How will board handle Musk?
After Elon Musk said Tesla is not going private, directors will have to determine the CEO’s future.
MONTEREY — Tesla is not going private. Chief Executive Elon Musk said so Friday. Now the public company’s board of directors can turn to another serious matter — what to do about Musk.
His bizarre behavior, inflammatory tweets, flouting of norms governing corporate disclosure, and poor communication with his own board of directors are raising questions about his future at Tesla. So, too, is his inability thus far to raise Model 3 production to projected levels and turn Tesla profitable.
No one at the moment expects the board to dump Musk. But there’s talk about bringing in a chief operating officer, or a co-CEO. Those would be risky moves, given Musk’s domineering personality.
But doing nothing about Musk presents a risk as well, opening the board of directors to increased criticism, shareholder lawsuits, regulatory scrutiny and possible criminal action — especially with the Securities and Exchange Commission investigating Tesla, as Bloomberg reports.
“This is a company under substantial financial and legal distress at the moment,” said Peter Haveles, a corporate law specialist at the Pepper Hamilton law firm. “Musk’s recklessness with his comments over the last two weeks have caused the company great stress, at a minimum, and possibly subjected it to legal liability.”
Of all Musk’s jaw-dropping tweets the tweet he sent Aug. 7 is the one causing him and Tesla the most trouble: “Am considering taking Tesla private at $420. Funding secured.”
The tweet sent the company’s stock price soaring as high as $387.56, up 13% from the previous day’s close. After Musk failed to identify any funders or funding, the stock fell again as investors waited to see whether the going-private claim was real, and it has been treading around $320 a share for days.
Many securities-law experts, including former SEC officials, said the “funding secured” tweet, if false or misleading, could violate federal securities laws.
On Thursday, Tesla’s board decided to drop the private-buyout idea and remain a public company. On a Tesla blog post Friday, Musk said talks with shareholders and investment bankers had persuaded him that remaining a publicly traded company was in Tesla’s best interest.
“Fortunately they reversed it quickly enough before more damage could be done,” said Ross Gerber of Santa Monica investment firm Gerber Kawasaki, which holds Tesla stock.
A big fan of both Tesla and Musk, Gerber nonetheless thought going private was a bad idea. “This shows that you have to be very careful what you say on Twitter,” he said. “Hopefully it was a lesson to Elon. Hopefully he’ll be more intelligent about how his actions affect everybody, especially shareholders.”
Musk has copped to oversharing on Twitter several times in the past, but has failed to show consistent restraint. In an emotional Aug. 16 interview with the New York Times, Musk admitted no one had reviewed the “funding secured” tweet before he sent it, and that the long hours he has spent trying to fix production problems with the new Model 3 sedan had taken a toll.
“If he doesn’t think there will be any consequences, he’s going to keep doing what he’s been doing,” said Jim Rosener, also an attorney at Pepper Hamilton. That’s why now is the time for the board to take real action, he said. “They need to look at their communications policy, and enforce it, educate Mr. Musk about it, and really get a lot more strict about it.”
But, Rosener said, “Based on what I’ve read, I question whether some [Tesla board members] are truly independent and have the gravitas to act as a director and act independently.”
Tesla declined a request to interview Musk or members of the board. russ.mitchell@latimes.com