corporate governance at walmart case study

Walmart and Guns: A Case Study in Modern Corporate Governance

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In August 2019, the Business Roundtable issued a new Statement on the Purpose of a Corporation. The statement, signed by 181 CEOs, including Doug McMillon of Walmart, declared that corporations should seek to serve the interests of all stakeholders—a marked departure from the Roundtable’s prior embrace of shareholder primacy. This shift in position reinvigorated debate among business and legal scholars about the proper purpose of a corporation.

Using Walmart as a case study, this Note argues that corporations are indeed adopting a more flexible and responsive conception of corporate purpose. This Note begins with a discussion of corporate governance theories, detailing four distinct visions of corporate purpose and control. It then examines Walmart’s decisionmaking process regarding ammunition and firearm sales in the wake of a tragic mass shooting at one of its stores. Finally, it concludes by reconciling Walmart’s conduct with the prevailing theories of corporate governance, ultimately finding team production theory— which calls for the balancing stakeholder interests—to be most applicable.

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Walmart and Guns: A Case Study in Modern Corporate Governance

Curran, Clare

In August 2019, the Business Roundtable issued a new Statement on the Purpose of a Corporation. The statement, signed by 181 CEOs, including Doug McMillon of Walmart, declared that corporations should seek to serve the interests of all stakeholders—a marked departure from the Roundtable’s prior embrace of shareholder primacy. This shift in position reinvigorated debate among business and legal scholars about the proper purpose of a corporation. Using Walmart as a case study, this Note argues that corporations are indeed adopting a more flexible and responsive conception of corporate purpose. This Note begins with a discussion of corporate governance theories, detailing four distinct visions of corporate purpose and control. It then examines Walmart’s decisionmaking process regarding ammunition and firearm sales in the wake of a tragic mass shooting at one of its stores. Finally, it concludes by reconciling Walmart’s conduct with the prevailing theories of corporate governance, ultimately finding team production theory— which calls for the balancing stakeholder interests—to be most applicable.

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• Commercial law--U.S. states

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Corporate Communications: An International Journal

ISSN : 1356-3289

Article publication date: 14 June 2019

Issue publication date: 31 July 2019

The purpose of this paper is to understand the role of corporate social responsibility (CSR) communications in business by merging previously unconnected lines of thought in communications and law. Using Walmart as an example, the study shows that CSR communication can legitimize a corporation’s autonomous legal system of regulation and governance over its business practices.

Design/methodology/approach

A qualitative case study of all online corporate communications webpages from Walmart was examined. Discourse and qualitative analyses were used to show how language and online communications practices created actional legitimacy for Walmart’s CSR practices.

Using the UN’s Guiding Principles for Business as a framework for analysis, the study demonstrated how CSR communications helps Walmart to establish its own system of CSR norms, structures and remediation processes for its business outside of the state. These communications also sought to legitimize these actions among stakeholders.

Research limitations/implications

This case study looks at one corporation (Walmart) to illustrate a new connection between CSR communication and legitimacy. Future research in communications can extend this line of inquiry by examining how communications can reinforce autonomous legal systems and public perceptions.

Originality/value

Backer’s (2007) autonomous legal system and the concept of actional legitimacy in communications have not yet been studied systematically. This case study demonstrates how CSR communications can legitimize a multinational corporation’s business practices, which, in turn, raises ethical considerations for the ways this communication serves the greater society.

• Corporate communications
• Corporate social responsibility
• Autonomous legal systems

Harrison, V. (2019), "Legitimizing private legal systems through CSR communication: a Walmart case study", Corporate Communications: An International Journal , Vol. 24 No. 3, pp. 439-455. https://doi.org/10.1108/CCIJ-12-2018-0124

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Legitimizing private legal systems through CSR communication: a Walmart case study

Purpose The purpose of this paper is to understand the role of corporate social responsibility (CSR) communications in business by merging previously unconnected lines of thought in communications and law. Using Walmart as an example, the study shows that CSR communication can legitimize a corporation’s autonomous legal system of regulation and governance over its business practices. Design/methodology/approach A qualitative case study of all online corporate communications webpages from Walmart was examined. Discourse and qualitative analyses were used to show how language and online communications practices created actional legitimacy for Walmart’s CSR practices. Findings Using the UN’s Guiding Principles for Business as a framework for analysis, the study demonstrated how CSR communications helps Walmart to establish its own system of CSR norms, structures and remediation processes for its business outside of the state. These communications also sought to legitimize these actions among stakeholders. Research limitations/implications This case study looks at one corporation (Walmart) to illustrate a new connection between CSR communication and legitimacy. Future research in communications can extend this line of inquiry by examining how communications can reinforce autonomous legal systems and public perceptions. Originality/value Backer’s (2007) autonomous legal system and the concept of actional legitimacy in communications have not yet been studied systematically. This case study demonstrates how CSR communications can legitimize a multinational corporation’s business practices, which, in turn, raises ethical considerations for the ways this communication serves the greater society.

• Related Documents

The transformation of corporate sustainability model in the context of achieving the UN SDGs: evidence from the leading Russian companies

Purpose The purpose of this paper is to explore the current status and identify the main trends in leading Russian companies’ corporate sustainability model transformation in the context of achieving the United Nations Sustainable Development Goals (UN SDGs). Design/methodology/approach A theoretical approach is based on the interpretation of corporate sustainability model transformation within the corporate social performance (CSP) framework. The corporate sustainability model is described according to Dyllick and Muff (2016) business sustainability (BST) 1.0-3.0 spectrum. The analysis is settled on survey data collected from leading Russian companies participated in the “Report on Social Investments in Russia” project conducted by the Russian Managers Association from 2008 to 2019. Findings This paper finds that the BST 2.0 is becoming a dominant model based on the “creating shared value” goal. The related CSP is characterized by their orientation to the principles of the UN Global Compact; by the emergence of a coordinating role for specialized departments of corporate social responsibility (CSR) and/or sustainability; and by the regular sustainability reporting. The SDGs are generally correlated with responsible business practices that are already in existence in companies. The emerging trend towards the advanced BST 3.0 model including the SDGs integration into the main business processes is constrained by the lack of active cooperation between companies. Research limitations/implications The research sample includes only large Russian companies with a significant industry diversity, participating in the “Report on Social Investments in Russia” project, thereby restricting the analysis of non-participants. The relatively low repetition of participants in this long-term project does also restrict the degree of generalization. Future research could be based on the findings of this paper to create and test hypotheses via a nationwide study of Russian businesses as well as cross-national comparative studies. Practical implications The analysis of the corporate sustainability model transformation through studying the key CSP framework elements could support Russian companies in creating systemic changes of their principles, processes and outcomes measurements in the context of achieving the UN SDGs. Originality/value This study contributes to existing literature by combining the corporate sustainability model transformation analysis with the CSP framework. It describes the experience of large Russian companies that publicly position themselves as national leaders in the field of CSR and sustainable development.

The (mis)use of social media to communicate CSR in hospitality

Purpose This paper aims to discuss how the hospitality industry is communicating corporate social responsibility (CSR) to its stakeholders, the premise being CSR communication through social media platforms will increase stakeholder engagement. Design/methodology/approach This paper is developed based on Schwartz and Carroll’s three-domain approach to CSR motivation, stakeholder theory and a synthesis of previous literature of CSR communication in the hospitality industry. Findings Successful communication through social media is based on two-way participative dialogue. Companies, especially the hospitality industry, have used social media to communicate information through social media in a one-way direction, that of giving information. One example is the communication of CSR actions and intentions as found on hospitality websites, intranets and social media platforms. While previous studies have shown a link between CSR communication through social media and corporate reputation, few studies have examined CSR communication through social media and its effects on specific stakeholder groups. Research limitations/implications Rather than assuming that CSR communication can be done successfully through a “one-size-fits-all” social media discourse, this paper suggests the need for specific messages and potentially different communication channels to increase engagement from each of the various stakeholders in the hospitality industry. Originality/value This is one of the first papers which tries to address how one communication channel, social media, can affect CSR communication and increase stakeholder engagement in the hospitality industry. This paper provides discussion on the usefulness of social media to communicate CSR messages and posits the need for future research projects on a macro and micro level.

Banking on bullshit: indifferences towards truth in corporate social responsibility

PurposeThis study aims to identify and deconstruct bullshit in banks' corporate social responsibility (CSR) communication to advance the management rhetoric research space, which has been characterised by an indifference to truth and meaning.Design/methodology/approachWe provide a typology of bullshit phenomena overview in the banking sector and follow the McCarthy et al.'s (2020) C.R.A.P. framework from to showcase how bullshit can be comprehended, recognised, acted against and prevented.FindingsThis paper puts a spotlight on written and spoken language to detect bullshit in banks' CSR statements. It provides actionable insights into how stakeholders can act against and prevent bullshit statements from occurring in the future.Research limitations/implicationsFuture research is warranted to assess the use of still imagery, events and video materials in corporate communications and non-financial reporting. Further rigorous assessment of actual CSR initiatives must be undertaken to assess claimed contributions.Practical implicationsMonitoring mechanisms and independent assurance statements prepared by authorised third parties may strengthen the motivation and ethicality of CSR activities.Originality/valueThis viewpoint is the first to follow the C.R.A.P framework and critically assess indifferences towards truth in banks' CSR communications.

Strengthening the role of communication departments: A framework for positioning communication departments at the top of and throughout organizations

PurposeCorporate communications is often less successful when it is competing for influence with neighboring functions such as marketing or sales within organizations. This article addresses the internal positioning of communication departments by developing a conceptual framework which helps to understand, analyze and optimize their standing in organizations.Design/methodology/approachThe research is based on a literature review across several disciplines (e.g. organizational communication, strategic management) and supported by 26 qualitative in-depth interviews with board members, executives and communicators in a global industry company. By combining the theoretical and empirical insights, a framework for positioning communication departments within organizations was developed.FindingsThe framework depicts seven strategies (e.g. expectation and impression management, supporting ambassadors from other departments) and three spheres of influence (organizational integration, internal perceptions and social capital) to strengthen the position of corporate communications.Research limitations/implicationsThe conceptual framework has been supported by one case study so far, and future research may further develop and verify it by applying it to a larger number of companies in different industries.Practical implicationsPractitioners can use the framework as an analytical tool to reflect the current situation in their organization and identify opportunities for strengthening it.Originality/valueThis article introduces a novel view in the academic debate about the role and influence of corporate communications. It establishes a framework that helps to identify different drivers and strategies, and lays ground for future research.

SME stakeholder relationship descriptions in website CSR communications

Purpose – The aim of this paper is to report on an exploratory, qualitative study of how small and medium enterprises (SMEs) describe their firm’s relationships with or impact on stakeholders when communicating corporate social responsibility (CSR) on their websites. Design/methodology/approach – Qualitative content analysis was conducted on 22 Australian SME websites from the information media and telecommunications sector. Stakeholder theory was used as the basis for analysis. Findings – An important aspect of CSR communication is reporting the firm’s relationships with stakeholders such as society/communities, ecological environment, employees, customers and suppliers. This paper provides insights into how these relationships are manifested in SME website communications. For example, three-way relationships between the firm and stakeholders were described on some websites, but few explained the impact of their CSR on stakeholders. Research limitations/implications – This study concentrated on identifying the CSR communication on websites from one industry sector in Australia. These limitations provide the basis for future research to explore and compare CSR communication on websites by SMEs from other industry sectors and countries. Practical implications – The findings offer SME owner-managers ideas on different ways they can incorporate details of stakeholder relationships in CSR website communications. Originality/value – There has been little research on how SMEs use channels such as websites to communicate CSR. This paper addresses this gap in knowledge by providing insights into how SMEs describe stakeholder relationships in CSR website communications.

Effects of CSR initiatives on company perceptions among Millennial and Gen Z consumers

Purpose The purpose of this paper is to examine Millennial consumers’ responses to two corporate social initiative types – socially responsible business practices and corporate philanthropy – in combination with proactive and reactive CSR communication strategies. Design/methodology/approach A 2 (corporate philanthropy/socially responsible business practices) ×2 (proactive/reactive CSR communication) between-subjects experiment was conducted. Findings The socially responsible business practices were largely perceived more positively than the philanthropic initiatives. Likewise, greater public-serving motives were attributed to the socially responsible business practices compared to the philanthropy. While philanthropic initiatives were perceived more negatively when communicated reactively, there were no significant differences between proactive and reactive socially responsible business practices. Originality/value As an attempt to initiate the comparative examination of the effects of different corporate social initiative types, this study suggests outperformance of the socially responsible business practices type of corporate social initiatives over the resources-giving (i.e. philanthropy) type of initiatives even in the reactive communication setting where reputational threat resides.

A systematic literature review of healthcare supply chain and implications of future research

Purpose This paper aims to review the healthcare supply chain (HSC) literature along various areas and to find out the gap in it. Design/methodology/approach In total, 143 research papers were reviewed during 1996-2017. A critical review was carried out in various dimensions such as research methodologies/data collection method (empirical, case study and literature review) and inquiry mode of research methodology (qualitative, quantitative and mixed), country-specific, targeted area, research aim and year of publication. Findings Supply chain (SC) operations, performance measurement, inventory management, lean and agile operation, and use of information technology were well studied and analyzed, however, employee and customer training, tracking and visibility of medicines, cold chain management, human resource practices, risk management and waste management are felt to be important areas but not much attention were made in this direction. Research limitations/implications Mainly drug and vaccine SC were considered in current study of HSC while SC along healthcare equipment and machine, hospitality and drug manufacturing related papers were excluded in this study. Practical implications This literature review has recognized and analyzed various issues relevant to HSC and shows the direction for future research to develop an efficient and effective HSC. Originality/value The insight of various aspects of HSC was explored in general for better and deeper understanding of it for designing of an efficient and competent HSC. The outcomes of the study may form a basis to decide direction of future research.

Handling negative publicity

Purpose Based on the framing theory and the associative network theory, the purpose of this paper is to develop and test a model that examines the impact of employing corporate social responsibility (CSR) communication in apology statements after negative publicity. Specifically, this study examines the role of CSR fit and CSR history in reducing anger and negative word-of-mouth (NWOM). This study also examines whether perceived CSR motivation and skepticism toward the apology statement mediate the effect of CSR fit and CSR history on anger and NWOM. Design/methodology/approach This study was a 2×2 between-subject design manipulating CSR fit (high or low) and CSR history (long or short). Findings The findings of this study suggest that strategically employing CSR communication in an apology statement after negative publicity may reduce negative consumer reactions. Originality/value The effects of CSR history and CSR fit have been studied in different contexts, but the effects of mentioning the two components in terms of apology statements had been understudied. This paper fulfills an identified need to study how employing CSR communication in apology statements after negative publicity can mitigate negative audience reactions.

Correlates of academic misconduct and CSR proclivity of students

Purpose – The purpose of this paper is to examine the effect of the fraud triangle, Machiavellianism, academic misconduct and corporate social responsibility (CSR) proclivity of students. Design/methodology/approach – The present study surveyed 471 university students. The study was cross-sectional and employed structural equation modelling in statistical modelling. Findings – The study provides evidence that perceived opportunity to cheat in examinations is the single most important factor accounting for significant variations in rationalization and academic misconduct. Similarly, low Machiavellians significantly get inclined to CSR ideals. The fraud triangle alone accounts for 36 per cent of the variations in academic misconduct, hence the error variance is 64 per cent of academic misconduct itself. This error variance increases to 78 per cent when a combination of perceived opportunity, rationalization, Machiavellianism is considered. Moreover, both Machiavellianism and academic misconduct account for 17 per cent of variations in students’ proclivity to CSR ideals. Research limitations/implications – Results imply that creating a setting that significantly increases a student's anticipated negative affect from academic misconduct, or effectively impedes rationalization ex ante, might prevent some students from academic misconduct in the first place and then they will become good African corporate citizens. Nevertheless, although the unit of analysis was students, these were from a single university – something akin to a case study. The quantitative results should therefore be interpreted with this shortcoming in mind. Originality/value – This paper contributes to the search for predictors of academic misconduct in the African setting and as a corollary, for a theory explaining academic misconduct. Those students perceiving opportunity to cheat in examinations are also able to rationalize and hence engage in academic misconduct. This rationalization is enhanced or reduced through Machiavellianism.

Innovation and cross-functional teams

Purpose The aim of this paper is to characterize how innovation may happen through cross-functional teams (CFT) in an organization of the public sector. Design/methodology/approach A case study helped to characterize several behavior patterns, team structures and respective links with generating innovation in internal processes and public answering contexts. Findings The results highlight that formal-temporary teams present a higher capacity to generate incremental innovation in products, whereas permanent-informal teams have a higher capacity to generate innovation in the internal processes and public answering contexts. Research limitations/implications The limitations of this research relate to the fact that this is a single case study, and although it is an important case to examine innovation and CFTs, by its very nature, it is not possible to extend and generalize the obtained data to other organizations. The evaluation of its propositions was merely qualitative, and future research is needed to validate its characteristics. Practical implications Several settings of CFTs are presented, as well as their ability to generate different types of innovation, such as the computerization of documents, petitions and papers, which decreases the time to answer the taxpayer. Moreover, CFTs can help to create products, such as computer programs that can be used not only locally but also in several public organizations related to tax management. Originality/value The field research provides the perceptions of the respondents regarding CFT characteristics that can lead to specific types of innovation, as well as the types of products or services that can be generated by these processes.

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Corporate Governance at Wal-Mart - Case Study Example

• Subject: Miscellaneous
• Type: Case Study
• Level: College
• Pages: 5 (1250 words)
• Downloads: 3
• Author: quincy87

Extract of sample "Corporate Governance at Wal-Mart"

Wal-Mart has a total of 15 directors on its board. S. Robson Walton, the eldest son of founder Sam Walton, serves as Chairman of the Board, and H. Lee Scott, the Chief Executive Officer, serves on the board as well. Other members of the board include Aida Alvarez, James Breyer, M. Michele Burns, James I. Cash, Jr., Roger C. Corbett, Douglas N. Daft, David D. Glass, Roland A. Hernandez, Allen I. Questrom, Jack C. Shewmaker, Jim C. Walton, Christopher J. Williams, and Linda S. Wolf. The members of the Board of directors come from a much diversified background.

Belonging to different fields and business sectors, they have gained several skills and aptitude. Some of them are from countries other than U.S.A. They all possess ample of experience, knowledge and due to several years of service, they have got several connections. All of this adds up to their profile as plus points which makes them worth the job. Members such as David and Shewmaker have been serving since 1977-78 while other members that are currently on the board joined between the year 2003 and 2006. Mr. Allen joined in June 2007.

The board members are responsible for making managing and controlling the committees for specific purposes. These committees are in-charge of several operations of the organization respectively. Their job includes controlling and managing the finances, operations and other business functions of Wal-Mart. They are actually there to assist the Board of Directors in the strategic decision making process and overall management of Wal-Mart. The members of the respective committees' obligations include;To possess full information about the financial details of the company.

To actively review the equity status of the company and recommend changes to have a legitimate and profitable balance of finances.Make suggestions to the board regarding the financial and global policies, the equity structure, the acquisitions and other matters.Perform an analysis of the financial position of the company and recommend attainable goals respectively.Regular review of the major projects.Constant relationship management with its financial partners such as banks and other financial institutions.

Making suggestions regarding the financial statements, the dividends and the company's budgets.The committee therefore serves as an advisory body and acts as a representative of the board in the process of strategic decision making and its successful implementation by controlling the overall operations of the company.The top management group of the company includes the board of directors. Apart from them others senior officers along with their respective designations are;1. Eduardo Castro-Wright: Executive Vice President and President and Chief Executive Officer, Wal-Mart Stores Division 2. M. Susan Chambers: Executive Vice President of People Division 3.

Patricia A. Curran: Executive Vice President, People, Wal-Mart Stores Division 4. Leslie A. Dach: Executive Vice President, Corporate Affairs and Government Relations 5. Linda M. Dillman: Executive Vice President, Risk Management, Benefits and Sustainability 6. Michael T. Duke: Vice Chairman, International Division 7. Johnnie C. Dobbs: Executive Vice President, Logistics and Supply Chain 8. John E. Fleming: Executive Vice P

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Corporate Governance Case Study: Tesla, Twitter, and the Good Weed

Justin Slane, Sharon Makower and Joe Green are editors for the Capital Markets & Corporate Governance Service at Thomson Reuters Practical Law. This post is based on a Practical Law article by Mr. Slane, Ms. Makower and Mr. Green.

Perhaps no company in the world has the perception of its brand being tied to one person more than Tesla Inc. (Tesla) and its CEO and now former chairman of the board, Elon Musk. As at least one journalist phrased it, “ Elon Musk is Tesla. Tesla is Elon Musk .” And Musk is not just the face of Tesla, but a co-founder of PayPal and Solar City, the founder and current CEO of SpaceX and founder of its subsidiary, The Boring Company. He has crafted a “real-life Iron Man” persona, including all the eccentricity, and is undoubtedly one of the most recognizable and polarizing CEOs in the world.

But 2018 has not been the best year for Elon Musk. In what Musk would call negative propaganda pushed by short sellers, Tesla has faced heightened scrutiny and increasingly negative media attention related to a litany of issues, including cash burn , vehicle safety , production capabilities , and a string of employment-related lawsuits and executive exits ( only made worse recently ). Analysts and investors began to publicly cool on Tesla and question its long-term value, which Musk also attributed to short sellers .

In May, citing independence concerns and questioning whether Musk may be stretched too thin, proxy advisory giants Glass, Lewis & Company (Glass Lewis) and Institutional Shareholder Services, Inc. (ISS) opposed the re-election of current Tesla board members and supported splitting Musk’s roles as CEO and chairman.

As the pressure mounted, Musk became increasingly combative, especially on Twitter, lashing out at short sellers and anyone criticizing Tesla or him. Musk’s erratic behavior and obsession with short sellers and critics drew more criticism of his leadership and that of Tesla’s board of directors .

But it all came to a head on August 7, when in the middle of the trading day, without notice or warning to anyone (including other executives and directors at Tesla or contacts at Nasdaq, the exchange on which Tesla’s common stock is listed), Musk tweeted:

Then, for reasons still unknown, nobody took his phone away, and Musk continued tweeting and interacting with shareholders throughout the day:

The public reaction to Musk’s tweets was strong and immediate. Tesla’s stock soared before Nasdaq eventually halted trading for several hours later in the day, and there was instant speculation about whether Musk actually had the funding to take Tesla private (spoiler: he did not).

Musk’s drastic departure from normal public disclosure standards and the subsequent media circus arising from it unsurprisingly captured the attention of the Securities and Exchange Commission (SEC), which ultimately resulted in an enforcement action and settlement with Elon Musk over the tweets. Tesla also settled with the SEC. The end results of the settlements include the following:

• Musk must step down as chairman of the board and be replaced by an independent chairman, but Musk will be allowed to remain as CEO. On November 7, 2018, Tesla appointed an independent chairman.
• Musk and Tesla must each pay $20 million in fines.
• Tesla must add two independent directors and create a formal disclosure committee to oversee communications from Musk.
• Tesla must hire an experienced securities lawyer, subject to approval by the SEC Division of Enforcement (Tesla’s current general counsel was Elon Musk’s divorce attorney and worked primarily in family law before joining Tesla).

This post examines this corporate governance cautionary tale, focusing primarily on the Regulation FD (Reg FD) issues raised by Musk’s tweets and public statements. The full article from which this post is excerpted also examines a host of other issues including disclosure controls and procedures, stock exchange requirements, conflicts of interest, board independence, and more, highlighting for each issue where things went wrong and identifying resources that perhaps could have helped avoid this type of mess. To learn more about these issues, the full article can be accessed here .

Complying with Regulation FD

Much of the initial reporting surrounding Musk’s tweets questioned whether the use of his personal Twitter account violated Reg FD. Reg FD, which took effect in 2000, prohibits selective disclosure by requiring that material nonpublic information disclosed to securityholders or market professionals (including research analysts) must also be disclosed to the public in a broad, non-exclusionary manner. And in fact, in finally answering why he tweeted about taking Tesla private, Musk explained in an August 13 blog post that he wanted to have discussions with key shareholders and he felt it “wouldn’t be right to share information about going private with just [Tesla’s] largest investors.” While Musk’s intentions are noble and in line with the basic principle of nearly 20-year-old federal securities law, the reports were correct that Reg FD generally requires more than tweets.

SEC guidance issued in 2008 and 2013 regarding the use of company websites and social media for disclosure suggests that companies can still satisfy Reg FD requirements if they notify investors of where they can expect material information to be disclosed online, making it a “recognized channel of distribution.” In particular, the 2013 guidance dealt with the Netflix CEO disclosing monthly viewing hours on his personal Facebook page.

The SEC stated that disclosing material nonpublic information on the personal social media site of an individual corporate officer, without advance notice to investors that the site may be used for this purpose, is unlikely to satisfy Regulation FD because it is not likely a method “reasonably designed to provide broad, non-exclusionary distribution of the information to the public” that Reg FD requires. The SEC stated this is true even if “the individual in question has a large number of subscribers, friends or other social media contacts, so that the information is likely to reach a broader audience over time.”

The SEC used its 2013 guidance to highlight the concept that whether a Regulation FD violation occurred will turn on whether the investing public was alerted to the channels of distribution a company will use to disseminate material information. The SEC’s 2008 guidance on the use of company websites outlines the factors that indicate whether a particular channel (whether it be a corporate website or a corporate executive’s social media account) is a recognized channel of distribution for communicating with investors.

In this case, Tesla and Musk had a few factors in their favor:

• A Form 8-K filed on November 5, 2013 , encourages investors to follow Elon Musk’s personal Twitter account for material information being disclosed to the public. Ideally the notice would be repeated, including in Tesla’s annual reports on Form 10-K or additional Form 8-K reports, but at least some form of notice was provided to shareholders.
• Elon Musk also has nearly 23 million Twitter followers. His original tweet was widely picked up and further broadcast by major news sources within minutes, and within hours, former SEC Chairman Harvey Pitt was on major cable news networks discussing whether Musk committed securities fraud.

While it was far from a safe use of social media for Reg FD purposes, Musk and Tesla appear to have a decent argument that shareholders had notice that information could be disclosed through Musk’s personal Twitter account and his account was reasonably designed to provide broad, non-exclusionary disclosure of the information.

Most public companies typically adopt formal policies regarding compliance with Reg FD (as well as the use of social media by their employees and executives). A strong Reg FD policy should contain:

• A complete outline of the procedures and practices of the company concerning disclosure of information to the public.
• A formal limitation on which company personnel are permitted to communicate with analysts and securityholders on behalf of the company. These people should be well-versed in Reg FD and familiar with the company’s public disclosures. Ideally these people should also understand the concept of materiality and what may constitute securities fraud under Rule 10b-5.
• A restatement of the company’s policy on confidentiality of information.
• A guide to disclosing material information.

Companies should also address the use of social media by their employees and executives, whether in their Reg FD policies or in separate social media guidelines that cover both personal social media use and social media use as an authorized company spokesperson.

While a Tesla Reg FD policy, set of social media guidelines, or other corporate communications policy addressing these concerns does not seem to be publicly available, the Tesla Code of Business Conduct and Ethics (last revised in December 2017) refers to a “Communication Policy … [that covers] Tesla’s social media guidelines, media relations and marketing guidelines, and the circumstances and the extent to which individuals are allowed to speak on Tesla’s behalf.” Musk should have been aware of Tesla’s communications policy, ideally having been reminded frequently through regular training for Tesla officers regarding the company’s policy and their obligations under Regulation FD, and never tweeted to begin with.

Twitter Was Always a Bad Choice

Musk’s tweets are also an extreme, yet useful, example of why casual social media use and disclosure of material nonpublic information should not be mixed. Section 10(b) of the Exchange Act prohibits material misstatements and omissions of fact, and companies must always avoid making disclosures in informal social media posts that lack material information or the context necessary for investors to be fully informed. If a company decides that there is material information that should be disclosed to the public, it must then determine when that information must be disclosed. Information should only be disclosed when it is definitive, accurate, clear, and specific.

Twitter can be an excellent tool for supplementing more formal corporate disclosure, such as linking to SEC filings, the company’s website, or attaching a press release as an image. However, individual Twitter posts as the sole medium of disclosure might be the worst form of social media use for disclosing material nonpublic information. The primary differentiating factor between Twitter and other social media platforms is it limits user posts to just 280 characters. Musk used 61 characters in his original going private tweet (if you pro rate his $20 million SEC fine to the characters in that tweet, Musk spent over $2.6 million on spaces alone). While some may applaud his succinctness, Musk’s August 7 tweets and blog post are textbook examples of public disclosures that lack context and completeness.

What does “funding secured” and “investor support is confirmed” mean? Who is/are the buyer(s)? How was the $420 per share price calculated? Has the board received or approved a proposal? None of these basic questions had answers. We later learned in the SEC’s civil complaint against Musk:

• A Tesla investor texted Musk’s chief of staff “What’s Elon’s tweet about? Can’t make any sense of it….”
• A reporter emailed Musk to ask if his tweet was a 420 joke and whether “an actual explanation” was coming.
• The following investor relations exchange happened in real life seven hours, ten tweets, and one blog post after Musk’s initial “going private” tweet:

“After Tesla’s head of Investor Relations received another inquiry from another investment bank research analyst at approximately 7:20 PM EDT, he asked whether the analyst had read Tesla’s ‘official blog post on this topic.’ The analyst responded, ‘I did. Nothing on funding though?’ The head of Investor Relations replied, ‘The very first tweet simply mentioned ‘Funding secured’ which means there is a firm offer. Elon did not disclose details of who the buyer is.’ The analyst then asked, ‘Firm offer means there is a commitment letter or is this a verbal agreement?’ The head of Investor Relations responded, ‘I actually don’t know, but I would assume that given we went full-on public with this, the offer is as firm as it gets.'” (see SEC Complaint, par. 52 .)

It took six full days before Musk or Tesla provided any clarification about what Musk meant by “funding secured” and the rest of his going private tweets on August 7.

Corporate Disclosure or Personal Statements?

Musk’s claim he was making statements in his personal capacity as a potential buyer of Tesla as opposed to on Tesla’s behalf as CEO and Chairman adds another element to this case illustrating why disclosure of material nonpublic information requires full context. If his personal Twitter account is both a recognized channel for corporate communications and a means for him to make disclosures as a private individual, how are investors supposed to know what is corporate information and what is personal?

Nothing in the August 7 tweets or blog post definitively stated Musk was not speaking on behalf of Tesla as its CEO and Chairman. In fact, in the investor relations exchange mentioned above, Tesla’s head of Investor Relations says “… I would assume that given we went full-on public with this…” (emphasis added), phrasing that certainly implies he thought the statements were made on Tesla’s behalf.

It is generally good corporate governance practice that if a company discovers a Reg FD violation, to minimize risks, it should promptly disclose the information by a Reg FD-compliant method. For example, if an executive officer selectively discloses material nonpublic information, the company can correct the situation by filing a Form 8-K to disclose the information.

Given the potential confusion for investors resulting from Musk’s initial tweets and his claim that he made the statements in his “personal capacity,” Tesla should have immediately filed a Form 8-K (which also happens to allow for more than 280 characters) to correct any potentially selective or misleading disclosure made by Musk and provide any additional context necessary. No Form 8-K was filed though. Again, it was six days before Musk or Tesla provided any clarification or additional explanation for his statements on August 7.

The SEC Settlement and Ongoing Fallout

The ultimate fallout from Musk’s brief foray into a possible going private transaction is still ongoing:

• Class action lawsuits are still pending.
• The Department of Justice is still investigating Musk’s tweets.
• Significant investors are engaging with Tesla requesting changes to the board of directors (and other corporate governance practices).

Musk doesn’t seem to be fazed by any of this, and could do something tomorrow that turns this all on its head again. But the SEC settlement with Musk has now been approved by the Southern District of New York, and Tesla has settled separately with the SEC without a formal enforcement action. The terms of the settlements bring us full circle to where the year started, with the recognition that Tesla was facing an increasing battle between responsible corporate governance and Elon Musk’s persona. Tesla lost this round. If the added disclosure controls and expanded board continues losing battles, well, who knows? There is always Teslaquilla (or maybe not )!

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