Elon Musk: a visionary leader, or a liability for Tesla’s legacy?
Stephen Vines says Tesla has been spared a plunge in its share price after an SEC lawsuit was settled out of court, but it continues to face a challenge familiar to all companies dominated by a larger-than-life founder: protecting its legacy
Can the electric car company Tesla flourish without Elon Musk as chairman, or, to put it in another way, can Tesla survive with Musk in control?
What’s happening at Tesla raises this question as its volatile, charismatic and inspired founder has yet again landed in the brown stuff. He is not alone, too, as similar circumstances face many other companies that are dominated by a single personality.
The jury is out on what will happen at Tesla after an agreement was made between Musk and the US Securities and Exchange Commission (SEC). He has been punished with fines totalling US$40 million for misleading investors over a claim that he had funding in place to privatise the company. The deal also imposed significant curbs on the way Musk runs the company, by replacing him as chairman with a new independent figure, alongside two new independent directors who are required to join the board.
It seems pretty certain that Tesla would not even exist were it not for Musk and that, without him, it is questionable whether so many investors would have had faith in a company that has never made a cent, yet enjoys a market capitalisation higher than Ford, a company that has proven experience and also consistently makes money.
So, how much is Musk worth to Tesla? It is a question that Brian Johnson, a Barclays analyst, has attempted to answer. He reckons that Musk’s presence is worth US$130 per share, which at current prices makes him worth just under half the Tesla share price.
Watch: Tesla announces plans for first overseas plant in Shanghai
It should be stressed that the SEC settlement does not require Musk to leave the company; on the contrary, he remains as CEO. But his one-man style of management is over, at least in theory, following his temporary removal from the board and the imposition of independent directors to vet both his pronouncements and ability to take unilateral action.
Stock market regulators like the SEC have a pretty hard job when it comes to keeping big egos in line. However, the US regulator moved pretty fast to call Musk to account for “making false and misleading statements”. It has a battery of legal powers to hand and, before the settlement, its officers went to great lengths to stress that their job would be carried out regardless of the charisma and entrepreneurial skill of those who are alleged to have broken securities laws.
And yet the SEC does not really want to go to court to enforce the rules. It much prefers the kind of out-of-court settlement it reached at the last minute with Musk. This is despite the confidence of legal experts who believe that the SEC could have won a court case, which might have resulted in penalties going significantly beyond the scope of the settlement.
But regulators are not happy being seen as enemies of big business. Yet the SEC must protect investors’ interests and here’s the rub: would investor interests be protected by removing from office the person who created Tesla? Probably not.
And then there’s the stock markets’ guiding principle of caveat emptor, which is understood to mean “let the buyer beware”, an injunction for investors to be responsible for their own actions by having a thorough knowledge of what they are buying.
Stock exchanges might emblazon these words over their trading halls but the reality is that many investors have only a vague idea about the companies whose shares they buy. Yet ignorance is not a defence in law, nor in the world of investing.
And so a line is carefully drawn between protecting investors’ interests and allowing companies to do their worst.
And there is no law that says people running public companies should be nice or even decent. Musk is a serial offender in this respect, as was seen when he accused a rescuer of a group of boys trapped in a Thai cave of being a paedophile.
Another pioneer of the auto industry, Henry Ford, was a dyed-in-the-wool anti-Semite and flirted with fascism. As a result, many people vowed never to step inside a Ford vehicle. Others willingly did so without sharing his vile views.
Buyers have every right to choose not to spend their money on companies controlled by people they regard as objectionable.
Even though companies are an agglomeration of more than one person, their corporate identity is often vested in a single individual. So, of course, that individual matters. Companies can prove themselves strong enough to overcome much of the questionable legacy of their founders. Ford is a case in point, but will Tesla achieve the same feat?
Stephen Vines runs companies in the food sector and moonlights as a journalist and a broadcaster