- Governance-focused investors should be asking whether Elon Musk is truly able to be CEO of three major companies.
- Could applying pressure to the banks who lend to Twitter be a legitimate way to express concerns about Twitter’s influence on society?
- Lobbying lawmakers on the legal basis on which social media platforms operate could prove fruitful in the current environment.
Pension funds that invest for teachers, police officers and state workers in New York, California, Florida, and Wisconsin may be looking at a very handsome payoff. As owners of Twitter stock, they are guaranteed $54.20 for every share they own after the dramatic purchase by Elon Musk was finally concluded in October.
But not everyone will be feeling so upbeat. Years of efforts by certain shareholders to engage Twitter’s board to work harder to improve the harmful social effects of its open media platform may all be for nought.
Policy is now entirely in the hands of Musk, who, within hours of purchasing the company for $44bn reportedly let go of up 5,500 contractors, with many of said jobs being focused on moderating potentially harmful content from reaching our timelines. He subsequently had to rehire many of them and claimed (on Twitter) they were “weak, lazy and unmotivated”. How’s that for good governance?
Although, to be fair, it wasn’t as if investors had a lot to show for themselves. Engaging with social technology companies like Facebook, Google and Twitter has been notoriously hard. As Capital Monitor reported in January this year, shareholders have found it difficult to ignore the human costs of unmoderated social media consumption, but have generally been stonewalled in attempting to reach those on the board who can meaningfully address these concerns.
Such intransigence spurred some asset owners to join forces and engage en masse. For example, in response to the 2019 Christchurch terrorist attacks, New Zealand’s government-owned investors, including NZ Super Fund, supported by 105 global investors representing approximately NZ$13.5trn ($8.2bn), engaged Facebook, Alphabet (Google’s parent company) and Twitter to strengthen controls to prevent the live streaming and dissemination of “objectionable” content.
Using various angles of attack, some success was achieved. Facebook decided to strengthen its audit and risk oversight committee charter to include a focus on the sharing of content that violates its policies, including a commitment not just to monitor and mitigate such abuse, but also to prevent it.
Unfortunately, the investor group achieved very little else of note and disbanded in October of last year; the sheer effort to maintain momentum versus the likelihood of any further material policy changes was presumably not worth the collective effort. (Given the subsequent privatisation of Twitter, that decision may have proved unexpectedly sound).
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The story of Twitter’s dramatically altered corporate structure is important because of its pseudo-status as a public utility. Much has been debated about whether the platform should be held to account in the same way a public institution is; with Musk now requesting individuals pay to maintain their blue tick status, this could ratchet up the political debate.
For now, it is firmly in the grasp of a single owner who seems to worry more about what the likes of author Stephen King thinks than the application of US labour law, investors who care deeply about Twitter’s influence on the world – or just good governance of big companies – must now find other avenues to apply pressure.
An immediate opportunity could be to engage through the proxy of Tesla stock. Before Musk officially closed the Twitter deal, some speculation arose that the platform’s problems had become Tesla’s, at least to some extent. Bloomberg broke the news that Musk had asked some of his Tesla engineers to meet with product leaders at the social media company’s headquarters and review its code. Is this a good use of Tesla engineers’ time?
Equally, owners of Tesla stock might want to ask themselves whether Musk will be able to dedicate enough time to ensure the electric car company is running effectively. Can you really be the CEO of one of the most important social media platforms, a car manufacturer and a space engineering company at the same time?
Pressure on the banks
In the same vein, investors may also need to look at the companies that still have real direct leverage over Twitter. The company may not be accountable to multiple shareholders, but it will still require means to finance itself. And this is where the influence of banks could play a very interesting role in Twitter’s future.
As part of the $44bn required to take the micro-blogging company private, Musk has taken out $12.5bn in loans. Given its volatile earnings record, analysts have already queried whether the $1bn in annual interest payments is sustainable.
Morgan Stanley, Bank of America, MUFG, Mizuho, Barclays, Société Générale and BNP Paribas are part of the consortium of banks to provide their balance sheet to Musk for the takeover, but a handful are reportedly struggling to offload some of their exposure to hedge funds and asset managers who are demanding fairly hefty discounts on the dollar.
If you have concerns over the governance of Twitter, engaging with the banks who lend to it could be one way to express dissatisfaction. Better still, collaborate with them to find ways to link better governance standards to bank credit.
Section 230
Outside of the financial arena, some governance-focused investors may wish to press US lawmakers about whether the country’s communications laws are fit for purpose. Specifically, Section 230 of the Communication Decency Act has come under increasing scrutiny of late as it generally provides immunity for website platforms with respect to third-party content.
According to Lawfare, recent developments in the US law courts point to legal concerns about the breadth of Section 230 having recently been tested by a brace of lawsuits concerning Google and Twitter and the allegations they provided material support for terrorist organisation Isis, by granting it access to communications infrastructure.
The article reads: “Both in the concluding passages and interspersed throughout the opinion, the majority voiced unanimous “concerns about the breadth of § 230.” Judge Christen also acknowledged that Section 230 “shelters more activity than Congress envisioned it would,” but the Ninth Circuit’s decision is deferential to Congress to reform its “sweeping scope.”
In short, while having a seat at the table as a shareholder is the most preferred means by which to engage as an investor, it is by no means the only way. In fact, it is an opportunity to look at new methods to make a positive difference.
