Wearing two hats: Elon Musk as a case study

Much has already been written about Elon Musk’s famous tweet offering to take Tesla private. Most of the coverage has focused on whether he violated Regulation FD’s prohibition on selective disclosure by communicating material nonpublic information through Twitter, rather than a more recognized channel of communication, or whether he violated Rule 10b-5 by lacking a sufficient basis for his claim to have “funding secured.”

What is perhaps more surprising is that, by tweeting, Musk appears to have thought that he could use his Twitter feed to communicate information about Tesla solely in his personal capacity, without regard to his role as Chairman and Chief Executive Officer of Tesla. Ordinarily, when a CEO speaks publicly about the company that he or she leads, investors would generally presume – quite reasonably – that the information is being imparted on behalf of the company. While CEOs can certainly speak publicly in an individual capacity, it is incumbent upon them to be quite clear that they are speaking personally and not on behalf of anyone else. Tweets are inherently brief and do not lend themselves to the level of disclosure that the SEC ordinarily expects from issuers and others communicating with the public markets. But therein lies the danger. When an individual communicates complex matters with too few words, he or she runs the risk of being misunderstood, and the public can easily be misled.

The lesson? Public companies should ensure that their CEOs – and others who speak on their behalf – are well versed in communications protocols applicable to public companies. Boards and investors relations personnel should have policies about the use of social media by their executives. Anyone in Musk’s position should have appreciated that market-moving information should be treated more carefully than a casual tweet. Had Musk consulted securities counsel, chances are they would have advised another course.

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