Tesla’s CEO Elon Musk’s tweet(s) about taking the company private using ‘secured’ funding has cost him not just his role as Chairman for 3 years, but also a $20m (£15m) fine, and some damaging fraud accusations.
Back in August, the South African-born, 25th richest person in the world (Forbes), and Chairman of American multinational corporation specialising in electric vehicles ‘Tesla’ made a short series of tweets that put him on the wrong side of the US financial regulator Securities and Exchange Commission (SEC) rules.
In the tweets, Mr Musk said that he was considering taking the electronic car maker Tesla off the stock market and into private ownership, stated that he had “funding secured” for the deal, and that Tesla shares would be valued at $420 each.
The tweets resulted in a lawsuit being filed against Tesla last week (although Tesla was not actually named in it) by the SEC, and allegations of fraud brought midscale negative publicity.
The tweets also caused problems for money market investors as the company’s share value fell due to lack of confidence, and $7 billion was wiped from Tesla’s market value, down 14% at the end of last week.
What’s The Problem?
The 9 separate issues (allegations) with Mr Musk’s announcements via Twitter, according to the SEC included the facts that Mr Musk had not agreed upon any terms for a going-private transaction with the Fund or any other funding source, and that he had never discussed a going-private transaction at a share price of $420 with any potential funding source. In short, the SEC has said that Mr Musk’s stated intentions had no basis in fact, and that said the market chaos following the announcement hurt investors.
It has now been reported that a deal has been reached between the regulator and Tesla whereby Mr Musk has 45 days to leave his role as chairman (or face another large fine), and can’t be chairman of Tesla for 3 years, although he can stay on as Tesla’s Chief Executive Officer. This will mean that a new independent chairman will need to be appointed to preside over the company’s board. Tesla and Mr Musk will also have to pay a $20m (£15m) fine.
What Does This Mean For Your Business?
Bearing in mind the damage done to the market value of the company (and investors), and the fact that Tesla faces a large fine, Mr Musk still remaining as the CEO means that he still got off more lightly than some had wanted or predicted. For example, agreeing to this SEC deal means that Mr Musk still retains influence but not as much power, and can avoid receiving the potentially more damaging punishment of being barred from serving any publicly traded company as an officer or director. Some commentators have also said that the only reason that Mr Musk wasn’t stopped from being CEO too is the fear of a stock collapse.
This story is an example of how a person’s style, power, and ability to grab headlines may be an asset to a company in boosting its rapid growth, but could become a liability later on, particularly if they appear to wield too much power and / or act in a way that appears not to take account of regulations or investors.
As the SEC puts it, this is essentially a case of misconduct by the person at the top, and is an example of why big companies need strong corporate governance and oversight in order to protect investors.