A Study of the Impact of Shareholder Activism on Corporate
Governance Structure: An Example of Elon Musk's
Acquisition of Twitter
Yuxuan He
1
and Zhiwen Lyu
2,*
1
Nanchang City Lide Chaoyang middle School, Nanchang, China
2
Bangor Business School, Bangor University, Bangor, Gwynedd LL57 2DG, U.K.
*
Keywords: Shareholder Activism, Corporate Governance Structure, Acquisition.
Abstract: In modern corporate governance, the rise of shareholder activism has had a profound impact on corporate
strategy and management models. The case of Elon Musk's acquisition of Twitter is particularly striking, as
Musk's acquisition of Twitter in his personal capacity triggered a wide-ranging debate on corporate
governance, shareholder rights and corporate responsibility, demonstrating how shareholder activism can
reshape corporate governance structures. This paper analyses the changes Musk made to the board of
directors, governance policies and stakeholders following his acquisition of Twitter, and the changes Musk's
acquisition of Twitter made to the corporate governance structure in the context of corporate governance
impacts, market reaction and long-term financial performance. It is concluded that shareholder activism not
only directly changes the ownership structure of a company, but also profoundly affects the management
style, corporate culture and strategic direction of the company. At the same time, such active participation
brings greater risk and uncertainty.
1 INTRODUCTION
In the context of globalisation, the impact of
shareholder activism on the governance structure of
corporations has become increasingly prominent.
Elon Musk's takeover of Twitter is a classic example
of how shareholder activism can change the
operation and governance model of a company
through radical strategies. In addition to starting a
tricky game involving shareholders, management,
and regulators, the takeover had a significant effect
on Twitter's governance framework. Musk rewrote
the company's and its shareholders' power dynamics
with this series of moves, offering an insightful case
study for comprehending the workings of
contemporary corporate governance. With Musk's
acquisition of Twitter serving as a case study, this
article will examine the precise effects of
shareholder activism on corporate governance in this
setting and evaluate its contributions to openness,
flexibility in decision-making, and an innovative
culture. By analysing this case in depth, we hope to
gain a fuller understanding of how shareholder
activism shapes the governance model of modern
corporations and provide lessons for other
companies.
2 LITERATURE REVIEW
Shareholder activism, as an important form of
shareholder engagement, has played an increasingly
important role in global corporate governance in
recent years. Shareholder activism refers to the direct
participation of shareholders in the decision-making
process of a company, which promotes the
improvement of corporate governance and the
enhancement of corporate value. Early studies, such
as Jensen and Meckling (1976), have argued that
activism can alleviate the agency problem between
management and shareholders to a certain extent,
and it is one of the means to strengthen corporate
governance. Shareholder activism is generally
categorized in the literature as soft activism
and hard activism. Soft activism is usually
used to influence the firm by suggestive or
non-confrontational means, such as communicating
with management and submitting shareholder
He, Y. and Lyu, Z.
A Study of the Impact of Shareholder Activism on Corporate Governance Structure: An Example of Elon Musk’s Acquisition of Twitter.
DOI: 10.5220/0013271400004568
In Proceedings of the 1st International Conference on E-commerce and Artificial Intelligence (ECAI 2024), pages 601-605
ISBN: 978-989-758-726-9
Copyright © 2025 by Paper published under CC license (CC BY-NC-ND 4.0)
601
proposals, while hard activism is more
confrontational, such as nominating directors, public
campaigns, and proxy contests. The impact of
different types of activism on corporate governance
structure varies (Brav et al., 2008). A large body of
research suggests that shareholder activism is
beneficial to firm performance, especially in the
short run. For example, activism interventions often
lead to short-term increases in stock prices and
prompt management to pay more attention to
shareholder rights (Schor and Greenwood, 2009).
However, there are some limitations to activism.
Some scholars have argued that activists typically
focus on short-term returns, which may lead
companies to adopt short-term strategies and neglect
long-term development (Bebchuk et al., 2015). In
addition, activism is more costly to implement and
less likely to involve small and medium-sized
shareholders, making it difficult to have a
sustainable impact on corporate governance (Coffee
and Palia, 2016). Most of the literature focuses on
the short-term effects of shareholder activism, with
fewer studies on the long-term effects. Future
research could further explore the impact of activism
on firm value in the long run.
3 ANALYSIS OF CASES
3.1 Background
Elon Musk has been a frequent Twitter user, through
which he expresses his personal opinions, posts
company news, and interacts with the public. Twitter
is an important communication platform for Musk.
Musk has publicly stated that he believes that
Twitter has failed to realise its full potential as a
‘global platform for free speech’. By privatising
Twitter, he hopes to bring about larger changes to
the company and increase its support for free speech.
Musk has been buying shares of Twitter since
January 20220 and until 4 April Musk had
73,115,038 shares of Twitter stock, or 9.1% of the
company (Kolodny and Novet, 2022). Musk
formally offered to purchase Twitter on April 14 for
$54.20 per share, or roughly $44 billion in total
(Turner and Adler, 2022). After Twitter failed to
offer specific details regarding the fictitious
accounts, Musk opted to terminate the purchase
agreement on July 8th, after announcing on May
13th that the sale was "on hold" (Paul et al., 2022).
Twitter filed a lawsuit against Musk on July 12 in an
attempt to compel him to purchase Twitter, and
Musk finally finished the transaction on October 27.
3.2 Manifestations of Shareholder
Activism
Elon Musk demonstrated typical shareholder activist
behaviour and tactics in his acquisition of Twitter.
Shareholder activism typically refers to the exercise
of influence by large shareholders to push for
changes in the management of a company in order to
increase the value of the company or to achieve
specific corporate governance objectives (Cohn and
Rajan, 2013). First off, Musk acquired a 9.2%
interest in Twitter, making him the company's
largest single stakeholder.This move gave him a
significant voice and influence in the company.
Following the disclosure of his ownership, an offer
to take Twitter private at a price of $54.20 per share
was made, a move that was also typical of
shareholder activism, making significant changes to
the company's management through a mandatory
takeover bid. The privatisation offer also
demonstrated Musk's dissatisfaction with Twitter's
management, and reformed the company by
changing its ownership. Musk later announced that
he was suspending the buyout to help the company
make changes in its own interest by putting pressure
on management over the quantity of fraudulent.
Twitter accounts and corporate governance issues.
After the acquisition, Musk quickly fired a number
of Twitter's top executives and instituted a series of
radical reforms. This approach reflects his ultimate
goal in shareholder activism, which is to drive the
company in line with his vision by changing
management and governance structures.
3.3 Changes in Corporate Governance
Structure before and after the
Acquisition
3.3.1 Board of Directors
In relation to the Directors, prior to the acquisition,
Twitter had an independent Board of Directors. The
board included members from diverse backgrounds,
such as technologists, financial experts, and other
industry leaders. Board members were responsible
for overseeing the company's strategic orientation,
managerial effectiveness, and corporate governance
policy implementation. The independence and
diversity of the board of directors is an important
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part of the governance structure. Corporate
governance emphasises transparency and
accountability, with oversight of the company's
operations through various types of committees (e.g.
Audit Committee, Compensation Committee, etc.).
This structure ensures that the corporate governance
process is not unduly influenced by a single entity or
individual. Following Musk's purchase of Twitter,
the board of directors saw a number of notable
changes. Immediately after completing the
acquisition, Musk assumed complete control of
Twitter after dissolving the original Board of
Directors. This meant that the original board
members were replaced and the new board members
were mainly people closely associated with the
acquirer or its direct appointees. This move
significantly weakened the independent oversight
mechanisms in corporate governance and led to a
greater centralisation of corporate governance. The
disappearance of the board of directors also means
that the company's decisions are no longer subject to
the strict oversight of traditional corporate
governance mechanisms (e.g., auditing, risk control,
etc.), which may increase the risks involved in the
decision-making process.
3.3.2 Governance Policy
Prior to the acquisition, as a publicly traded
technology company, Twitter followed a number of
corporate governance best practices, such as regular
financial statement disclosure and adherence to
shareholders' right to know. The company's
decision-making process was relatively fixed and
involved multiple steps to ensure compliance and
risk control in decision-making. The interaction
between shareholders, management, the board of
directors and the external auditors ensures a
balanced governance process. After going private,
Twitter is no longer subject to the governance
requirements of a publicly traded company and
disclosures are less transparent. Musk also
significantly restructured the company's internal
decision-making processes and policies to focus
more on flexibility and innovation and less on
traditional bureaucratic procedures. Musk has also
streamlined internal governance processes to
improve the company's responsiveness and
execution. While this shift may have contributed to
innovation and rapid adaptation, it also increased the
discretion and uncertainty of decision-making and
weakened the control of risks in the traditional
governance structure.
3.3.3 Shareholders and Stakeholders
Twitter's main shareholders before the takeover were
individual investors, organisational investors and
employees of the company. The interests of the
company were managed and realised by the board of
directors and management. After Musk's acquisition,
the original individual shareholders exited and Musk
became the major shareholder, the change in
shareholders led to a situation where corporate
governance no longer needed to take broadly into
account the interests of the public shareholders, but
instead was dominated by the wishes of a few or a
single shareholder. The position of other
stakeholders, such as employees, users and
advertisers, in the new governance structure may
also have changed and their interests may no longer
be protected or valued to the same extent.
4 ANALYSIS OF THE
INFLUENCE OF
SHAREHOLDER ACTIVISM ON
CORPORATE GOVERNANCE
STRUCTURE
The analysis of Elon Musk as a shareholder activist
has implications for corporate governance, market
reaction, and long-term financial performance. The
following is a summary based on the relevant
research literature:
4.1 Corporate Governance Impact
(1) Changes in governance structure: Studies have
shown that Musk, as a major shareholder in
companies such as Tesla and SpaceX, has driven
corporate governance changes by influencing the
senior management group and the board of directors.
(Example: study analyzes Musk's influence on
Tesla's board of directors and explores the major
decisions he drives) (Dalton et al., 1999; Jensen and
Meckling, 1976).
(2) Strategic direction: Musk, as a shareholder,
actively participates in the formulation and
adjustment of the company's strategy, especially in
terms of technological innovation and market
expansion, which has a significant role. (Example:
Research explores the impact of Musk on Tesla's
strategic direction and its positioning in the new
energy market) (Jensen and Meckling, 1976).
A Study of the Impact of Shareholder Activism on Corporate Governance Structure: An Example of Elon Musk’s Acquisition of Twitter
603
4.2 Market Reaction
(1) Market volatility: Studies have found that Musk's
public statements and social media activity tend to
cause wild market swings. For example, his tweets
could cause big swings in Tesla's stock price.
(Example: Analyzing the impact of Musk's Tweets
on the short-term performance of Tesla stock) (Fama,
1970).
(2) Investor confidence: While it may cause
market volatility in the short term, Musk's innovative
vision and leadership style have increased investor
confidence in the company in the long term.
(Example: Studying the impact of Musk's leadership
style on investors' long-term confidence) (Compers
et al., 2003).
4.3 Long-Term Financial Performance
(1) Financial growth: Research shows that The
company's financial performance has been
significantly impacted by Musk's activity,
particularly in terms of revenue growth and market
share expansion. (Example: Analysis of Tesla's
financial performance and market share changes
under Musk's leadership) (Renneboog and Szilagyi,
2011).
(2) Risk management: Despite the high risks,
Musk's innovative projects and strategic decisions
have resulted in significant financial returns for the
company over the long term. (Example: Exploring
Musk's decisions in high-risk projects and their
financial implications) (Shleifer and Vishny, 1997).
4.4 Summary
In summary, Elon Musk, as a shareholder activist,
has had a profound impact on the governance
structure, market response, and long-term financial
performance of the companies he leads. Although
their strategies may cause market volatility in the
short term, in the long term, these measures usually
lead to significant financial growth and market
expansion.
5 CONCLUSIONS
The case of Elon Musk's acquisition of Twitter
demonstrates the far-reaching effects of shareholder
activism on corporate governance structures. First,
Musk, as an activist shareholder, ultimately
facilitated the complete acquisition of the company
by publicly expressing his dissatisfaction with
Twitter's strategic direction and management. This
process demonstrates how shareholder activism can
drive change in the corporate governance structure
through market forces. After the acquisition was
completed, Twitter's governance structure underwent
a dramatic change from diverse and decentralised to
highly centralised. Musk dissolved the original board
of directors and reorganised management, changing
the company's original governance policies and
decision-making processes, and concentrating
ownership and decision-making power in the hands
of a few individuals. This change improved the
flexibility of corporate decision-making while
weakening the independent oversight processes of
traditional corporate governance, but it also brought
greater risk and uncertainty. Overall, The instance of
Musk purchasing Twitter demonstrates the powerful
force of shareholder activism in corporate
governance. It can not only directly affect the
ownership structure of a company, but also
profoundly change its management model, culture
and strategic direction.
AUTHORS CONTRIBUTION
All the authors contributed equally and their names
were listed in alphabetical order.
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