What Elon Musk’s Twitter takeover tells us about the future of activist investment

Last week, Elon Musk concluded a $44 billion deal to acquire Twitter.

The $44 billion deal acquisition will lead to many changes to the social media giant, not least in its transition from public corporation to private entity, but also in its approach to moderation guidelines and protocols to authenticate users.

The ultimately successful takeover bid was, however, just the concluding chapter of a story that had actually begun on April 4, when Musk became the biggest shareholder in Twitter by acquiring a 9 percent stake in the company. By then, Musk’s public pronouncements – ironically enough made through his Twitter account – over the need to allow more free speech on the platform seemed to foreshadow a likely role as an activist investor.

While Musk’s moves ultimately defied conventional activist investor wisdom through his pursuit of a full takeover, the acquisition of Twitter bucks the trend of progressive investor activism and arguably represents a first major example of successful conservative shareholder activism.

What is happening with shareholder activism?

Activist investors are generally easily spotted: they buy a significant number of shares in a company and use their influence in the boardroom to exert pressure to shape corporate decisions. This phenomenon of shareholder activism, however, is by no means new. Throughout the 1970s and 1980s, so-called “corporate raiders” would purchase a stake in a company and use their voting rights to force through measures intended to increase its share value.

After a decline in activist investment occurred in the 1990s, not least due to the introduction of strong defensive measures (such as poison pills or white knight defences), the phenomenon has seen a recent resurgence. And while the pandemic may have caused a hiatus in activist investment, with companies seeking to ride out the storm by embracing continuity, shareholder activism is once again on the rise.

Indeed, according to the Harvard Law School Forum on Corporate Governance, a record 73 activist investor campaigns were launched in the first quarter of 2022 alone, with 15 of them targeting European companies. And the upward trend is hardly surprising. With rising inflation and interest rates causing the stock market to go down, activist investors are increasingly stepping in to prevent or stem declines in share prices.

Reforming governance and leadership

One of the ways in which investors seek to protect the value of shares is by scrutinizing key leadership appointments and holding them accountable for their performance. It is precisely these types of concerns that are leading activist investors at Peloton, led by Blackwells Capital, to attempt to remove the sitting CEO over “serious doubts around management and governance”.

Other times, however, investors can intervene to block appointments that could undermine the credibility of the corporation. For instance, ProSiebenSat1’s top investor, Media for Europe (MFE), has challenged the decision to invite Bert Habets, former CEO of the RTL Group, to join the supervisory board on the occasion of ProSieben’s General Assembly on May 5. The move is most likely linked to the circumstances behind Habets’ departure from RTL, which was allegedly precipitated by his soft-handedinvestigation of a case of embezzlement in Stylehaul, a subsidiary of the group.

While attempting to avoid the matter escalating into a public controversy, MFE has sought to convince ProSieben of the potential reputational damage that may result from the appointment. Despite these efforts, ProSieben appear determined to plough ahead with the nomination regardless, in a process that MFE recently described as lacking even “the minimum standards of transparency.”

Championing environmental and social reform

But the latest wave of activist campaigns, however, has mostly concentrated on convincing corporations to pursue progressive environmental and social corporate governance (ESG) policies. A few weeks ago, for example, activist investor Carl Icahn took aim at McDonald’s over its animal welfare practices after the firm had promised shareholders to phase out the use of gestation crates from its pork supply chain.

Many more activist campaigns are trying to push major corporations into making greater commitments for climate action, including by pledging transparency over their emissions and adopting ambitious reduction targets. Even Berkshire Hathaway, the investment conglomerate owned by famed Nebraska billionaire Warren Buffet, has faced growing pressure by activist investors to cut emissions.

Conservative activists on the horizon?

So far, the progressive ESG agenda driving many – if not most – activist investor campaigns have won over many on the left. Despite the fact that ‘the Left’ has always been associated with efforts to curb free market capitalism, stakeholder activist’s relative success in wrestling social and environmental commitments out of big corporations was heralded by some progressive commentators as “a more evolved form of capitalism.” On the other side of the aisle, conservative pundits have increasingly bemoaned what they term the ‘wokification’ of corporate boardrooms.

Musk’s acquisition of Twitter, however, could be the first sign that things may be about to change. With Democrat politicians and grassroots supporters in the US unanimous in their rebuke of plans to roll back moderation guidelines on the social media platform, Musk’s takeover arguably is the first time that progressives have found themselves on the opposing side of a major campaign during the current wave of shareholder activism.

And it is likely not to be the last. In recent months, conservative activists have put pressure on several corporate boardrooms – including giants such as American Express, Goldman Sachs, Pfizer, Johnson & Johnson, and CitiGroup – to stop funding left-wing political causes or revise recently adopted corporate policies geared towards protecting transgender rights or increasing diversity.

It is perhaps an urgent reminder that stakeholder capitalism is a method, not the endorsement of a political creed or position. As it becomes apparent that this tool is within the grasp of both right- and left-wing investors, there is perhaps hope that activist investors will show greater restraint and be less willing to get embroiled in politically contentious actions.