Elon Musk on Saturday, September 29, 2018, acquiesced to resign from his post as Tesla Chairman and pay a $20 million fine to settle charges brought forward by the Securities and Exchange Commission. On August 7, 2018, Musk posted a tweet saying “Am considering taking Tesla private at $420 [a share]. Funding secured.” This tweet caused Tesla stock to soar. The SEC claimed that Musk was misleading investors because he had not secured the funding he spoke of.
Details of the Settlement
The settlement requires court approval. Also, it stipulates that Musk may remain as CEO of Tesla but must leave his role as chairman of the board within 45 days. He may not become chairman of the company for three years.
On top of the $20 million fine, Tesla separately agreed to pay a prior $20 million fee to settle lawsuit claims that the company failed to oversee the tweet. The penalties thereupon total to $40 million, which will then be distributed to the affected investors through a court-ordered process.
Tesla agreed to appoint two new outside board directors. They will also create a board committee that will police Musk’s communications about the company. Musk also cannot serve as an officer or director of any publicly traded company.
Cause and Effect
Elon Musk accepted the SEC deal without admitting or denying the allegations. He expressed that the lawsuit is unjustified. He said, “I have always taken action in the best interests of truth, transparency, and investors.” He also added, “Integrity is the most important value in my life and the facts will show I never compromised this in any way.”
The SEC filed the lawsuit after Musk reportedly turned down to pay the earlier settlement. Under this offer, he was required to pay a nominal fee and exit as chairman for two years. He refused to settle as he believed this would be an unbecoming gesture.
Since the SEC filed the lawsuit, Tesla stock dropped almost 14 percent.
Musk the Personality
More than his reputation as CEO and innovator, Musk’s personality has been taking center stage in the past few months. He exchanges swipes with people on Twitter, especially those who criticize Tesla. In addition, the company has been experiencing struggles to meet lofty production goals for its Model 3 vehicle. Tesla has also been jumping from one crisis to another in the past year.
Tesla’s shares experienced a 6 percent crash in September following his guesting at Joe Rogan’s live web show where the pair smoked marijuana. Two of Tesla’s heads, Dave Morton and Gaby Toledano, consequently quit the company. They believe Musk’s actions have been drawing unwanted attention that could compromise Tesla.
In July, people were celebrating Elon Musk when he volunteered to create a mini-submarine to rescue the stranded Thai soccer team inside a cave. However, he later garnered criticism after claiming that Vern Unsworth, the British expat diver helping the team, was a pedophile. (Unsworth is now considering legal action against Musk.)
Musk is hailed as a visionary by most people in the industry and in the world. Yet, at the same time, most recent news about Musk put him in a negative light. The reputation of his companies are intrinsically linked to him. Any unfavorable attention around him jeopardizes the status of each of his companies.
SEC Chairman Jay Clayton said that when corporate leaders make statements, they must act responsibly and be held accountable. They must ensure that they are not giving false claims or be misleading in any way.
Elon Musk and an Ego on Autopilot
Not more than a month ago, we published an article about the transforming leadership style of Elon Musk. The SEC lawsuit further reinforces that being too bold has dire consequences for leaders, especially for Musk.
Elon Musk went back on his word and rejected the SEC settlement. He threatened to resign immediately if the company opted for the settlement. The Tesla board of directors—of which Musk is a member—issued a statement endorsing their confidence in Musk, his integrity, and leadership. This response ultimately is a show of obstinance, a path to self-destruction, and, potentially, the beginning of Tesla’s collapse.
Elon Musk as his own celebrity brand is pulling down the prestige of the Tesla brand. If he keeps at this trajectory, Tesla, and his other companies will have less interest from investors. People will lose confidence and trust in an overconfident CEO. Investors won’t want to support narcissistic business leaders—especially who make bold and thoughtless moves that negatively impact everyone else.
Elon Musk and the Future of Tesla
Nonetheless, investors hope that all these issues around Elon Musk are just a glitch in the broad history of Tesla. The $40 million fine is basically chump change for someone like Elon Musk, and will, most likely, not make a significant dent in its finance.
True enough, following the dip in the Tesla stock last week, its shares increased more than 17 percent—obliterating the traces of the SEC lawsuit.
What the past few months with Elon Musk have told us is that bold leadership can sometimes morph into bad leadership. When good business leaders start to exhibit questionable behavior and shift the attention toward them instead of the good their businesses do, unseemly fissures sully their reputation. Truly, a tarnished reputation does not make a successful brand.
Implications and Consequences to Tesla Board of Directors
Elon Musk must step aside from his ego and adopt an objective stance on how Tesla can flourish without him as its poster child. However, perhaps it is the best decision for Musk to step down as chairman of Tesla. This way, Tesla benefits from Elon Musk being its visionary central figure—but without the liabilities, given his eccentric personality.
As CEO, he still wields a lot of power within the company—a CEO has the utmost influence on the day-to-day operations of a company.
Elon Musk stepping down as chairman has a neutralizing effect on Tesla. The company will soon have a new replacement chairman, making management more autonomous and less incestuous—as Musk will have to answer to someone else, not himself. Also, having a team to mediate his communications to the public would effectively rein in the sometimes-reckless delivery of Musk’s ideas. Essentially, this move helps create a more predictable Elon Musk, which will consequently represent stability for its shareholders and millions of admirers.
Sources:
Elon Musk agrees to pay $20 million and quit as Tesla chairman in deal with SEC
Elon Musk Steps Down as Chairman in Deal With S.E.C. Over Tweet About Tesla
Tesla shares rebound, erasing losses from SEC-Elon Musk showdown
