Friday, May 27 2022

Elon Musk’s public description of how he plans to run the Twitter show could currently be transcribed in fewer than 280 characters, so it’s not surprising that everybody, from EU commissioners down, is fretting about what happens when a maverick billionaire gets the controls of a divisive social media site.

The overlooked constituency in the excitement, however, is the shareholders in Tesla, Musk’s electric car company that has a better chance of making a positive contribution to civilisation. Its stock slumped 10% in early trading on Tuesday as the market digested the meaning of the boss’s latest adventure.

One obvious risk is sales of Tesla stock by Musk to fund the $21bn equity portion of the $43bn Twitter takeover package. Another is spill-over political effects, in the US and elsewhere. Jeff Bezos, another tech tycoon turned media owner, referenced the latter mischievously. “Did the Chinese government just gain a bit of leverage over the town square?” Tweeted Amazon’s founder.

It’s a good question because Bezos’s line of thinking is easy to follow. Twitter is blocked in China because the social media company, rightly, refuses to bow to Beijing’s security laws on what can be said about, say, the strangulation of democracy in Hong Kong or the persecution of Uyghur Muslims.

But Musk, wearing his Tesla hat, is a beneficiary of Chinese largesse in the form of financial incentives to build cars in China. Rich Chinese consumers are also big buyers of Teslas and key kit for the batteries comes from the country. What would happen if Beijing were to suggest that Twitter might wish to give the Chinese Communist party an easier ride in the interest of smooth commercial relationships for Tesla? Chinese officialdom, one suspects, won’t distinguish between Musk’s ownership of Twitter (100%, if everything proceeds) and that of Tesla (17% currently).

Bezos’s answer to his own question was that “the more likely outcome in this regard is complexity in China for Tesla, rather than censorship at Twitter”. The first part of that guess should still sound scary to the car company’s shareholders. In extremis, would a “free speech absolutist”, as Musk describes himself, be prepared to close factories rather than concede an inch to Chinese bullies?

Tensions probably won’t escalate to that degree, but the potential for hassle and expense over time is clear. A high-profile private obsession (Twitter) sits uncomfortably with a $1tn public company with duties to outside shareholders (Tesla). Bezos, as owner of the Washington Post, weathered Donald Trump’s jibes by ignoring them, but that’s possible in the US. A globally freewheeling Twitter is in a different place.

Tesla’s shareholders don’t have a voice in the Twitter deal, and it’s safe to assume that the Musk fan club that is the company’s non-executive directors won’t provide a squeak of protest. But, by rights, the Tesla brigade should hate the new deal. At best, it is a distraction for them; at worst, it is a real business risk.

If ancient Schroders can get into line, anyone can

FTSE 100 fund manager Schroders is unwinding its two-tier share structure on the grounds that it is “anachronistic”, a description that could have applied at any point in the last quarter of a century.

Indeed, the set-up – two classes of shares, only one of which carries voting rights – was becoming out of tune with the times even on the day it was introduced in 1986 as a way to shovel a few shares to staff without diluting the Schroder family’s control. Equal rights for equal economic risk is an excellent principle, then as now.

The family has 47.9% of the voting stock and 20.4% of the non-voters these days, which will shake out as 43% control upon enfranchisement. The mechanics of the shuffle don’t appear contentious since the three-for-17 bonus issue to holders of the voting shares merely reflects the relative valuations at which the two classes have tended to trade in recent years. It’s really a case of: what took so long?

The tale, let’s hope, is noted by UK technology founders floating their companies in London. City grandee Jonathan Hill’s review of listing rules last year gave them a green light to adopt US-style enhanced voting rights and golden shares as long as time limits apply, but that doesn’t mean the option has to be taken up. If even ancient Schroders can finally align with governance norms, read the breezes.

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