Elon Musk’s Twitter takeover and lessons for the law

Elon Musk has many talents, but it becomes increasingly clear that law is not one of them. Law is not rocket science, but while Musk seems proficient at the latter, the former is, if not a difficulty, at least a considerable nuisance, not worthy of his time and patience. During his many years as an entrepreneur, Musk has gathered first-hand experience in numerous areas of the law. This includes a trial against him alleging defamation on Twitter; shareholder litigation based on alleged fiduciary duty breaches; securities regulation challenges related to his tweets; and a settlement with the U.S. Securities and Exchange Commission, which Musk partially ignored and later attempted to set aside; and most recently, the unfolding saga of Musk’s potential takeover of Twitter. It is evident from these and other episodes that Musk’s propensity for pushing the boundaries also extends to the law. He acts quickly and seems prepared to take on substantial risks, even if that means having to deal with the (legal) fallout later. He also appears to be troubled by basic principles of the law and the institutions tasked with enforcing it. The Twitter takeover provides an apt illustration of all these themes. He quickly amassed shares in Twitter, becoming its largest shareholder, but in the process may have violated securities law disclosure requirements. He then decided to buy Twitter, signed a merger agreement, and apparently waived the usual due diligence procedures. Shortly thereafter, Musk tweeted his reluctance to proceed with the acquisition, complaining about the high number of “bots” on Twitter, even though he was previously aware of the issue. He also publicly tweeted his disgust when Twitter’s lawyers reminded him of his non-disclosure agreement obligations, which he may have violated by revealing, via Twitter, details of the company’s process for dealing with illegitimate accounts. Although some of the above could simply be viewed as somewhat amusing eccentricities of a billionaire, his conduct gives rise to at least two significant concerns. First, a bedrock contract law principle is “agreements must be kept.” This includes merger deals and settlements with regulators, and it extends to every party that enters into a contract. If there are certain parties or individuals that have the means to ride out almost any consequences of violating the principle—and perhaps are also given more leeway by those who could enforce any breaches—then society is facing the problem of de facto inequality and undermining of the law and its role of setting universal rules. Martin Petrin is the Dancap Private Equity Chair in Corporate Governance at Western University. Photograph courtesy of Martin Petrin Further, Musk’s potential acquisition of Twitter spotlights a second issue. Wealthy individuals gaining control of large companies is not a new phenomenon. Typically, the main motive is to create more wealth, perhaps coupled with, at best, some philanthropic ambitions relating to matters such as employee welfare. Musk, however, has stated that he does “not care about the economics” of acquiring Twitter. Instead, his motivation seems to be what he sees as restoring freedom of speech. But if some individuals have the means to buy their way into acting as the sole arbiter of how one of the world’s biggest social media platforms should function, problems are bound to arise. One lesson that the Musk saga suggests is that securities regulators need to be both equipped and willing to take decisive and meaningful steps to keep such behaviour in check. They must ensure that nobody, including the most powerful individuals, can repeatedly toy with public market sentiments and trust, sending stock prices of major companies on rollercoaster rides. Moreover, it becomes increasingly clear that we need better, democratically legitimized rules for digital platforms. Having such rules would also make it less important which specific person or entity owns a platform. The European Union’s Digital Markets Act and Digital Services Act initiatives are steps in the right direction. They are also broader in scope than recent Canadian attempts to tackle online hate speech: they introduce a range of novel measures aimed at mitigating the risks of illegal and harmful content, improving transparency and algorithmic accountability, and strengthening consumer and public safety. To be sure, compromises will need to be worked out to balance the legitimate interests of business and society at large. What is clear, however, is that “the law according to Elon Musk” is not an appropriate model for the way forward, neither for securities markets nor online platforms. Martin Petrin is the Dancap Private Equity Chair in Corporate Governance at Western University. The Hill Times

Elon Musk’s Twitter takeover and lessons for the law

One lesson from the Musk saga is that securities regulators need to be both equipped and willing to take decisive and meaningful steps to keep behaviour like his in check.

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Elon Musk’s Twitter takeover and lessons for the law

One lesson from the Musk saga is that securities regulators need to be both equipped and willing to take decisive and meaningful steps to keep behaviour like his in check.

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