Billionaire 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.”
Elon Musk founder, CEO, and chief engineer/designer of SpaceX speaks during a news conference after a Falcon 9 SpaceX rocket test flight at the Kennedy Space Center in Cape Canaveral, Fla, Jan. 19, 2020. Musk won't be joining Twitter's board of directors as previously announced. The tempestuous billionaire remains Twitter’s largest shareholder. (AP Photo/John Raoux, File)
While Musk has been one of Twitter’s loudest critics, the sudden withdrawal from the board, which became official Saturday, could signal that relations between Musk and Twitter will become more acrimonious.
“At some point he could throw the directors out, he could replace the board,” Spatt said. “He could probably launch that with his current 9% stake and potentially be very successful.”
In a letter to employees announcing Musk's departure, Agrawal wrote that, “There will be distractions ahead, but our goals and priorities remain unchanged.”
Shares of Twitter Inc., which jumped nearly 30% after Musk’s stake became public last week, were 2.8% higher on Monday after swinging between gains and losses through the morning.
Musk’s 80.5 million Twitter followers make him one of the most popular figures on the platform, rivaling pop stars like Ariana Grande and Lady Gaga. But his prolific tweeting has sometimes gotten him into trouble.
In one famous example, Musk apologized to a British cave explorer who alleged the Tesla CEO had branded him a pedophile by referring to him as “pedo guy” in an angry — and subsequently deleted — tweet. The explorer filed a defamation suit, although a Los Angeles jury later cleared Musk.
He’s also been locked in a long-running dispute with the SEC over his Twitter activity. Musk and Tesla in 2018 agreed to pay $40 million in civil fines and for Musk to have his tweets approved by a corporate lawyer after he tweeted about having the money to take Tesla private at $420 per share. That didn’t happen but the tweet caused Tesla’s stock price to jump. His lawyer has contended that the SEC is infringing on Musk’s free speech rights.
Musk's latest trouble with the SEC could be his delay in notifying regulators of his growing stake in Twitter.
“He’s a serial offender with respect to SEC regulations,” said Spatt.
Musk, before reversing course on the board seat, sent out a number of tweets over the weekend referencing potential changes at Twitter.
Many of them -- such as his proposal for an ad-free Twitter or turning the social media company’s San Francisco headquarters into a homeless shelter -- have since been deleted.
Musk then posted a few cryptic tweets late Sunday, including one showing a meme saying, “In all fairness, your honor, my client was in goblin mode,” followed by one saying “Explains everything.” Another, later tweet was of an emoji with a hand over its mouth.
Musk has described himself as a “free speech absolutist” and has said he doesn’t think Twitter is living up to free speech principles — an opinion shared by followers of Donald Trump and a number of other right-wing political figures who’ve had their accounts suspended for violating Twitter content rules.
Twitter's CEO and many of its board members had publicly praised Musk last week, suggesting they might take his ideas seriously. But the company had made clear that as a board member he could not make day-to-day decisions or change policies, such as overturning the Trump ban.
Agrawal's initial actions since taking over from co-founder Jack Dorsey in November have involved reorganizing divisions without making major changes. The company has long lagged behind its social media rivals and boasts far fewer users.
Updated on April 11, 2022, at 2:13 p.m. ET with a clarification that Elon Musk is Twitter's biggest individual shareholder and adds comment from business school professor, details from regulatory filing about Musk having no preset plans for Twitter.