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April 11, 2022Billionaire Elon Musk, one of Twitter’s biggest shareholders, is reversing course and will no longer join the company’s board of directors, less than a week after being awarded a seat.
Twitter CEO Parag Agrawal announced the news, which followed a weekend of Musk tweets suggesting changes to Twitter, including making the site ad-free. Nearly 90% of Twitter’s 2021 revenue came from ads.
“Elon’s appointment to the board was to become officially effective on 4/9, but Elon shared that same morning that he would not be joining the board,” Agrawal wrote in a reposted note originally sent to Twitter employees. “I believe this is for the best.”
Agrawal didn’t offer an explanation for Musk’s apparent decision. He said the board understood the risks of having Musk, who is now the company’s largest individual shareholder, as a member. But at the time it “believed having Elon as a fiduciary of the company, where he, like all board members, has to act in the best interests of the company and all our shareholders, was the best path forward,” he wrote.
It was just a week ago that regulatory filings revealed Musk had swiftly amassed a slightly bigger than 9% stake in the social media platform. The mercurial billionaire had been buying shares in almost daily batches starting Jan. 31. Only Vanguard Group’s suite of mutual funds and ETFs controls more Twitter shares.
Twitter quickly gave Musk a seat on the board on the condition that he not own more than 14.9% of the company’s outstanding stock, according to a regulatory filing.
Now that Musk has backed out of the deal, he’s free to build a bigger stake in Twitter, perhaps to try to take over the company or to push for a new slate of directors to change its direction.
“If you want to take over a company, you’re usually in a better position to not be on its board,” said Harry Kraemer, clinical professor at Northwestern University’s Kellogg School of Management.
That’s because a board member’s responsibility is to get the best value for all the company’s shareholders.
“Going on a board has a very specific responsibility to make sure you’re not doing something in your own personal interest,” said Kraemer, also a former chairman and CEO of Baxter International.
In a regulatory filing Monday, Musk said he had “no preset plans or intentions” about how to use his influence on Twitter but that he may discuss with its board and management his thoughts on potential business combinations, strategy and other matters. He added that he may express his views “through social media or other channels.”
If Musk had taken a board seat, it may have discouraged him from rocking the boat too much, said Chester Spatt, a finance professor at Carnegie Mellon University and former chief economist at the U.S. Securities and Exchange Commission.
“There’s an old cliché about keeping somebody inside the tent,” Spatt said. “There were advantages to having him constrained a bit.”
