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Twitter stock surges as activist investor seeks to oust CEO Jack Dorsey

Jack Dorsey splits his time between Twitter and Square. Activist investor Elliott Management Corp. wants Twitter to have the focus of a full-time CEO.
(Francois Mori / Associated Press)

Twitter Inc. shares rose Monday after Bloomberg reported that an activist investor has built a sizable stake in the social media company and is pushing for changes, including possibly replacing co-founder and Chief Executive Jack Dorsey.

The stock climbed 7.9% to $35.82 a share. It had gained only 3.6% this year through Friday before news of the activist investor emerged.

When Twitter executives met their activist investor agitators from Elliott Management Corp. for the first time last week, the man with the most to lose was absent. Dorsey didn’t attend the Friday night summit in San Francisco, where his future was the main topic of conversation, according to people familiar with the matter.

Instead, Twitter’s representatives included Chairman Omid Kordestani and lead director Patrick Pichette, said the people, who asked not to be identified because the details weren’t public. In Elliott Management’s corner was the New York-based hedge fund’s head of U.S. activism, Jesse Cohn, and portfolio manager Marc Steinberg, they said.

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Chief among Elliott Management’s concerns: The need for Twitter to have a full-time CEO, rather than one who splits his time, as Dorsey does, between the social media company and mobile-payments platform Square Inc. In a year in which major news events are colliding — the spread of the coronavirus, the U.S. presidential election, the Summer Olympics — Elliott Management thinks Twitter needs the undivided attention of a CEO to oversee the role it plays in disseminating information, especially when new users and advertisers are flocking to the platform, the people said.

The meeting — the first face-to-face talks between San Francisco-based Twitter’s board and the activist since Elliott Management raised its concerns — was productive and expected to lead to further conversations, they said. The hedge fund, which was founded by billionaire Paul Singer in 1977 and manages about $40 billion of assets, has taken a stake of more than $1 billion in Twitter and nominated four directors, including Cohn, people familiar with the details said.

Twitter has a staggered board, which means only three of its directors will stand for election at the 2020 annual meeting, which has yet to be scheduled but last year took place in May. Elliott Management has nominated an extra director in case there are additional vacancies, the people said. Dorsey has a seat on the board.

Representatives for Elliott Management, Twitter and Dorsey declined to comment.

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Elliott Management is concerned that Dorsey’s other interests — in addition to his time at Square, the CEO has also floated the idea of spending as much as six months this year working in Africa — have taken his attention off Twitter and led to the company becoming significantly undervalued. Insiders say some things move at a slower pace at Twitter than at its social media rivals.

The company, co-founded by Dorsey in 2006, has moved sluggishly when it comes to launching new products, with consistent turnover within its product organization plaguing innovation for years. Although the process reflects Dorsey’s thoughtfulness, and his willingness to examine a product from all sides, it can come at the cost of moving too slowly for a consumer internet company in a crowded and competitive industry.

One example, reported by Recode in 2017, saw a significant delay in Twitter expanding the length of tweets from 140 characters to 280 characters. At one point, the company even considered a 10,000-character limit. It eventually settled on doubling the length of tweets, but only after years of discussion and a near-finished version that was never released.

The company also spent years discussing features such as the ability to follow topics, rather than just other users, or to hide replies, seen as a core safety control, before they were eventually rolled out in late 2019, people with knowledge of the process said.

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Elliott Management’s campaign isn’t the first time Dorsey’s role has come under fire. Scott Galloway, a professor of marketing at New York University’s Stern School of Business, said in a December letter that Dorsey’s inattention and lack of urgency to address Twitter’s underperformance was “understandable” given that 85% of his wealth resides in his ownership stake of Square. Galloway said at the time that he owned about 334,000 Twitter shares.

Dorsey himself has outlined the different way he views the mobile payment company, telling Rolling Stone magazine: “If you lose 140 characters, people are like, ‘Eh.’ If you lose $140 or even $1.40, it’s important.”

In an interview Sunday, Galloway said the company’s board suffered from an “idolatry of innovators.” He said the board’s continued support of Dorsey was “indefensible” given Twitter’s underperformance and Dorsey’s divided loyalties. Since Dorsey returned as CEO in July 2015, the company’s stock has fallen more than 6%, while that of rival Facebook Inc. has more than doubled.

“The board clearly has evidence that it has not shared with the rest of us that Jack Dorsey is Jesus Christ,” Galloway said. “The Twitter board makes the WeWork board look responsible.”

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How Dorsey manages his time has come under scrutiny. The CEO typically spends his mornings at Twitter and then his afternoons at Square, which has offices just a block away on San Francisco’s busy Market Street. Dorsey, who has said he sleeps 8½ hours a night, has held both jobs since he returned to Twitter as CEO in 2015 after a break from the role. His teams are used to coordinating with each other, the people said, but it can still take away from his ability to commit to either company in the way a full-time CEO might.

Dorsey also traveled a lot last year, with Twitter finance chief Ned Segal telling Bloomerg TV this month that the CEO had visited about 30 countries. The 43-year-old billionaire Dorsey has been a strong proponent of remote work, encouraging Twitter employees to follow suit when necessary.

They’ll be needing those skills more than ever this week: Twitter joined many companies in announcing Sunday that it’s suspending all “non-critical business travel and events” to help protect staff from the new coronavirus. It followed up Monday by encouraging its employees to work from home if possible.

The travel suspension is unlikely to stop Dorsey from making his first appearance since Elliott Management’s stake in the company was revealed: He’s scheduled to appear Thursday at a Morgan Stanley conference in San Francisco.

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Deveau, Hammond and Wagner write for Bloomberg.


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