The past few months have been turbulent for Tesla CEO Elon Musk.
From publicly accusing a Thai rescue diver of being a pedophile (without evidence) and conducting a radio interview while smoking marijuana to insulting equity analysts on one earnings call and threatening to take Tesla private — then reversing those statements, triggering a SEC and a criminal investigation — Musk has engaged in some reckless behavior.
Then there are production problems with Tesla TSLA, +4.93% not being able to deliver cars on time. A big question is whether Musk should step down. While investor confidence in Musk has taken a big hit, he is a visionary leader and there would likely be great disappointment if he left the company.
What Musk does need is a lot more checks and balances by Tesla’s management team, board of directors, and major shareholders. Investors would like Musk to have more self-control and act more like other legendary leaders, such as the late Steve Jobs of Apple AAPL, +0.06% and Amazon.com’s AMZN, -0.75% Jeff Bezos.
For that to have a chance, Tesla’s managers and directors must play a bigger role in guiding the company’s strategy both internally and externally. If Musk is required to step down as CEO for a period of time by the SEC, management must be ready to take the wheel.
Tesla’s leadership and directors also need to step back and review the basics of corporate governance. U.S. securities laws and common business practices are meant to keep market participants honest, so that they effectively represent their own best interests and those of their shareholders.
A bad, entirely self-inflicted wound for a company with significant potential capital needs and an ongoing SEC investigation.
Investors have had a lot of confidence in Musk and his company. He is a charismatic visionary. To some extent he has a unique ability to command capital, so respecting the providers of that capital is extremely important. That’s why his most recent behavior is so troubling. Indeed, the lack of clarity in some of his Twitter posts — especially the statement that funding was “secured” for a going private transaction (which it was not) when there is no movement towards such a transaction — casts doubt on Musk’s credibility and reliability. This is a bad, entirely self-inflicted wound for a company with significant potential capital needs and an ongoing SEC investigation.
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Stock investors have given Musk an opportunity to develop his vision at Tesla by providing an extraordinary valuation of the firm. But investors expect accuracy in the pronouncements of the firm and its leadership, whether about production forecasts or a potential recapitalization — such as a going private transaction.
Indeed, the ability of some to sell the stock “short” increases the willingness of buyers to purchase shares because “short sellers” are at the heart of our system of investor protection, i.e., they help protect investors against buying overpriced stocks. It is important for CEOs to not only respect their investors, but also those who increase the comfort of investors that they are not purchasing overpriced stock. Trying to manipulate prices upward to squeeze short sellers would be a deeply serious allegation with strong potential adverse consequences.
The bottom line is that even our most visionary leaders need to respect corporate governance.
Chester Spatt is Golub Center for Finance and Policy distinguished visiting professor of finance at the MIT Sloan School of Management and former Chief Economist of the SEC.
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