Social media has handed a megaphone to anyone who wants one, and the world is still trying to work out how to cope. This applies to financial markets as much as anything else, as you can see in the latest share price-moving Twitter storm from Elon Musk.
For regulators, it’s becoming a nightmare to keep track of. But unless the rules can be adapted to the Twitter age, the rewards for a charismatic CEO in ignoring the norms of corporate communication will outweigh the risks. If it works for Donald Trump, why not for me, appears to be the thinking.
Being head of a publicly traded company hasn’t stopped Musk talking up Tesla Inc.’s prospects, lashing out at legitimate criticism and casually floating the idea of history’s biggest buyout. The market’s initial response to this last tweet was skeptical on the actual numbers but positive on the sentiment. That may have been Musk’s aim all along.
Whether or not you think there’s something for the Securities and Exchange Commission to look at here, there is a tangible value to being talked about. Traders have long tracked the ebb and flow of tweets, especially so-called “burst” phases associated with a big event. Aggregate data about sentiment, which is based on the mood of the crowd rather than the accuracy or utility of information, has been found to have a link with stock-market returns. Today, silence is the real killer.
Musk’s tweet served this purpose well. The volume of tweets published about the company hit its highest level since at least 2017 on a per-hour basis on Tuesday, according to Bloomberg data. It was several orders of magnitude higher than any other Tesla “burst” over the past six months.
The disincentives to a CEO carrying on like this are much less clear. Obviously, a bold lie – say, promising a profit and delivering a loss – will attract the SEC whether it is told in a midnight tweet or in a vetted press release. But the limits of what can and can’t be said are being tested all the time. Musk said he was only “considering” a deal. Does that mitigate things if nothing happens? He plucked out a buyout price of $420. Should he be held to that? A Bloomberg’s QuickTake describes the tweet as “unorthodox” but in a legal grey area.
Regulation tends toward tinkering after the fact, rather than preempting big shifts in technology. We’ve seen it with Bitcoin, and we’ll see it with CEO tweets. Recall the SEC’s so-called “Reed Hastings Rule,” which was hastily drawn up after the Netflix CEO tweeted positive data about his company back in 2013. Perhaps there will be an “Elon Musk Rule” about CEOs playing fantasy M&A on Twitter, if that’s what this is. But it probably wouldn’t be that punitive if precedent is anything to go by.
Maybe powerful people will learn the hard way about the dangers of making a big noise on the web. If Musk is over-promising, people might be less inclined to believe him in future. But Trump’s success so far in this arena shows this may be a forlorn hope. Tougher rules do appear to be the way forward, but don’t expect the Musks of the world to always obey them.