Robert Reich
The Coffee Klatch with Robert Reich
Musk's Humongous Mistake

Musk's Humongous Mistake

It's the human capital, stupid

When Elon Musk bought Twitter for $44 billion, he clearly didn’t know that the key assets he was buying lay in Twitter’s 7,500 workers’ heads.

On corporate balance sheets, the assets of a corporation are its factories, equipment, patents, and brand name.

Workers aren’t considered assets. They appear as costs. In fact, payrolls are typically two-thirds of a corporation’s total costs. Which is why companies often cut payrolls to increase profits.  

The reason for this is simple. Corporations have traditionally been viewed as production systems. Assets are things that corporations own, which turn inputs — labor, raw materials, and components — into marketable products.

Reduce the costs of these inputs, and — presto — each product generates more profit. Or that’s been the traditional view.

Yet today, increasingly, corporations aren’t just production systems. They’re systems for directing the know-how, know-what, know-where, and know-why of the people who work within them.  

A large and growing part of the value of a corporation now lies in the heads of its workers — heads that know how to innovate, know what needs improvement, know where the company’s strengths and vulnerabilities are found, and know why the corporation succeeds (or doesn’t).

These human assets are becoming the key assets of today’s corporations. But they can’t be owned, as are factories, equipment, patents, and brands. They must be motivated.   

When Musk fired half of Twitter’s workforce, then threatened to fire any remaining dissenters and demanded that the rest pledge to accept “long hours at high intensity” — leading to the resignations last week of an estimated 1,200 more Twitter employees — he began to destroy what he bought.

Now he’s panicking. Last week he tried to hire back some of the people he fired. On Friday he sent emails to Twitter employees asking that “anyone who actually writes software” report in, and stating that he wanted to learn about Twitter’s “tech stack” (its software and related systems).

But even if Musk gets this information, he probably won’t be able to save Twitter.

Most of Twitter’s employees are now gone, which means most of its know-how to prevent outages and failures during high-traffic events is also gone, most of its know-what is necessary to maintain and enhance computing architecture is gone, most of its know-where to guard against cyberattacks is gone, and most of its know-why hate speech (and other awful stuff advertisers want to avoid) is getting through its filters and what to do about it, is also now gone.

Without this knowledge and talent, Twitter is a shell — an office building, some patents, and a brand — without the capacity to improve or even sustain its service.

Twitter is unlikely to fail all at once. But bugs and glitches will mount, the quality of what’s offered will deteriorate, hateful tweets will burgeon, and customers and advertisers will flee.

As Richard Forno, assistant director of the Center for Cybersecurity at the University of Maryland, Baltimore County told the New York Times, “it’s like putting a car on the road, hitting the accelerator, and then the driver jumps out. How far is it going to go before it crashes?”

Not even Donald Trump seems particularly eager to take up Musk’s offer to have him back on the platform.

Safe to say, Twitter is no longer worth the nearly $44 billion Musk paid for it. It’s now probably worth only a fraction of that sum — a fact that should be of no small concern to the bankers who lent Musk $30 billion to purchase Twitter on condition he pay $1 billion a year in interest.

Two lessons here.

First, corporations that regard employees only as costs to be cut rather than as assets to be nourished can make humongous mistakes. Elon Musk is Exhibit #1.

Second, where corporations view employees as costs, the traditional way for employees to flex their muscle is to strike, thereby temporarily closing factories and stopping the machines.

But where employees are a corporation’s key assets, workers’ greater power comes in threatening to — or actually — walking out the door. Elon Musk is Exhibit #2.


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