Public Markets

Is Elon Musk’s Stake In Twitter Really Passive?

Twitter CEO Parag Agrawal said Tuesday that Tesla CEO Elon Musk will join the social media company’s board of directors, one day after news broke that Musk became Twitter’s largest outside shareholder with the purchase of a 9.2 percent stake.

Search less. Close more.

Grow your revenue with all-in-one prospecting solutions powered by the leader in private-company data.

Musk’s filing with the Securities and Exchange Commission indicated his would be a passive stake, meaning he ostensibly wouldn’t play a big role in the operations of the company or push for corporate change. 

But “passive” isn’t really a word that comes to mind when you think of Elon Musk.

I asked Deepak Gupta, a lecturer at UC Berkeley’s Haas School of Business, if Musk will really be a passive investor, since that doesn’t seem to be in keeping with his new board position.

With “passive investors, basically there’s nothing you are doing in day-to-day operations,” Gupta said. “(You) basically put your money in the stock or whatever and you’re letting the company do its thing.”

The majority of investors in publicly traded companies are passive investors. Active investors, on the other hand, take a hands-on approach. “You’re actually going to be talking to the management team, you have an actual say,” Gupta said. “You don’t have to be on the board. But as an active investor you can talk to the management team and give your views on what you think.”

Musk’s filing with the SEC disclosing his Twitter stake was a Schedule 13 (g) form, which is intended for entities looking to purchase a large number of shares but not push for corporate change. That’s as opposed to a Schedule 13 (d) form. 

But it hardly seems that he’ll be sitting back doing nothing while serving on Twitter’s board.

Gupta points out that as a member of the board, Musk is dealing directly with Twitter’s CEO and management team. The board of directors’ role is to maximize value for shareholders. 

Musk has been outspoken in his criticism of Twitter, and posted a tweet a few weeks ago questioning if another social media platform is needed. Hours after the news broke of his stake in the company, he tweeted out a poll about whether Twitter should develop an edit feature, so it seems like he’s taking an active role already.

It isn’t uncommon for entities who buy large stakes in a publicly traded company to join its board of directors, though Gupta noted that a 9.2 percent stake is a bit low to typically join a board.

But there might’ve been other motivations to have Musk join the board of the social media giant.

“Whatever he touches right now, it turns into gold,” Gupta said. 

Illustration: Tesla Owners Club Belgium

Stay up to date with recent funding rounds, acquisitions, and more with the Crunchbase Daily.

Copy link