Elon Musk declines a Twitter directorship
Given Elon Musk’s prolific use of Twitter would a directorship have been a conflict of interest?
Elon Musk has declined the offer (as largest shareholder with a 9.2% stake) to join the Twitter board of directors. Twitter’s chief executive’s announcement to the company alluded to the fact that as a director Musk would have “to act in the best interests of the company and all of our shareholders”.
Given Elon Musk is an active tweeter and has tweeted various suggested changes to the Twitter business model perhaps he viewed the potential conflict of interest as a director as too tricky to overcome and as restricting his ability to openly share his thoughts and suggestions. Whilst we cannot comment on the legal requirements for directors in the US, his position would be tricky if Twitter was an English company given one of key duties of directors which is codified in the Companies Act 2006 is to avoid conflicts of interest – this means a director must not (without the company’s consent) place themselves in a position where the duties they owe the company as a director and their personal interests (or duties to third parties) conflict with the company’s interests.
Using Elon Musk’s situation as an example, he recently tweeted a suggestion that the premium service be made ad-free and as an end user you can certainly see the attraction of this. However, as a director his opinion and preferences as a user would potentially not align with the interests of the company given Twitter’s reliance of advertising for its revenue.
When considering this duty it is always best as a director to err on the side of caution. Potential conflicts of interest which might not be immediately obvious include:
- Being a director of different companies within a group of companies;
- Being a trustee of a company pension fund and also a director of the company the fund relates to;
- Being both a director and employee/consultant of a company;
- Lending money to the company you are director of;
- Being both a shareholder and director of a company when deciding whether to declare a dividend.
Where conflicts (or potential conflicts) exist, directors should make sure they declare them before they arise (even if they may appear obvious) for prior-approval and (if required) note them each time they are relevant to matters being considered. The company’s records should also properly record both the initial declaration and approval and the decision making process for all subsequent decision making where a conflict may arise.
By remaining as a substantial shareholder Musk retains the ability to provide input to the board of directors for consideration without the need to worry about whether his position conflicts with the interests of the company because a shareholder is simply a financial investor in a business with no overarching duties to the company itself.
If you need any guidance on directors’ conflicts of interest or directors’ duties more widely the FSP corporate team would be delighted to assist.