Warren concerned that Tesla board failed to guard against Musk’s Twitter conflicts
Sen. Elizabeth Warren (D-Mass.) has sent a letter to the chairman of Tesla’s board raising concerns that CEO Elon Musk’s purchase of Twitter is hurting shareholders and creating serious conflicts of interest that may violate the law.
Warren’s letter comes as Tesla stock has lost almost a third of its value after Musk completed his purchase of Twitter for $44 billion on Oct. 27.
In a letter to Tesla board Chairman Robyn Denholm, Warren writes that she is concerned the company’s board of directors “has failed to meet” its “legal duty” to ensure that Musk, as the controlling shareholder of Tesla, “does not treat the company as a private plaything.”
“I am writing regarding concerns that Tesla’s Board of Directors has failed to meet this legal duty with regard to the actions of Tesla’s Chief Executive Officer, Elon Musk, in the aftermath of his purchase of Twitter,” she wrote.
She asks how Tesla’s board is dealing with “conflicts of interest, misappropriation of corporate assets, and other actions by Mr. Musk that appear not to be in the best interests of Tesla and its shareholders.”
Warren points out that Musk loaded Twitter with $13 billion in debt through his deal to purchase it, saddling the company with $1 billion in yearly interest payments, an amount that exceeds the company’s annual cash flow.
She says the basic structure of Musk’s deal to buy Twitter and what he’s done since taking over the company raise a number of concerns. She warns that Musk may have violated securities law by funneling Tesla resources to Twitter and that an “improper diversion of resources” may impact Tesla’s sales and earnings and create delays in the development of new programs.
Citing press reports, Warren notes that Musk pulled more than 50 trusted employees from Tesla, including software engineers, Tesla’s chief information officer and a senior manager of security intelligence, to help him overhaul Twitter’s corporate structure.
And she notes that while Musk claimed such crossover work was “just a voluntary thing,” one Tesla employee anonymously quoted in the press said that most employees feel they need to comply with Musk’s requests to work for both companies or otherwise will receive poor performance reviews.
“This use of Tesla employees raises obvious questions about whether Mr. Musk is appropriating resources from publicly traded firm, Tesla, to benefit his own private company, Twitter,” Warren writes, warning this would violate Musk’s legal duty of loyalty to Tesla and raise questions about the responsibility of Tesla’s board to prevent such actions.
Warren states that the Securities and Exchange Commission requires companies to make public “material definitive agreements” such as agreements to share employees but that Tesla has not reported any such compact.
She also argues that Musk’s dual role leading Tesla and Twitter creates “unavoidable conflicts of interest” and asks Tesla’s board to disclose how it’s monitoring potential conflicts.
She observes that Twitter relies on advertising revenue from Tesla’s competitors, including Audi, Chevrolet, Ford, GM, Jeep and Volkswagen.
Musk could give Tesla’s competitors favorable advertising deals to maximize revenue to Twitter in a way that creates “potential injury to Tesla” or may shift Twitter algorithms to give Tesla products higher profile and suppress criticism of the company, Warren writes.
“Mr. Musk could decide that he is personally better served is Tesla overpays Twitter for advertising or pays up front to give Twitter access to much needed cash,” she writes.
Warren also asserts that “under Mr. Musk’s leadership, Twitter has welcomed hate speech and sharply increased use of racist language, while advancing a broader platform for Nazis, virulent sexism and climate misinformation.”
She says that could hurt Tesla’s brand and its ability to market vehicle given Musk’s high-profile association with both companies.
Warren’s letter comes at a time when many Democratic lawmakers are raising concerns about the rise of antisemitic and other forms of hate speech on Twitter since Musk’s takeover of the company.
Warren in her letter says Musk’s actions also raise questions about whether his use of Tesla employees at Twitter comply with state and federal labor law.
“It is unclear whether Tesla employees were invited to work for Twitter or — either implicitly or explicitly — forced to do so and whether their existing employment contracts were respected,” she writes.
She points out that Tesla’s board hasn’t made any announcement about whether it’s reviewing the matter.
Warren says the potential impact on Tesla shareholders is serious given that stock analysts have warned that the margin loan Musk took out to buy Twitter “could become a destabilizing force” if Tesla’s stock value were to drop significantly, which in turn would increase the collateral requirements for the loan.
She notes that Tesla stock was trading at $332.67 per share the day Musk announced his purchase of Twitter and dropped to $228.52 by the time he took over the company. It opened Monday morning at $153.90.
“Despite these threats and despite the independent legal obligations of the Tesla Board, it appears that the Board has taken no action to protect the company, and Tesla’s stock price has plunged,” she writes, adding that Ford and General Motors stock has outperformed Tesla since Musk announced his purchase of Twitter.
Warren wants to know what specific guardrails and oversight Tesla’s board has put in place to make sure Musk is meeting his fiduciary and management responsibilities, what protections it has to protect against conflicts of interest and whether there are any formal or informal agreements between Tesla and Twitter.
She also wants to know what policies the board may have implemented to address conflicts of interest regarding advertising policy and whether it has evaluated the impact of Musk’s Twitter policies related to hate speech on Tesla’s brand.
The Hill has reached out to Tesla for comment on Warren’s letter.
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