Elon Musk’s takeover of Twitter shows there’s still life in the old capitalism dog.
Elon Musk’s takeover of Twitter shows there’s still life in the old capitalism dog.
‘C apitalism as we have known it is dead,” tweeted Salesforce co-CEO Marc Benioff recently. As if to prove the lie, a week later Elon Musk used the machinery of capitalism to buy Twitter, the very medium Benioff used to make his premature pronouncement. Musk’s action was a vindication of the power of capitalism to make rapid change, but would not have been possible in the world Benioff wants to see.
Benioff wants an economic system in which companies are beholden to “stakeholders,” which can mean a variety of things — employees, customers, and suppliers all the way to pressure groups that claim to stand for some interest affected by the company’s actions. Musk, it seems, prefers the rights of shareholders — the company’s actual owners. By taking Twitter private, Musk is actually repudiating stakeholder theory in the most dramatic way possible, saying that a company’s owners — namely, himself as the buyer, and the other shareholders as sellers — are the decision-makers who count.
This is not a new debate. It dates back to the 1930s, when some academics said that the rise of labor organizing and its recognition in law meant that company management could no longer be responsive just to the interests of investors. However, to a degree that has always been true. A company that ignores the interests of its employees, customers, or suppliers will not last long. Serving the interest of the investors requires being responsive to those stakeholders.
Modern stakeholder theory, however, states that management must balance the interests of owners alongside the interests not just of the other parties in the organization’s contractual network, but with many others besides. Even the company board is in some ways just another interest group for managers to consider.
That can give managers far too much power, making them liable to lead the company astray. There are plenty of examples. Benioff, for instance, insists that company managers weigh climate considerations in their decision-making. Yet, BP, following the Deepwater Horizon disaster in the Gulf of Mexico, was widely criticized for allegedly cutting corners on safety while claiming to move “Beyond Petroleum” for the sake of the planet.
That seems to have been the case with Twitter. Concerns by company management over what was being said on the platform and the actions taken in response went way beyond what the average user would consider appropriate. The banning of a satirical account for making a joke about a senior military medical officer (someone not without a degree of power) seems to have been the last straw for Elon Musk. Certainly, the joke was offensive to some users, but Twitter has tools to allow them to block the account and mute mentions of it. Banning the account outright weighed the views of those users more heavily than others, much as stakeholder theory can, in the absence of the guardrails provided by shareholder primacy, tempt management into adopting a set of priorities hard to reconcile with the operation of a financially successful enterprise.
Thankfully, capitalism still has tools, too. For so long as shareholders legally retain the last word on how a company should be run, they can discipline company management by arranging for a takeover. That’s exactly what happened here. Despite managers’ attempts to deter a Musk takeover (they adopted a “poison pill” to stop him from buying too many shares), the offer proved too tempting to the company’s actual owners.
It remains to be seen what management changes Musk will make at Twitter, but some of his recent comments would suggest that the legal staff members who might have pushed the company toward overenthusiastic banning will be looking for work elsewhere.
In Benioff’s world, that would be far more difficult. For instance, the Securities and Exchange Commission is proposing that companies pay extra attention to climate-related risks, elevating concern about the environment to a corporate duty — they should ask BP how that worked out. Adding environmental, social, and, to a degree, governance objectives to the responsibilities of corporate management would move us further toward a stakeholder world.
In a parallel attack on shareholder rights, the U.S. Department of Justice, the Federal Trade Commission, the U.K.’s Competition and Markets Authority, and various European agencies are all trying to make it harder for companies to be taken over. Additionally, restrictive legislation in all these jurisdictions is pending that will weaken owners and investors while strengthening management.
Elon Musk’s actions show there’s still life in the old capitalism dog, even as a lot of CEOs, legislators, and bureaucrats are trying to take it out to the shed.