This will not be an easy task.
Whoever becomes the new chairman of Tesla Motors will have the formidable task of reining in Elon Musk, the impulsively charismatic and visionary CEO, while helping Musk realize his dream of making Tesla a profitable, mass producer of eco-friendly products. . environmentally friendly electric cars.
Musk is relinquishing his role as chairman under an agreement announced Saturday with the Securities and Exchange Commission. In addition to a new chairman, Tesla was also ordered to appoint two new independent members to its board of directors. A more assertive board could provide the kind of tighter oversight that many legal experts and Tesla investors say is expected for a company of Tesla’s market value.
The settlement stems from an SEC lawsuit accusing Musk of misleading investors in August with a tweet saying he had “obtained funding” to take the company private.
Still, a more energetic board, coupled with an authoritarian CEO like Musk, could create conflict at a risky time for the company. Visionary CEOs such as Apple’s Steve Jobs and Twitter’s Jack Dorsey were driven out by strong boards, although both eventually returned to their companies.
Even with the settlement, Tesla faces a range of daunting challenges.
The Justice Department has opened its own investigation into Musk’s Aug. 7 tweet, in which he said he would take the company private at $420 a share. The SEC’s lawsuit accused the tweet, which sent Tesla shares surging, of being deceptive because it did not actually have the funds necessary for such a move.
Tesla is also under intense pressure to turn a profit because it burns through $1 billion in cash every three months, and at the end of June it had just $2.2 billion in the bank.
Musk said the company needed to produce 7,000 cars per week to make money, a goal he aimed to achieve in the July-September quarter. The company will likely release its production numbers this week and its financial results for this quarter in early November.
Another concern: About $1.3 billion of Tesla’s debt is expected to be repaid by March, including $230 million in November.
Some investors might want more than a new president. Tesla does not have a chief operating officer, an essential number two executive in most companies. This stands in stark contrast to other startups, like Facebook, where Mark Zuckerberg hired Sheryl Sandberg as a highly influential COO.
In the SEC’s lawsuit filed Thursday, the agency said it was seeking to completely remove Musk from Tesla leadership. Many investors argued that it was essential to keep Musk as CEO in such a time.
“I don’t doubt Musk’s value to Tesla,” said John Coffee, a law professor at Columbia University and an expert on corporate governance. “Without him, they are just a struggling start-up burning through cash at a desperate rate and facing a debt repayment crisis for the foreseeable future.
“Musk is an iconic entrepreneur but he needs adult supervision,” Coffee added.
This is where the new board members come into play. The current board, which includes Musk’s brother Kimbal Musk, is widely seen as subservient to Musk. They have publicly expressed support for many recent moves, such as its rejection last week of an early settlement offer from the SEC.
“The board of directors is truly the alpha chapter of the Elon Musk fan club,” said Erik Gordon, a professor at the University of Michigan’s Ross School of Business.
Teresa Goody, a former SEC attorney and founder of The Goody Group, a consulting firm, said many startups start with a powerful CEO who usually places “friends” on the board.
As a company grows and becomes more sophisticated, Goody said, more independent directors are typically brought in to provide better oversight.
“In Tesla’s case, it happens a little later in the company’s life cycle,” she said.
Yet Elon Musk is different from many CEOs because he owns about 20% of the company’s stock. This gives him more influence.
“In a typical case, the CEO is a well-compensated employee” of the board, Gordon said. “Musk will always be more powerful than the chairman of the board.”
There will be other constraints on Musk’s behavior: Under the SEC settlement, his tweets and other comments will have to be reviewed by the company before they can be made public.
“This humiliation — the fact that Elon can’t go outside without being on a leash — is the one that will bother him the most,” Gordon said. He called it an “extraordinary measure.”
Gordon believes the SEC should have gone further and sought to add up to four new board members and remove some old ones.
Still, Gordon said, “I think this experience showed him that no matter how smart he is, or no matter how powerful he thinks he is, the government is also powerful.”
Musk may want to keep a close eye on the new president, however. Musk himself served as chairman of the board, having invested in the company, before firing the CEO and taking over management of the company.
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