There might be more to the Elon Musk-Twitter saga than meets the eye. Mr. Musk—currently the richest man in the world—offered to buy Twitter for $43 billion on April 13. The company's board at first rejected the offer, issuing instead a "poison pill" (formally known as a shareholder rights plan) that would make it far more expensive for Mr. Musk to take control of the company. Soon enough, however, the board changed its mind. On April 25, it was confirmed that Twitter had accepted Mr. Musk's offer to buy the company for $44 billion.
If this were the full story, it wouldn't offer much of anything new—except maybe for the color added by Mr. Musk's famously eccentric personality. Although takeovers are much less frequent than they used to be, they remain a distinctive feature of the U.S. corporate landscape. And boards have used poison pills for decades as an effective anti-takeover measure or as a bargaining tool to extract higher takeover premiums—like in Twitter's case.
But there are at least two peculiar features that make Mr. Musk's bid for Twitter different from any other. First, the Tesla CEO declared that the primary reason he wanted to acquire control of the social media company was to turn it into "an inclusive arena for free speech." (Notably, the news release announcing the deal reiterated this specific intent). Given that Mr. Musk is a self-declared "free speech absolutist," this likely means that he plans to relax the company's current content moderation policy in favor of a more libertarian approach. Second, Mr. Musk thinks that as long as the company stays in "its current [publicly traded] form," his free speech ambitions are not achievable; instead, he aims to "transform" Twitter into "a private company."
Twitter's current content moderation policy assumes that unconstrained free speech may lead civic discourse to be drowned out by harassment or result in the spread of harmful or misleading information. The social media platform has opted for a more progressive approach, where free-speech limitations are justified to promote other fundamental liberties.
This is not an isolated case. As we documented in a recent article, public corporations are increasingly taking stands on a wide range of divisive social issues: from gun control to abortion, from immigration to gender—the list grows by the day. However, in the present environment it is hard to think of many publicly traded corporations that embrace a proactive, visible social stance favored by moderates or conservatives. (Hobby Lobby and Chick-fil-A are private corporations.) By contrast, hundreds of public companies have expressed corporate positions on political topics that are favored by progressives—we call this "corporate conformity." Yet on many of these underlying social issues, Americans are evenly divided.
This gap might be a result of corporations' incentives to cater to the political preferences of today's largest and most powerful investors: the "Big Three" asset managers (BlackRock, State Street and Vanguard). Collectively, these investors now hold what amounts to a controlling interest in most large companies—including Twitter (where they collectively own more than 20 percent of the outstanding shares). Their level of activism on controversial social, environmental and governance issues has also grown to unprecedented heights. Under these circumstances, it seems unlikely that a corporation would take a stance on a divisive matter that does not align with the preferences of its largest investors. A non-conformist stance could invite shareholder retribution or trigger investors' exit, leading to negative asset price effects.
Thus, the real issue with Musk and Twitter's dramatic courtship might have less to do with either Mr. Musk or Twitter, and more to do with the current dynamics of financial markets, where public corporations often have to pay a new price to raise large amounts of capital: the price of corporate conformity. Mr. Musk seems willing to give up market financing to avoid paying that price, effectively putting his money where his mouth is.
Asset managers' political influence in the corporate world is an unprecedented fact. Financial markets are a constitutive element of American capitalism's success story.
Perhaps more than anywhere else in the world, the development of financial markets has enabled firms in the U.S. to move to a much larger scale of operation and pursue investments that they could not have otherwise pursued. This model worked on an assumption of moral neutrality, under which both corporations and investors did everything they could to stay away from controversial moral or political issues. But under the new moral demand coming from corporations' largest investors, that assumption seems now lost.
The ultimate effect of this change remains an open question. In the meantime, Mr. Musk's plan to take Twitter private suggests now might be time to take a closer look at the role played by the Big Three in the rise of corporate conformity.
Saura Masconale is an Assistant Professor in The University of Arizona Department of Political Economy and Moral Science and Outreach Director at The University of Arizona's Center for the Philosophy of Freedom. Simone M. Sepe is Professor of Law and Finance, The University of Arizona - James E. Rogers College of Law.
The views expressed in this article are the writers' own.
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