News reports have abounded for over a year that Twitter TWTR should be for sale, and that several bidders have been exploring a buy. As one of the iconic presences on the Internet, it would be sensible and more financially efficient if Twitter’s employees, executives, and several hundred million customers bought the company, an idea that was presented during Twitter’s shareholder meeting in May. If this sounds like an unrealistic idea, consider why it might actually work.
Employee-executive-customer ownership of Twitter would solve some of Twitter’s most intractable problems, such as the need to grow and nurture its customer base, and the huge expenses of its current employee equity compensation.
The arguments in favor of customer ownership are straightforward. Studies show that customers who own stock in a company are more loyal, use the company’s products more, talk up the company, pull in other customers, and are willing to be long-term patient shareholders. Twitter could benefit from a strong dose of deep commitment from its users as it rolls out new add-on products such as video. Proponents of these arguments point to the incredible loyalty displayed by the customer-shareholder owners of the National Football Leagues’ Green Bay Packers. Tens of thousands of fans own shares in the team, and they elect a large board of directors that selects an executive committee that actually manages the team. It’s the most famous national case of customer loyalty.
Critics might view the idea of Twitter as a giant cooperative of users as irrational because it might lack executive and board focus and seem too utopian, while ownership researchers like ourselves wish to point to the many customer-owned mutual insurance companies, such as Liberty Mutual Insurance, that have been household names in the U.S. for decades and are profitable and thriving ongoing concerns that make their corporate governance work. The Twitter customer ownership proposal received the support of less than 5% of Twitter’s shareholders at the shareholder meeting. But if linked to popular ideas in American society like mutual insurance companies, the idea might excite, and it might be even more popular if it were combined with a reinvigorated version of the company’s current employee share ownership plans, which now broadly grant stock options, restricted stock, and other equity grants to Twitter’s managers and employees.
The argument for employee share ownership is that it typically brings lower turnover, and greater employee loyalty, suggestions, innovation, and, on average, better firm performance. But it’s expensive. In a pointed discussion on this issue, CNBC reported that Twitter’s 2015 employee stock-based compensation was $682.1 million, or 18% of its revenue, more than any tech company with a market value of more than a billion dollars.