Venture backer Fred Destin wrote that in 2022, citing what he called an “old Silicon Valley proverb.” The quote has been making the rounds on Twitter recently in light of Musk’south hostile bid. It fifty-fifty seemed to get a nod from Dorsey himself when he replied to a tweet containing the quote, “big facts.”

Twitter founder Jack Dorsey called the board the ‘dysfunction of the visitor.’
Michael Reynolds/Pool Photo via AP

These tweets and the general conversation that has emerged have important implications for understanding boards and their role in shepherding a visitor.

Broadly speaking, a board’s most important roles include hiring, paying and monitoring the chief executive officer.

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Academic inquiry suggests that board members at large companies – who typically receive generous compensation packages – may be limited in their ability to perform these tasks effectively. In our work, we constitute that boards often find it impossible to conduct acceptable monitoring and rein in wayward CEOs because at that place’due south just and then much information for modern boards to process with their express time. And the social dynamics involved in the board too brand information technology difficult for directors to speak upward and oppose other directors.

In a carve up study involving face-to-face interviews with directors, we were consistently told that directors take their lath service seriously and operate with their companies’ best interests in mind. But they practice so with an eye toward collaborating with the CEO and the residue of the executive team rather than serving as impartial observers, as their “independent” status suggests they should.

While our work didn’t focus on this, if the lath and the CEO fundamentally disagree about the management of visitor – which was often the case between Dorsey and the Twitter lath – it would certainly exist problematic and could lead to less than optimal decisions being made.

In other words, a board that isn’t functioning finer tin can definitely destroy a company’south value. And some reporting suggests that’s what happened to Twitter, whose shares were trading at less than one-half their 2021 peak before Musk disclosed he had clustered a 9% buying stake.

A raider’due south complaining

That brings u.s. to the next question: Does not owning a significant stake in a visitor you oversee make it more likely that you lot’ll run information technology into the ground, as Musk seemed to suggest?

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A few days after making his takeover offer on Apr 14, the billionaire, responding to a tweet showing how few shares Twitter board members own, posted that its directors’ “economic interests are simply non aligned with shareholders.”

Musk’s arguments harked back to takeover bids from the 1980s in which activist investors – or “corporate raiders” – would contend that executives’ interests did non align with those of shareholders. As “Wall Street’s” Gordon Gekko famously railed against executives of a business he wanted to accept over, “Today, management has no stake in the visitor!”

Musk’south words echo Gekko’south “greed is good” speech, except in regard to independent directors, who comprise the vast bulk of corporate boards. The unproblematic definition of an independent or outside director is that they don’t hold an executive office in running the company, such as primary executive officer or chief fiscal officer.

‘Greed is good’

In reality, Twitter’south board share ownership is very similar to other companies.

Excluding Dorsey, independent Twitter directors held a median buying pale of 0.003%. For comparing, we looked at equity ownership of independent directors of companies listed in the S&P 500 stock index in 2021. Nosotros found the median stake was less than 0.01%, and all but a handful of directors held less than one% of the company’s stock. Median ownership at Musk’s company Tesla is similarly minuscule, at 0.23%.

Whether this makes a divergence to a company’s success is difficult to assess because inquiry on the topic is rather sparse, in big office because board members have so little disinterestedness.

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Mixed research

Academic researchers on effective corporate governance in the 1970s argued that outside directors should avoid owning many shares in the companies they oversee to maintain objectivity. More recently, direction scholars take suggested that college stakes could provide a way to motivate directors to monitor management and make decisions more in line with shareholder interests.

A screenshot of a webpage depicting a round mug shot of a white guy in sunglasses on a wide picture of planets and the words Elon Musk on his twitter page

Elon Musk, who has well-nigh 84 million Twitter followers, struck a bargain to buy the social media giant.
AP Photo/Eric Risberg

Some researchers have found that boards with larger buying stakes can improve a company’s operational functioning and better align outside directors with the interests of shareholders.

But other work that examined multiple studies shows the bear upon of director stock ownership is mixed at best, with some studies suggesting higher stakes potentially pb to negative outcomes, such every bit excessive executive and director compensation.

Since the passage of the Sarbanes–Oxley Act of 2002 subsequently massive bookkeeping scandals at Enron, WorldCom and elsewhere, corporate governance issues such as board oversight accept become increasingly important. This led to a number of changes intended to marshal the interests of managers and those of shareholders, including a focus on board independence and adjusting executive bounty.

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Although our research shows boards are express in their ability to monitor direction, they’re still better than nada.

In his letter to shareholders announcing his bid, Musk vowed to “unlock” Twitter’s potential as a private visitor, without a public board. We may presently meet if he’s right.

Elon Musk Twitter Board Of Directors Ownership

Source: https://theconversation.com/elon-musk-wont-have-a-board-to-watch-him-when-he-takes-twitter-private-does-that-matter-181773