Please ensure Javascript is enabled for purposes of website accessibility

Turning the Spotlight on Twitter's Board of Directors

By Jamal Carnette, CFA - Sep 28, 2015 at 10:30AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Research firm SunTrust Robinson Humphrey found Twitter's board members are lacking in engagement and ownership.

Souce: Twitter

It's easy to beat up on Twitter (TWTR 2.68%) as of late, as the company seems to be a rudderless vessel. In the last six months, the company's shares have fallen nearly 50%, driven in part by two negative earnings reports. For its first-quarter results, released in April, the company missed revenue forecasts, then guided for lower full-year results. For the second quarter, the company beat on earnings, but shares dropped after negative commentary on the conference call.

Following the underperformance, and a long letter by large investor Chris Sacca, Twitter parted ways with CEO Dick Costolo and appointed founder Jack Dorsey as interim CEO. That was 100 days ago and the company does not appear to be any closer to naming a full-time CEO, even with Sacca arguing for Dorsey to take the permanent role. According to the newest research note from SunTrust Robinson Humphrey, Twitter's problems may be bigger than simply the lack of a permanent CEO.

Product engagement and ownership
Per SunTrust Robinson Humphrey's research, the company's board is lacking in both engagement and ownership. As for the former metric, the analyst firm uses lifetime tweets as a benchmark for insight into engagement. And of the eight board members, half had fewer than 1,000 lifetime tweets and two had fewer than 100 tweets at the time of data compilation.

Perhaps the most interesting member of the latter group is Peter Currie. He's a member of Twitter's board that's also on the much-maligned search committee looking for the next CEO, but at the time of data compliation had only tweeted 98 times since joining the service in December 2009. Of course, it could be argued that's not the best measurement of total engagement, as Twitter's value is in both creating and consuming content. Perhaps the best measurement of engagement and commitment is equity ownership, and that's not that much better.

Odd story with equity ownership and stock-based compensation expenses
For Twitter's board of directors, the collective eight members own a little more than 10% of total shares outstanding. That seems a little light for a recent IPO'd company seeing as how Mark Zuckerberg alone owns 15% of Facebook. The distribution of holdings is perhaps the biggest concern, as 98% of the shares held by Twitter's board are held between two founders: Jack Dorsey and Ev Williams. Outside of those two board members, the remainder of the board holds a collective 0.271% of outstanding shares.

And while there's an argument that boards and CEO pay packages are too generous with stock grants, there's an equally effective argument that board members and C-suite execs with adequate equity stakes result in better alignment with long-term shareholders. That doesn't seem to be what's happening on a board level in Twitter's case.

However, it should be noted that Twitter's shareholders aren't benefiting from lower stock-based compensation expenses. Over the last six months, stock-based compensation expenses for the company have hovered in the 40% range, and are a major factor in the generally accepted accounting principles, or GAAP, losses the company has reported. If this is not by the board, then it's by employee stock options and grants.

One can expect that to slow, though, as the stock recently fell through its IPO price of $26 a share and "brain drain" continues as the stock falls and top-notch talent continues to leave when restricted grants and options lose their value.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Twitter, Inc. Stock Quote
Twitter, Inc.
$38.29 (2.68%) $1.00

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/21/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.