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Slow Disclosure of Tesla Raising Governance, Social Media Concerns

In his blog, Musk said he made the announcement on Twitter to ensure all investors were aware of his plan before speaking with the company's largest shareholders

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Tesla CEO Elon musk, board
Tesla CEO Elon Musk. (VOA)

Tesla’s handling of Chief Executive Elon Musk’s proposal to take the carmaker private and its failure to promptly file a formal disclosure has raised governance concerns and sparked questions about how companies use social media.

Musk stunned investors last Tuesday by announcing on Twitter that he was considering taking Tesla private in a potential $72 billion transaction and that “funding” had been “secured.”

Tesla’s shares closed up 11 percent before retrenching after the Wall Street Journalreported that the U.S. Securities and Exchange Commission (SEC) had asked Tesla why Musk announced his plans on Twitter and whether his statement was truthful.

Musk provided no details of his funding until Monday, when he said in a blog on Tesla’s website that he was in discussions with Saudi Arabia’s sovereign wealth fund and other potential backers but that financing was not yet nailed down.

Musk said his tweet and blogs were issued in his personal capacity as a private bidder for Tesla’s stock. A Tesla spokesman pointed Reuters to Musk’s blog in response to a request for comment.

Putting aside whether Musk misled anyone, the unorthodox manner in which he announced the news and Tesla’s failure to promptly clarify the situation with a regulatory filing is a corporate governance lapse that raises questions about how companies use social media to release market-moving news, securities lawyers said.

Tesla CEO
Tesla CEO and founder of the Boring Company Elon Musk speaks at a news conference in Chicago, June 14, 2018. (VOA)

“Management buyouts or other take-private transactions already suffer from serious information asymmetry between management and public shareholders,” said Gabriel Rauterberg, a University of Michigan law professor.

SEC rules typically require companies to file an 8-K form within four business days of a significant corporate event.

While several securities lawyers said Musk’s tweets alone did not trigger this obligation, such a filing would be prudent given the unusual circumstances, David Axelrod, a partner at law firm Ballard Spahr LLP, said.

“An 8-K would provide some more details, it would say what stage negotiations are in, and provide more information than 53 characters in a tweet,” he added.

Full and fair disclosure

SEC guidelines published in 2013 allow companies and their executives to use social media to distribute material information, provided investors have been alerted that this is a possibility. Tesla did this in a 2013 filing.

But such disclosures have to be full and fair, meaning the information is complete and accessible by all investors at the same time, a bar that Musk’s tweets may not have met.

“Twitter is not designed to provide full and fair disclosure. That doesn’t mean that you couldn’t, but in a series of 20 to 30 characters I’m not sure you’re getting full disclosure,” said Zachary Fallon, a former SEC attorney and principal at law firm Blakemore Fallon.

 

Elon Musk
Elon Musk, founder, CEO and lead designer at SpaceX. (VOA)

The SEC declined to comment Monday.

Securities lawyers said there was also a question mark over whether Musk selectively disclosed information on the possible terms of the deal when he subsequently replied to followers, two of whom claim in their handles to be investors.

Those tweets were not immediately visible to all followers of Musk’s main feed until he retweeted them.

History of Twitter use

The 47-year-old billionaire’s history of joking about Tesla and using twitter to bait his critics also appears to have undermined trust in Musk’s feed as a reliable source of company information, with many investors initially believing Tuesday’s tweet was a prank.

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In his blog, Musk said he made the announcement on Twitter to ensure all investors were aware of his plan before speaking with the company’s largest shareholders.

But his claim to have done so as a private person presents a potential conflict of interest, said Nimish Patel, a lawyer with Mitchell Silberberg & Knupp.

“If you’re speaking on behalf of the company using resources like Twitter and the company website, while at the same time saying you’re a private individual expressing your own personal views, you are being inconsistent and creating confusion for investors. And when there’s confusion, the SEC is likely going to get involved,” he added. (VOA)

Next Story

Authorities Scroll Through Social Media Violations Of Laws Restricting Political Parties, As It Forms Thailand’s Election “War Room”

"Combating false news is crucial to the integrity and safety of the Thailand elections," said Katie Harbath, Facebook's Global Politics and Government director, during a Bangkok visit in January.

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Government staff work as they monitor social media in a social media war room in Bangkok, Thailand, March 8, 2019. VOA

In Thailand’s election “war room,” authorities scroll through thousands of social media posts, looking for violations of laws restricting political parties’ campaigning on social media that activists say are among the most prohibitive in the world.

The monitors are on the look-out for posts that “spread lies, slander candidates, or use rude language,” all violations of the new electoral law, said Sawang Boonmee, deputy secretary-general of the Election Commission, who gave a Reuters team an exclusive tour of the facility.

When they find an offending post, on, for example, Facebook, they print it out, date-stamp it, and file it in a clear plastic folder, to be handed over to the Election Commission and submitted to Facebook for removal.

“When we order content to be removed, we’ll reach out to the platforms, and they are happy to cooperate with us and make these orders efficient,” Sawang said.

Sawang Boonmee, deputy secretary-general of Election Commission talks as he works in a social media war room in Bangkok, Thailand, March 8, 2019.
Sawang Boonmee, deputy secretary-general of Election Commission talks as he works in a social media war room in Bangkok, Thailand, March 8, 2019.

Sawang said the tough electoral laws governing social media for the March 24 election, the first since a 2014 military coup, are a necessary innovation aimed at preventing manipulation that has plagued other countries’ elections in recent years.

“Other countries don’t do this. Thailand is ahead of the curve with regulating social media to ensure orderly campaigning and to protect candidates,” he said.

A Facebook representative said it reviewed requests from governments on a case-by-case basis.

“We have a government request process, which is no different in Thailand than the rest of the world,” the representative said.

Twitter did not respond to a request for comment.

Democracy advocates, worry the social media restrictions laid out by the military government may be impeding parties from freely campaigning.

The rules require that candidates and parties register social media handles and submit a post to the commission, stating what platform it will appear on and for how long.

Parties and candidates are only allowed to discuss policies, and posts that are judged to be misleading voters or that portray others negatively could see the party disqualified, or a candidate jailed for up to 10 years and banned from politics for 20.

Government staff work as they monitor social media in a social media war room in Bangkok, Thailand, March 8, 2019.
Government staff work as they monitor social media in a social media war room in Bangkok, Thailand, March 8, 2019. VOA

Pongsak Chan-on, coordinator of the Bangkok-based Asia Network for Free and Fair Election (ANFREL), said the rules go far beyond combating “fake news” and raise questions about how free and fair the election will be.

“The rules are stricter than in any recent elections anywhere. They’re so detailed and strict that parties are obstructed,” he told Reuters.

‘Doesn’t Bode Well for Democracy’

The monitoring center, with a signboard reading “E-War Room,” has three rows of computers and stacks of printouts, with half a dozen workers spending eight hours a day searching for violations of the law.

Sawang said another intelligence center scanned for violations 24 hours a day but it was “off-limits” to media.

The election is broadly seen as a race between the military-backed prime minister, Prayuth Chan-ocha, and parties that want the military out of politics.

But the stringent rules have left anti-junta parties fretting about how to campaign online, nervous that they could inadvertently break a rule that triggers disqualification.

Thailand's Prime Minister Prayut Chan-o-cha arrives to deliver a keynote speech at the opening ceremony of "National Fund to Reduce Inequalities" ahead of the general election, in Bangkok, Thailand, March 18, 2019.
Thailand’s Prime Minister Prayut Chan-o-cha arrives to deliver a keynote speech at the opening ceremony of “National Fund to Reduce Inequalities” ahead of the general election, in Bangkok, Thailand, March 18, 2019. VOA

Up to now, the new rules have not been used to disqualify any candidates though the very threat has had a dampening effect and encouraged self-censorship.

“They create complications for parties,” said Pannika Wanich, spokeswoman for the new Future Forward Party, which has attracted support among young urban folk who have come of age on social media.

She said her party had to consult a legal team before making posts.

Some candidates have deactivated their Facebook pages while others have removed posts that might cause trouble.

Last month, Future Forward leader Thanathorn Juangroonruangkit faced disqualification over an allegation that he misled voters in his biography on the party’s website. The commission dismissed the case last week.

A woman casts her early vote for the upcoming Thai election at a polling station in Bangkok, Thailand, March 17, 2019.
A woman casts her early vote for the upcoming Thai election at a polling station in Bangkok, Thailand, March 17, 2019. VOA

In another petition, the commission was asked to ban the party’s secretary-general for slandering the junta in a Facebook post.

“It’s very restrictive and doesn’t bode well for democracy,” said Tom Villarin, a Philippine congressman and member of ASEAN Parliamentarians for Human Rights (APHR). “Putting more restrictions on social media during a campaign season defeats the purpose of holding elections in the first place.”

Fighting Fake News

About 74 percent of Thailand’s population of 69 million are active social media users, putting Thais among the world’s top 10 users, according to a 2018 survey by Hootsuite and We Are Social.

Thailand is Facebook’s eighth biggest market with 51 million users, the survey showed.

Facebook said it has teams with Thai-language speakers to monitor posts and restricts electoral advertisements from outside the country.

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“Combating false news is crucial to the integrity and safety of the Thailand elections,” said Katie Harbath, Facebook’s Global Politics and Government director, during a Bangkok visit in January.

Sawang said the election commission has also gained cooperation from Twitter and Japanese messaging app Line, used by 45 million Thais.

Line Thailand told Reuters it did not monitor chats for the election commission but helped limit fake news by showing only articles from “trusted publishers” on its news feature. (VOA)