A Study of the Impact of Shareholder Activism on Corporate

Governance Structure: An Example of Elon Musk's

Acquisition of Twitter

Yuxuan He

and Zhiwen Lyu

2,*

Nanchang City Lide Chaoyang middle School, Nanchang, China

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

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

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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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