Elon Musk could make life difficult for the new Twitter CEO (Analysis)

New York (CNN Business) — Over the past two years, Twitter has dealt with an activist investor, an egocentric figure with tens of millions of followers pushing the limits of his platform, and an eccentric billionaire leader trying to improve the product while juggling multiple companies.

Now, Twitter seems to have all three at once, in one person: Elon Musk. The CEO of Tesla and SpaceX caused a flood of headlines this week after revealing that he would become Twitter’s largest shareholder. A day later, the company said he would add him to its board of directors for a two-year term.

These surprising developments put Twitter, a company certainly no stranger to corporate chaos, into uncharted waters.

Suddenly, the richest man in the world, known as much for his ambitious and innovative spirit as for his erratic and troll behavior, has a powerful seat at the table. And he steps in just as Twitter’s new CEO, Parag Agrawal, previously little known (at least externally), tries to step out of the shadow of Jack Dorsey, the platform’s founder and longtime public face. Dorsey, who handed over as CEO in November and plans to leave Twitter’s board in May, said this week that Agrawal and Musk “will be an amazing team.”

Almost immediately, the company was the subject of tremendous outside speculation. This ranged from whether Musk, who previously suggested Twitter doesn’t allow enough free speech and asked if a new rival platform was necessary, would change the social network’s content moderation policies, to helping restore former President Donald Trump’s account. . Inside the company, the reaction appeared to be mixed; Some employees on Twitter appeared to question what his presence would mean for Twitter’s health and safety work and raised concerns about insulting comments Musk had previously made on the platform, including about the trans community.

On Friday, Twitter confirmed to CNN Business that Agrawal would soon host an “ask me anything” event with Musk for employees. It’s an unusual move, as corporate board members typically don’t interact with employees as directly. (The meeting was first reported by the Washington Post.)

It’s unclear exactly what Musk hopes to accomplish on Twitter. Unlike some who have served on the company’s board over the years, Musk has a large Twitter following and a deep understanding of the platform. Investors have already applauded the move, with Twitter shares up almost 19% since his stake in the company was revealed. But corporate governance experts and tech industry watchers say his unorthodox approach to joining the company could create complications for the company and its new chief executive.

“It almost seems like the CEO has been demoted from handling strategic issues and now needs to consult not the chairman of the board, but a regular acting director for advice on company strategy,” said Jason Schloetzer, an associate professor at the Georgetown University McDonough School of Business.

Twitter declined to comment for this story.

A member of the “team” for a new CEO

When Dorsey made the surprise decision to step down as CEO at the end of November, he put Agrawal, a decade-old company veteran, at the helm at a pivotal moment for Twitter.

The company was looking to improve its digital advertising business amid broader privacy changes in the market. It was seeking to hit a lofty target for user growth under pressure from an activist shareholder, after periods of stagnant or even declining user numbers. Like other tech companies, it was also facing scrutiny from lawmakers and the public over its content moderation practices.

Twitter, while a fraction of the size of rival platforms like Facebook and Instagram, has long held outsized importance given its influence in media, politics and finance, among other areas. Agrawal himself seemed to allude to that impact when he was named CEO. In a memo to employees at the time, he wrote: “The world is watching us right now.”

Musk may have been watching too.

“It makes sense, the founder is retiring and the CEO is fairly new, that’s a good time for someone to step in and try to effect some change,” Schloetzer said. But, he said, “the way that’s evolving is different than the way it would normally evolve if there was an activist [inversionista] get involved.”

Twitter’s Parag Agrawal took over as CEO after Jack Dorsey’s surprise departure from the role in November. Agrawal tweeted this photo of him and Dorsey when the leadership change was announced.

Even if all goes well and Agrawal and Musk are generally aligned on priorities, the latter’s involvement and public statements could complicate Agrawal’s role as CEO. In the public eye, and perhaps even internally, Musk could be perceived as some kind of shadow CEO. He could also get credit for initiatives already underway under Agrawal’s leadership.

In recent weeks, Musk, for example, has hinted at his support for open source standards for Twitter, something Agrawal has already been working on at the company. Agrawal has been involved in the development of Bluesky, a Twitter-born effort to create decentralized, open-source standards for social media, since its inception. In December 2019, when the project was announced, Agrawal said on Twitter that he would be responsible for finding the project leader and laid out a number of potential obstacles to the effort, ending with: “Despite these obstacles, we believe there is the potential for a massive positive impact for Twitter and for society.”

Musk also tweeted a poll Monday, after his involvement with the company was revealed, asking if his followers wanted an edit button, a long-requested, albeit controversial, feature for the platform. And on Thursday, he tweeted a meme suggesting that making sure Twitter has an edit button would be part of the ripple effect of his career. Indeed, Twitter said Tuesday that it has been developing a feature that will allow users to edit their tweets over the past year and will roll it out to its paid subscription product Twitter Blue “in the coming months.”

It’s also unclear what kind of working relationship Musk, who once tweeted a meme equating Agrawal with former Soviet leader Joseph Stalin, will have with the CEO. With his tweet about building an “amazing team,” Dorsey on Tuesday raised questions about whether Musk would be directly involved in strategic operating decisions, an unusual role for a board member. Board members also often act collectively, rather than unilaterally, as advisers to executives, according to William Klepper, a management professor at Columbia Business School.

Twitter in a statement this week sought to clarify that its board members do not make decisions about the platform’s rules or policies. “As always, our Board of Directors plays an important advisory and feedback role throughout our service,” said Twitter spokesman Adrian Zamora. “Our daily operations and decisions are made by Twitter’s management and employees.”

An activist investor?

(AP Photo/Susan Walsh, File)

If Musk is attempting to play the role of an activist investor, he is doing so in an unusual way.

Monday’s disclosure of his more than 9% ownership stake in Twitter came in the form of a Schedule 13G filing with the Securities and Exchange Commission, a form used for passive investors who don’t plan to drive changes in a company. That seemed to contradict his previous calls for changes on Twitter.

Then on Tuesday, Twitter announced that Musk would be joining the board, with Agrawal saying the company had been in talks with Musk for “weeks” and Musk saying he hoped to make “significant improvements” to the platform. Later that day, Musk filed the more detailed 13D form required for active investors.

Musk’s approach also differs from that of a typical activist investor, who would typically publicly announce his intention to make changes to a company and lay out a clear case for why a company is undervalued and a strategy for how to improve its financial track record.

If Musk’s desire was, for example, to decentralize the platform (essentially make it possible for other developers to build on it), as he has suggested, he could have come up with an estimate of what that change would be worth to the company. “You know, maybe all of that has already happened, but so far it hasn’t come up that way in the discussion,” Schlotzer said.

Still, analysts have pointed to the potential for Musk’s influence at the company to be valuable. Musk is “clearly gifted when it comes to being able to come up with solutions to very big challenges,” said DA Davidson analyst Tom Forte.

Transition to the board

parag agrawal twitter

Parag Agrawal (Credit: Twitter)

Musk has primarily served on the boards of his own companies, though he is also a director on the board of media conglomerate Endeavor and was on the board of solar installation company SolarCity Corporation before it was acquired by Tesla.

Once Musk has officially joined the Twitter board, the normal expectation would be that he would provide his tips and advice for the platform to the management team privately, rather than sharing it on Twitter as he has done in the past, especially to as it learns proprietary information about the company, Klepper said.

“He can recommend that management, the CEO and the leadership team take a different strategic view of the company than they currently have, and in many ways that could be a positive thing,” Klepper said. But if he “starts saying things outside the boardroom that should stay inside the boardroom…and let’s say the stock for one reason or another stalls as a result of that, the entire board is subject to his error.” “.

Musk has a history of getting in trouble with regulators for his activities on Twitter. In 2018, his tweets about the possible privatization of Tesla led to an SEC lawsuit and a settlement requiring him to pre-review certain tweets about the company. (He is now fighting that requirement.)

By making him a two-year board member, Twitter got Musk to agree not to buy more than 14.9% of his shares, which would give him even more powerful control over the company, while serving as a board member, but there is no guarantee that it will not change once your term ends. On the other hand, it could be a problem for Twitter stock if Musk, who has a history of being able to cause wild swings in the prices of the assets he tweets about, decides to divest his stake in the company for whatever reason.

If things go wrong, it could reflect badly on Agrawal, Klepper said, which could put a stain on his leadership early in his term. “While Elon brings a lot of good things to Twitter, he also brings some baggage,” Forte said.

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