Twitter for CEOs: 3 Guiding Principles

The Ongoing Fiduciary Responsibilities of CEOs

A Chief Executive Officer’s legal obligations to their organization and stakeholders aren't limited to work hours; they are required to consistently demonstrate good faith. However, defining the line between official company statements and personal expression can prove challenging in the current social media landscape.

A CEO’s activity on platforms like Twitter carries the potential for significant reputational damage, both for themselves and their company. Furthermore, ill-considered posts can lead to breaches of fiduciary duties and even violations of securities regulations.

Understanding Fiduciary Duty

These duties generally fall into three primary categories: (1) the duty of care, requiring CEOs to act with reasonable prudence and a genuine belief that their actions benefit the company; (2) the duty of loyalty, mandating that shareholder and company interests take precedence over personal gain; and (3) the duty of good faith, demanding honesty and fairness in all dealings with stakeholders.

Leveraging Twitter Effectively

Twitter presents a valuable opportunity when utilized strategically. Appropriate use can strengthen a company’s and its CEO’s reputation, cultivate stronger customer relationships, and ultimately boost profitability.

For instance, Tim Cook’s practice of sharing interactions with Apple customers on Twitter highlights his commitment to customer service and fosters a connection with consumers. This can cultivate a larger and more dedicated customer base.

Communicating Values and Transparency

Increasingly, CEOs are using social media to articulate their positions on issues relevant to their customer base, aiming to project authenticity and demonstrate both personal and corporate values.

Following the tragic death of George Floyd and the subsequent rise of the Black Lives Matter movement, approximately 60% of CEOs from S&P 100, unicorn, and Fortune 500 companies publicly expressed support for the movement on Twitter. This marked a significant shift towards CEOs openly addressing racial and social justice concerns.

The platform also facilitates transparency regarding company policy. CEOs can announce new initiatives, expansions of capabilities, and investments in employees – particularly those focused on diversity and inclusion – which can positively influence stock performance.

The Weight of Words and Legal Considerations

Recent attention to Donald Trump’s Twitter activity and its impact on the stock market underscores the lasting consequences of public statements. Given their leadership position and fiduciary responsibilities, CEOs must exercise caution in their online communications.

Ultimately, responsible social media engagement for a CEO requires awareness, sound judgment, and a thorough understanding of applicable laws.

Maintaining Legal Compliance and Truthfulness

U.S. publicly traded companies are governed by SEC Regulation Fair Disclosure (Reg FD). This regulation stipulates that material nonpublic information cannot be disclosed to select groups, either deliberately or inadvertently, without simultaneous disclosure to the broader investment community.

To ensure compliance, if a company utilizes social media for announcing significant updates, it must inform investors that these platforms will serve as a channel for such communications.

Whether operating as a public or private entity, Chief Executive Officers (CEOs) hold the position of corporate officers and are legally bound by fiduciary duties to both the company and its shareholders.

These duties necessitate that CEOs act with honesty, exercise sound business judgment, and prioritize the company’s best interests, irrespective of their location – be it a boardroom meeting or a social media platform.

The Case of Elon Musk and Tesla

A notable example involves Elon Musk’s tweets from August 7, 2018. He announced having secured funding to take Tesla private at a price of $420 per share, a claim that proved to be inaccurate as funding was not, in fact, secured.

This led to the SEC initiating legal action against both Tesla and Musk personally, alleging fraud and a violation of Reg FD.

The subsequent settlement imposed substantial financial penalties, required Musk to relinquish his role as Tesla’s chairman for a period of three years, and mandated pre-approval from Tesla’s legal counsel for all of his future tweets.

However, in 2019, similar issues arose. Musk tweeted a projection of 500,000 vehicle deliveries for Tesla in 2019, despite internal expectations falling short of this target.

Furthermore, he published statements regarding Tesla’s solar roof production and stock valuations without obtaining the required legal pre-approval.

Consequently, the SEC filed a motion asserting that Musk had violated the terms of the original settlement agreement.

• Reg FD: Requires equal access to material information for all investors.
• Fiduciary Duty: CEOs must act in the best interest of the company and shareholders.
• SEC Enforcement: Violations can lead to fines and restrictions on leadership roles.

Understanding Context: A Crucial Skill

Building and preserving a strong reputation and positive goodwill requires considerable effort and time. However, a single online post can swiftly undermine these achievements.

CEOs need to fully grasp the enduring nature of internet content; even deleted posts can resurface. Posts perceived as insensitive or offensive can significantly damage both the CEO’s personal image and the company’s standing.

The Daraprim Case: A Cautionary Tale

Consider the situation surrounding Daraprim, a medication vital for individuals with HIV/AIDS. Following its 2015 acquisition by Turing Pharmaceuticals, established by Martin Shkreli, the cost per pill dramatically increased from $13.50 to approximately $750.

This substantial price surge prompted investigation by The New York Times, seeking to understand the rationale behind it. Public figures, including Hilary Clinton, labeled the increase as “price gouging.”

Their response to Turing Pharmaceuticals’ founder and CEO, Martin Shkreli’s, offer of a 10% price reduction was delivered via Twitter.

Shkreli’s Response and its Consequences

Shkreli’s reply on Twitter was a dismissive “lol,” and he continued to engage with critics through further insensitive online statements.

Following this, investor confidence in biotech stocks waned due to concerns about potential legislative action against the pharmaceutical industry.

Key Takeaways for CEO Online Conduct

This example highlights the importance of careful consideration before posting online. A CEO’s digital footprint directly impacts the organization they lead.

Maintaining awareness of the potential ramifications of online communication is paramount for effective leadership in the digital age.

Navigating Social Media as a CEO: A Cautionary Approach

The well-known principle – refrain from speaking if you have nothing constructive to offer – holds significant weight in the context of executive communication. A Chief Executive Officer’s primary responsibility lies in safeguarding the interests of the company and its investors.

Prior to publishing any content on platforms like Twitter, a crucial self-assessment is warranted.

Key Considerations Before Posting

• Does the intended message disclose information considered material to investors and shareholders?
• Could the post be construed as a breach of the duty of care owed to the company?
• Does the content potentially violate the duty of loyalty to the organization?
• Does the post reflect sound and prudent business judgment?
• Is the message consistent with the established company values?
• Would disseminating this information ultimately serve the best interests of the company?

Should uncertainty surround any of these questions, abstaining from posting is the most prudent course of action.

While Twitter presents a valuable opportunity for direct and impactful communication with stakeholders, enhancing both corporate and CEO visibility, and potentially boosting financial performance, it also carries inherent risks.

Social media operates as a double-edged sword. Every communication emanating from a CEO is interpreted as a reflection of the company’s character and core principles. Therefore, CEOs must possess a keen awareness of their audience, a thorough understanding of the potential consequences of their statements, and exercise careful discretion in their online interactions.