The world’s richest man now has a seat on his favorite social-media network. On the latest Pivot podcast, Kara Swisher and Scott Galloway discussed at length how Elon Musk broke the rules on the way to acquiring more influence at Twitter and what his newfound influence might look like. Below, a section of that conversation.
Kara Swisher: Elon Musk is a Twitter board member. Musk says he wants to make significant improvements to Twitter in the coming months. And there are new questions about his Twitter stock, including when he purchased it and how. There’s been several really interesting stories — he changed his status from passive to active investor. He just refilled out his form, which was a little late. You’ve been involved with Twitter, Scott. I’m going to let you rant here for a little bit. People are dying to hear your take.
Scott Galloway: So, just some backstory. I acquired what, for me, was a lot of Twitter shares and wrote a letter to the board. Basically, my recommended strategy has been entirely the opposite of what Elon is recommending. One, I think they need tighter moderation. I think this First Amendment bullshit is bullshit. And they need to move to a subscription model.
Elon Musk has 80.8 million followers. General Motors will spend $2 billion on advertising this year. Tesla has much greater awareness, a much stronger brand, because (1) it performs, (2) it delivers on time, and (3) Musk has this Jesus Christ–like following, and he uses this channel called Twitter to get unbelievable reach. If Twitter turned around and said, “Hey, Elon, we’re going to charge you $10 million a month to maintain your account,” he would make ad hominem attacks on board members, take polls, threaten to start a new network. And then, you know what he’d do? He’d pay because it would be a bargain.
So basically, clean up. Get rid of all the bots. The only reason they’re there is to spread misinformation, such that Twitter’s salespeople can lie to advertisers and inflate their numbers, which is total bullshit. They have been a ten-year experiment in how you can not compete with Facebook and Google.
Swisher: So they have too little moderation meaning there’s too much of a free for all, which is what Elon wants.
Galloway: Look at his feed. You want to know what a Musk Twitter looks like? When he made the announcement, his feed was dominated by crypto scams and Daily Caller–like whack jobs misusing the term “First Amendment.”
Swisher: That’s because they think he’s on their side, but that’s another issue. So when you were involved — you abandoned your effort, correct? Let’s disclose here.
Galloway: So, I bought the stock at $32, and I sold it around $56. I actually sold it higher than where it is now. And everyone is saying, “Oh, you’re just angry because you got out too early.” Actually, people forget.
Swisher: It was at $70.
Galloway: Yeah, last year. It was at $74 just six months ago. So anyway, I have a backstory here. I’ve advised some hedge funds around this.
Swisher: Were you involved with Elliot? Just explain what Elliot is because people don’t know.
Galloway: So basically an activist firm called me and said, “Tomorrow morning, we’re announcing we’ve signed your letter with a billion-dollar pen.” And they put on a master class on how to be effective in addition to being right. And they got board seats in record time because this ridiculous notion that Twitter could have a part-time CEO as it underperformed the market consistently was getting old in the eyes of shareholders. So they knew they were all wet. They got a bunch of board seats. I haven’t talked to Elliott about this in a while, so I don’t know if they’ve sold their shares or if they still have them. But in the last month, the stock touched $32. And about two months ago, I began talking to hedge funds again about taking a stake and said, “It’s time to go subscription, and it’s time to clean up the platform.”
And here’s where I made my mistake. I started talking to lawyers and figuring out things like what are our Hart-Scott-Rodino requirements if we have multiple parties and one capital source has more than 50 percent? What would be the timing of our disclosures? If there’s compensation and interparty agreements, how does that affect our triggers in terms of filing deadlines? And I literally spent weeks trying to figure this shit out with some very smart people at other hedge funds. And here’s the thing: I’m the fucking idiot because it clearly doesn’t matter.
This gets us to where Elon is. Elon began acquiring shares at the end of January. On March 14, he crossed 5 percent.
Swisher: And he was tweeting about the topic, about whether there should be a different Twitter.
Galloway: Taking polls, making recommendations about policy. And on March 14, his stake blew by 5 percent. Now, what does that mean? The SEC, once you blow by 5 percent ownership, wants you to publicly disclose within ten days that you are a 5 percent owner. Why did they do this? Because they don’t want creeping takeovers. About 20, 30 years ago, a shareholder came in and quietly acquired 51 percent of Macy’s and then popped up and said, “Hi, I own you,” and Macy’s shareholders never got a takeover premium. So when Elon was acquiring additional shares after March 24, at an average of $35 to $38 a share, the people who were selling their shares to him didn’t know that the company had been put in play by the wealthiest man in the world. And as a result, they sold their shares to him for $39 a share instead of $50 a share, where the stock traded once the market knew the world’s wealthiest man was taking a large stake. This means, according to the SEC, Elon Musk owes every shareholder that sold their shares for less than $50 between March 24 and when he disclosed his stake.
Swisher: Right, and that’s about $146 million.
Galloway: In other words, he got his shares for $140 million less than if he had done what every other activist, including yours truly, has done, believing it’s the law. Or every shareholder that sold shares for less than they were worth at that time.
Swisher: Well, what he did is he’s asking for forgiveness rather than permission. He blew through it.
Galloway: Isn’t that adorable.
Swisher: He does that. Listen, the SEC does nothing with this guy. Like, they don’t. So at some point, he’s learned that the lesson is “they’re a paper tiger.”
Galloway: That is disappointing and true.
Swisher: I agree. But the fine is not very much. I was reading up on this, and it’s a couple hundred thousand dollars, which he can afford. So at some point — just like I said with taxes — no, he doesn’t pay enough taxes. Neither do a lot of rich people. But this is the law.
Galloway: He doesn’t break the law with his taxes. He’s breaking the law here.
Swisher: Except it’s a parking ticket.
Galloway: I agree with you. I want to come back to him acquiring these shares — but this is what happened. This is how sophomoric or incredibly arrogant the Twitter people are. They want to pretend it’s their idea. So Jack Dorsey and Parag Agrawal come out and say, “We’ve been talking to Elon for a while about joining the board.” And then some lawyer in the room, who they clearly didn’t have the wisdom to have in the room before they started publicly saying we’ve been talking to him about being a board member, goes, “You realize that is the definition of being an active investor,” meaning he was supposed to disclose this. When you start taking polls, making recommendations, and talking to management about a board seat, that is literally the definition of an active investor. And Twitter is either — their general counsel is either so stupid, or they didn’t think to have a lawyer in the room when they started putting out tweets saying, “We’ve been talking to Elon about his board seat.” And then some lawyer raised his hand and said, “Jesus Christ, guys. You’re basically saying he’s been violating securities laws for the last week and a half.”
This is America. “Hi, let me assault you. Now give me an award. Let me buy shares for $150 million to a half-billion dollars less from shareholders that don’t have the information they are legally mandated to have so I can buy shares on the cheap, and I think I can get away with it. I think I can absolutely get away with it.”
Swisher: At this moment, he’s getting away with it. One of the things is — he’s going to say it’s an accident. Again, I read up a lot on this. It’s very hard to do anything about what he did. And with Twitter, maybe more so. But they certainly wanted to keep him in a controlled position before it got out of hand, before he started to really attack them. And so that’s why they assuaged him and gave him a board seat. He can only buy up to 15 percent of the company or close to 15 percent of the company if he’s on the board, and 90 days after, if he leaves. So they got some control of him in advance. And I think that’s what they were trading here. Instead of having him screaming on the outside, they have him screaming on the inside, essentially.
Galloway: Well, let’s talk about what this could mean for the company, right? I think, at a minimum, there are shareholder lawsuits being drawn up here like there’s no tomorrow. And also, I think Gary Gensler is sick of being called flaccid and a wimp and neutered. And at some point, he has to actually go. I actually think Musk has crossed a red line here. That’s going to be my prediction. I’ll come back to it. But let’s talk–
Swisher: I’m going to go opposite of you on that.
Galloway: Let’s go glass is half-full here. He is the most brilliant product engineer of this in the last century. If anyone can get us to Mars faster, land two rockets concurrently on two barges, and inspire the EV market — if he brings a fraction of that product genius to Twitter. And by the way, it’s very hard to dictate product strategy from the board because you need to be around focusing on the little things. But if he’s able to just even influence it a little bit around product strategy, it could be absolutely wonderful for Twitter. That’s the bull case.
Swisher: And he’ll bring attention to it. He also brings attention to it. People like him or don’t like him. He’s got fans and detractors, and they’re equally inspired by him in some fashion, negatively or positively. So he attracts attention to it, making it a little hotter.
Galloway: This notion of censorship and violation of the First Amendment, I now believe they’re just gaslighting everybody. Anybody that knows anything about the law knows that the First Amendment is that Congress can pass no law that inhibits free speech. This is a private company. If you put enough pressure on Twitter to not distribute hate speech, to not distribute vaccine misinformation, then to a certain extent you are violating free speech. Free speech is also that you don’t have to publish information when you are a private company because your speech is a function of the voice you put out, which is not only a function of what you have on your platform but what you don’t have.
Swisher: I took issue — he called it the de facto public square. I said it’s the de facto private square is what it is, actually. He’s making that typical argument he is in all his tweets. But go ahead.
Galloway: It is for him. It lives rent-free in his mind. But it doesn’t appear that this company has a monopoly on social media.
Swisher: They do not.
Galloway: It’s a pimple on the elephant. It is the pimple Elon Musk lives inside, though. It is very important to him. But the notion somehow, this isn’t the public square. Like you said, it’s absolutely the private square.
What could be very dangerous here or unfortunate is that Twitter could digress into the cesspool of far-right, Daily Caller–like people talking about the First Amendment and spreading hate speech. They could continue to let bots run unfettered and spread misinformation. And then on the far left, people are going to feel like they have to be the public-access channel in Wokeistan and just be outraged all the fucking time. And the algorithms love both of those sides, extremist sides, because it creates enragement engagement, so they can lie to Nissan about how much engagement they get. And we continue to tear at the fabric of American discourse. This is terrible.
This transcript has been edited for length and clarity.