Last week, Twitter’s Chief Executive Officer Parag Agrawal sounded more like Ukrainian President Volodymyr Zelenskyy in rallying his troops to defy the existential threat of Elon Musk while pledging that they will not be “held hostage.” The threat, however, was not a private buyout but the threat that Twitter might be forced to respect free speech on the site. The problem for the Board members is that they could find themselves in court if their anti-free speech stance continues to stand in the way of shareholder profits. Such a lawsuit could be a bellwether for shareholder opposition to boards pursuing Environmental, Social, and Governance (ESG) policies over profits.
The Board responded to the Musk offer with what sounded like a suicide pact to swallow a “poison pill” to sell new shares to drive down share values. While a standard tactic to fend off hostile takeovers, Twitter made it clear that it would not be forced into free speech after making the company synonymous with censorship.
They were joined by liberal commentators who declared that it was not just Twitter but democracy itself that could fall if free speech were allowed to breakout. The Washington Post’s Max Boot declared that “for democracy to survive, we need more content moderation, not less.”
Former Clinton Labor Secretary Robert Reich went full Orwellian in explaining why freedom is tyranny. Reich insisted that “every dictator, strongman, demagogue and modern-day robber baron” pushed free speech to oppress people and that, while good for Musk, “for the rest of us, it would be a brave new nightmare.”
Twitter CEO Parag Agrawal has maintained that he wants to steer the company beyond free speech and that the issue is not who can speak but “who can be heard.” The question, however, is whether shareholders will be heard by a Board that has decided to make censorship (or “content modification”) a critical goal of the company.
As I discussed earlier, boards are legally obligated to act in the best interest of shareholders. That fiduciary duty has long been ignored as Twitter undermined its own product by writing off conservatives through openly biased censorship. The managers and employees seem to view the company as a vehicle of their anti-free speech values despite artificially driving down users who have either been banned or deterred by its intolerance for dissenting views.
This fight is coming at a time when many academics are questioning the traditional view that boards and management should be committed to the overriding purpose of maximizing value for shareholders.” Rather they argue that corporate figures should focus on advancing Environmental, Social, and Governance (ESG) principles. The result can be aligning corporate identity with controversial political positions like Disney’s recent opposition to Florida’s parental rights bill on education, a move that has led to boycotts and possible retaliatory legislation. Such political agendas come at a cost and some shareholders may allege that they are being asked to effectively bankroll the social or political agenda of corporate officials.
The company has long been criticized under Agrawal for pursuing a woke agenda over corporate advancement. There is little cash flow or monetization from sales growth at Twitter with forecasts of sales rising to $1.23 billion while the company posts sharply declining earnings.
Now a whale comes along with an offer of $54.20 a share (54 percent premium over the share price before Musk invested in the company). The Board’s response is to pass out the poison pills. The question is whether this is a standard maneuver to force negotiations or whether the company would prefer taking losses for shareholders over allowing greater freedom for users.
ESG policies have already led to litigation, including shareholder demands for greater transparency or ESG commitment from companies. Conversely, shareholders could argue that the political views of corporate officers are being pursued over the profits of the company.
Such lawsuits on both sides can be difficult. Shareholders may allege a breach of the “duty of loyalty,” but must show that the officials acted in a self-interested manner or in bad faith. Alternatively, they could argue a breach of the “duty of care,” which requires a showing that the officials acted in a grossly negligent manner.
Twitter may be getting precariously close to such a breach if Musk improves his offer as the Board continues to pass around the poison pills.
For Twitter employees, there is a sense that they actually might prefer corporate suicide to free speech.
Employees panicked at the very thought of Musk bringing free speech back to Twitter. In Twitter’s headquarters in San Francisco, employees are reportedly so traumatized that leadership had to offer emotional support to just “get through the week.” One employee decried that such a takeover would be “horrifying for the company’s reputation.”
Another employee complained that “Hey this is a focus week at Twitter, this is not helping,” referring to weeks where employees are given time off to “focus” on projects. Apparently, the last thing that employees want to focus on is free speech.
The tweets make it sound like Twitter employees are the modern equivalent of the defenders of Masada, the Jewish fighters who chose mass suicide over capture by the Romans in 73 C.E. Of course, shareholders may not be as eager to embrace financial suicide. Moreover, when it comes to free speech, Twitter is the encircling hostile army. This is like the Roman army threatening suicide.
That is why this fight could prove so important. Twitter’s CEO and Board decided a long time ago to pursue woke policies over profits. They are selling censorship to a public that wants more free speech. They are not alone. Facebook is actually running commercials trying to convince people to embrace censorship as a new generation that wants their views modified by corporate guardians.
Yet, there has never been a bull market for selling censorship. Musk could now force a showdown on whether companies are captive to the management or whether the company can be forced into greater profits even if it comes at the “horrifying” cost of allowing free speech.