The recent firestorm and widely reported interest from the SEC arising from Tesla CEO Elon Musk’s Twitter musings about Tesla’s potential take-private provides an excellent starting point for a board conversation regarding the limits, guides and constraints on a CEO’s use of social media.
A board naturally hires a CEO for the CEO’s business acumen, professional skill and ingenuity. But those traits, as desirable as they may be, do not give a CEO license to float public trial balloons concerning corporate strategy – especially if there is value in keeping that strategy confidential. While it may seem brilliant to manipulate an unco-operative board into bowing to public pressure, it calls into question the CEO’s breach of fiduciary and other legal duties to do so.
This leads to the inevitable question: should a board impose a social media policy on its C-suite? Must it? What does good corporate governance advise under the circumstances? Arguably, a board should prescribe at least some guidelines for the C-suite given the board’s obligation to shareholders, the rapidly changing business landscape and the never-ending appetite for social media. A few basics are, therefore, in order.
First, is there a corporate policy in place regarding social media that generally applies to the company’s employees? If so, that policy would be equally applicable to the CEO or any employee member of the C-suite. If there isn’t a policy, consider whether to implement one.
Second, is there an employment contract in place that prohibits the executive from engaging in conduct that could impair the company’s reputation? A gentle reminder regarding those restrictions may be in order to reign in or manage a CEO who tends to overshare.
Third, is there a formal communications plan in place? Is there a hierarchy of outside PR, internal IR and a lead board member communication flow chart concerning matters of significance (such as strategic transactions)? Certainly, at a minimum, guidelines should be in place to clear communications before they are made.
Fourth, are the company’s policies (including any of those discussed) consistent with the rapidly changing legal landscape? Curtailing the use of social media may be appropriate and sound, but that curtailment must comply with a variety of legal restrictions, among them the National Labor Relations Act (which applies even to management-side communications), and a patchwork of state statutory restrictions on speech and other conduct in and outside of the workplace.
Making up business strategy on the fly, unhindered by a pesky board that insists on meaningful discussions concerning strategy, is unsound in a world in which a blink of an eye (or pressing a post button) can expose the strategy and direction of a business. Under the circumstances, prudence and sound corporate governance at a minimum merit social media as an agenda item for your next board meeting.
Tesla did not respond to a request for comment.
Jen Rubin is a partner practicing employment law at Mintz Levin’s New York and California offices.