Elon Musk's erratic behavior has hurt Tesla's stock and put him and the company in legal jeopardy. But Tesla's board has done nothing about it.
- Tesla CEO Elon Musk has drawn widespread scrutiny for his erratic behavior in recent months, including smoking a marijuana cigarette during a video recorded appearance on a talk show Thursday.
- But not enough attention has been paid to Tesla's board.
- Corporate directors are charged with overseeing a CEO and looking out for the longterm interests of a company and its shareholders.
- By that standard, Tesla's board has been spectacularly failing at its job and ought to be held to account.
With all the craziness at Tesla over the last month or more, investors, analysts, and my fellow journalists have been focusing much of their attention on CEO Elon Musk.
But I think Tesla's critics ought to direct more of their attention elsewhere, specifically on the electric car company's board of directors. Where the hell are they amid all this chaos?
At least in theory, directors are shareholders' representatives at the company. They're supposed to oversee management, in particular the CEO, and look out for the interests of investors. That means making sure the company continues as a going concern — even without its charismatic CEO if necessary
But if that's their job, Tesla's directors seem to be failing spectacularly at doing it.
"The board has been worthless," said Lynn Turner, the former chief accountant of the Securities and Exchange Commission, in the wake of Musk's tweets about taking the company private.
Musk is the tech world's Donald Trump
Musk is the most unconstrained, unchecked executive this side of Donald Trump. One moment he's raving at journalists, whistleblowers and investors who are betting against Tesla's stock. Next he's accusing a cave diver of being a pedophile — without offering any facts to back up his accusation. Meanwhile, he's publicly claiming to have funding in hand to take his company private — a claim that's now launched an investigation by securities regulators against him and the company.
None of this might matter if Tesla were performing well as a business. Instead, it's been losing money hand over fist, struggling to ramp up production for its Model 3 sedan, and, as Business Insider reported, wasting gobs of material and resources.
And Musk appears to be a terrible manager. He seems resolutely unable or unwilling to delegate to his underlings. He's been known to fire people on the spot. And worst of all, he keeps losing top managers. Just on Friday, his chief accounting officer resigned after only one month on the job and his head of human resources declined to return after taking a personal leave.
Musk's actions have led to a roller coaster ride for Tesla's investors. In the wake of his tweets about taking the company private, Tesla's stock spiked to more than $380 a share. But after it became clear that the funding wasn't exactly "secured" in the common sense of the word, the stock fell hard. It dropped even farther Friday after Musk's pot puffing video.
His actions have also put him and the company in real legal jeopardy. His "funding secured" tweet has triggered an inquiry by the Securities and Exchange Commission and a collection of class action suits on behalf of shareholders. A pair of whistleblowers have filed complaints with the SEC alleging corporate misconduct. And the cave diver is threatening to file a defamation lawsuit against Musk.
Tesla's board has been out to lunch
One would think that amid all this Tesla's board might want to try to take control of the situation. Another board at another company might even think about firing a CEO who had been up to half the antics that Musk has been up to recently. But even if Tesla's directors weren't willing to go that far — the company is basically a cult of personality, after all — they could have publicly admonished him or docked his pay or forced him to bring in a strong no. 2 to take over some of Tesla's day-to-day operations.
It's pretty obvious that Tesla is in dire need of management expertise, particularly from folks who have experience in the mass production of automobiles. The company required a monumental effort to produce some 53,000 cars last quarter, even though that's about the same amount that Toyota produces in a couple of days.
With Musk sleeping on floors at the factory and micromanaging operations, it's clear that he's taken on too much at the company. What's more, there a real — even if it's slim — chance that the SEC inquiry could lead to charges that force him out of the company. A prudent board would be preparing the company for that possibility, at the very least.
Instead, the company's cozy club of directors, which includes Musk's brother Kimbal, have done nothing of the sort. At least publicly, Tesla's board appears to be doing little more than sitting on its hands.
Tesla's board is "not only out to lunch, they didn't make breakfast or dinner," Turner said.
There have been longstanding concerns about Tesla's governance
This is not a new problem. There have been longstanding concerns about Musk's erratic behavior and dominance of Tesla — and the board's lack of independence and oversight. This spring, the board handed out a massive options package to Musk that could eventually be worth $56 billion or more.
Tesla says seven of the directors on its nine-member board are independent, but it doesn't take long to see that the board is in fact a travesty of governance. One of the directors is Steve Jurvetson, a longtime Musk friend and early investor in Tesla (Jurvetson has literally been MIA on the board, having taken a leave of absence since November in the wake of #metoo allegations). Another director, Brad Buss, is the former CFO of Solar City, the solar panel company that was run by Musk's cousin and which Musk himself owned 20% of before Tesla acquired it in 2016.
The board's behavior drew some scrutiny this spring prior to the company's annual shareholder meeting in June. A union-affiliated investment firm took aim at all three of the directors who were up for election at the meeting, charging that they were unqualified or were too close to Musk.
Its complaints were followed by big proxy advisor ISS, which urged investors to withhold their votes from two of the directors, and Glass Lewis, which opposed all three. Both proxy services also encouraged shareholders to back a proposal that urged Tesla to separate the roles of chairman and CEO; Musk holds both titles.
But investors largely ignored the warnings and advice. Shareholders voted overwhelmingly both to reelect the directors and to reject the proposal to split the CEO and chairman roles.
One might wonder how investors might vote today if they had to do it again. Because if it wasn't clear then, it is now — Tesla's directors, for all intents and purposes, have failed to do their jobs and the company and its shareholders are paying the price.