A day after Elon Musk tweeted about possibly taking Tesla Inc. private, a subset of the electric car company’s board released a statement confirming they had discussed the option and are now evaluating it.
The mass media took that as a sign the board was behind Tesla’s unconventional CEO, as this USA Today headline blared:
Tesla board endorses CEO Elon Musk's stunning plan to consider going private
But it could actually be a sign that not everyone’s on the same page in the Tesla boardroom, and that Musk — who holds both the CEO and chairman titles despite a recent shareholder vote over whether he should abdicate the chair role — is wielding too much power, maintains Michelle Lowry, a professor of finance for the LeBow School of Business at Drexel University, and the academic director of corporate governance at the Gupta Governance Institute at the university.
Only six of the nine board members — Brad Buss, Robyn Denholm, Ira Ehrenpreis, Antonio Gracias, Linda Johnson Rice and James Murdoch — put their names to the statement. Musk, his brother Kimball Musk and Steve Jurvetson, a board member who was put on leave for alleged misconduct, did not sign.
“It’s a letter from a subset of the board,” Lowry explains. “If it’s not coming from the board as a whole, I wonder what’s going on behind the scenes. It’s fairly unusual.”
The letter from the Tesla board, she adds, “is strong evidence they are making two columns, and they are pretty concerned about the bad column.”
A Tesla spokesman would not comment on any plans to take the company private, pointing to a blog post Musk penned on Tuesday where he lays out his reasoning for considering the move. Musk wrote:
As a public company, we are subject to wild swings in our stock price that can be a major distraction for everyone working at Tesla, all of whom are shareholders. Being public also subjects us to the quarterly earnings cycle that puts enormous pressure on Tesla to make decisions that may be right for a given quarter, but not necessarily right for the long-term. Finally, as the most-shorted stock in the history of the stock market, being public means that there are large numbers of people who have the incentive to attack the company.
The spokesman also declined to comment on why the board’s statement was not signed by all the sitting directors, whether independent or not.
Musk’s tweet on Tuesday sparked a rollercoaster ride for Tesla’s stock, and the attention of the Securities & Exchange Commission.
He wrote a series of tweets about taking the company private, including: “Am considering taking Tesla private at $420. Funding secured.”
Such off-the-cuff statements on social media are nothing new for Musk, but it’s unclear whether he’s broken any securities laws.
As of Thursday afternoon, Tesla had not submitted any SEC filings about any plans to take the company private. The last filing was the company’s quarterly 10-Q statement, a day before Musk’s infamous tweet.
Conventionally, companies would file an 8-K to if the board and management were considering such a move instead of dribbling out their intentions in tweets, points out Lowry. But, she adds, “true to form, Musk is not doing things by conventional means.”
And therein lies the problem for Tesla’s board.
“This is where we worry about things like CEO power,” Lowry says.
Musk is considered "a god in the tech industry," she continues, and clearly "he’s intelligent and has innovative ideas." Given his history, she says, it makes sense that the board would want to give him some flexibility to not to have to play by the rules all the time.
However, she stresses, “there are also examples in his history where he’s gone very much astray. The company was on the verge of bankruptcy not long ago.
“This is why we have board, to rein in CEO,” she adds. “We don’t want companies run like dictatorships. The job of board is to weigh these two against each other. That’s what makes things like this a tough call.”
Having Musk hold both the CEO and chairman role compounds the issue, she adds, and there have been calls for him to give up the chairman's seat.
A proxy proposal earlier this year called for a split of the roles, a proposal that was supported by proxy adviser Institutional Shareholder Services.
In its recommendation, ISS wrote that “the complexity of large-scale manufacturing and the challenges of successfully commercializing new technologies and new manufacturing and marketing techniques suggest that shareholders would be better served by having Musk focus on running the company, and allowing an independent director to run the board.”
The proposal was voted down in June.
So did Musk go too far this time with his tweets?
Look at the SEC’s three-part mission statement, Lowry advises.
- Protect investors
- Maintain fair, orderly, and efficient markets
- Facilitate capital formation
It’s unclear whether the tweets or the plan to take the company private is in the best interest of investors, or capital formation. But it clearly disrupted the markets.
As far as the legality of it all, Lowry says, “it’s certainly on the margin.”
SEC spokeswomen Judith Burns declined to comment, but a Bloomberg article published Thursday afternoon said the SEC' probe into Tesla was intensifying.