Elon Musk, Tesla. Tesla, Elon Musk. The two go hand in hand. Here is a business where the founder is intrinsically associated with the brand, for better or worse. And after a tumultuous few months following some irresponsible posts on Twitter, it is arguably the latter.
Elon Musk is Tesla’s figurehead, its founder and its largest shareholder (22%). On 7th August he sent a series of tweets to his 22 million followers announcing he had secured funding to take the company private at $420 a share. This led to the US Securities and Exchange Commission (SEC) filing a fraud case on 27 September seeking Musk’s removal from Tesla. The market’s response: shares fell by 13%, wiping $6.3bn off the valuation of the company.
The latest development in this affair has seen Musk finally capitulate to the SEC demands and step down as chairman for three years; Tesla will also pay a $20m fine to settle a charge that it failed to maintain adequate controls that would have prevented Musk’s tweets. There was a lot of debate as to whether Musk should step down altogether, yet many believe the company would suffer without him at the helm. The board was therefore faced with (and arguably still faces) a Catch-22 scenario. Which is more damaging for Tesla: backing Elon Musk or removing him from the company?
But this is not the first time Musk’s words have brought him, and by association, Tesla, negative headlines around the world. In July 2018 he went on a tirade against analysts asking question saying “these questions are so dry. They’re killing me”; Tesla’s stock declined 6%. Then earlier in September, Musk smoked marijuana on a live web show which sparked controversy following which James Albertine, an analyst at brokerage Consumer Edge said: “We think this is further evidence that the time is now for the management and the board to address [the leadership structure and in doing so, the culture at Tesla].”
The SEC has demanded greater controls around Musk’s communications stating that Musk must receive “pre-approval” for “communications relating to the company made in any formal including, but not limited to, posts on social media.” But are those measures enough to protect the brand from scenarios like these again?
The board has a responsibility to protect both the company’s tangible and intangible assets, and, over the past 30 years, the market value of the S&P 500 has shifted. 84% of the company’s value is now in intangible assets vs 32% in 1985 and just 17% in 1975.  The board has a duty to shareholders to protect the company’s reputation and brand as its one of the key drivers of its value and its biggest risk. This remit extends to keeping the CEO in check and held responsible for his actions, particularly if he presents a reputational risk.
If Musk continues on his current trajectory then the board needs to seriously consider who is best placed to run Tesla, as he continues to risk permanent damage to the Tesla brand and business. Musk did not discuss the content of his Twitter posts with anyone else prior to publishing them, meaning neither his head of investor relations, nor general counsel, CFO and head of communications was prepared for the onslaught of interest or questions that followed. The board is there to ensure that checks and balances are in place, that risks are managed appropriately and that there is a strategy in place to minimise any damage to the shareholders in the event of a crisis – none of which were present in this episode.
A review of Tesla’s communications strategy is paramount, following which the board should consider providing mandatory crisis communication training and media training for Musk and the rest of the senior management team. Media training is integral and a cornerstone of any PR plan as the best communications strategies can be shattered if a rogue individual goes off script.
Musk is a risk and while he might resent the control imposed on him, checks and balances are the reality of running a listed business and there to protect others from the misguided tweet of one individual. Let’s see what the board does next and how successful these “additional controls and procedures” over Musk’s communications are…
You can read the SEC v Elon Musk court case documentation here Ocean Tomo study 2017