[ad_1]
Tesla’s directors are right to give Elon Musk, a truly once-in-a-generation visionary, a long leash. But he needs to maintain at least some guardrails to keep him from going completely off the rails.
The 52-year-old popularized electric cars, a change in transportation that could save the planet. SpaceX, a privately held aerospace company, dominates the spacecraft and satellite launch market, beating out incumbents such as Boeing Co.
The company’s ultimate goal is to bring about change, and that means nothing less than making human habitation possible on Mars. Then there’s Neuralink, which aims to enable brain-computer interfaces to help people with severe disabilities.
Mr. Musk clearly fits the mold of Steve Jobs and Edison, and has the potential to far exceed the former in terms of the scale of his accomplishments. Tesla’s board apparently decided that such a person needed to be freed from the mundane notions of a corporate compliance regime.
For those who came late, the Wall Street Journal detailed extensive connections between directors of various companies owned by Elon Musk in a lengthy article published over the weekend. The kind of connections described in this article are common in what are called promoter-led companies in India. The directors have extensive financial ties and have benefited from their ties to the Musk empire. Another aspect of the relationship will definitely dominate the headlines and the flood of memes in the coming days.
The people in the upper echelons of Tesla clearly have a culture of recreational drug use. The characters portrayed look like they’re straight out of Mad Men, but alcohol tended to be the intoxicant of choice on the iconic show.
Surprisingly, some directors, like teenagers, feel social pressure to attend parties where the Sun King uses drugs, according to the WSJ article. .
Story continues below
Musk denies using drugs and points out that he has passed random drug tests. SpaceX is a large NASA contractor, and Musk’s drug use allegations could jeopardize his security clearance and contract.
The weight of the WSJ article is that Tesla’s independent directors are not actually independent. Their ability to supervise charismatic CEOs is likely compromised in a number of ways.
Elon’s story is a conundrum at the heart of any regulatory regime. Most large economies, including India, have increasingly cumbersome regulatory regimes regulating relationships and transactions of all kinds. These include salary and benefits, related party transactions, and disclosure of any potential conflicts of interest, including romantic relationships.
The result is a proliferation of committees. Some parts of the board, such as auditing and setting compensation, are made up of directors. Committees that monitor workplace conduct often exist within the company. Directors are appointed by the owners and/or management, and other committee members report to upper management. A conflict of interest exists in both cases.
Compliance systems are becoming increasingly complex in response to scandals. The collapse of Enron and WorldCom led to the enactment of the Sarbanes-Oxley Act in the United States. The 2008 financial crisis led to stricter capital requirements for banks.
In India, stock market scandals eventually led to the creation of a national stock exchange (which had its own frauds) and a robust infrastructure for trade settlements. Scams like Satyam and Infrastructure Leasing and Financial Services (ILFS) led to reforms. And when it comes to relationships, no one is recommending a return to a Mad Men-esque workplace.
However, every regulatory regime requires exceptions. Mr. Musk is certainly a test case.
One way to analyze this is to use the “rules and principles” framework. Rules are strict and must be followed. In a rules-based system, the board cannot ignore allegations of drug taking by key management personnel (KMP).
Principles are like broader frameworks for suggesting appropriate actions in different situations.
Also read | Musk’s “drug use,” financial relationships with directors, and board inaction: What WSJ’s damning report says
In fact, using this framework, it’s quite reasonable to conclude that Musk’s eccentric lifestyle does not pose a significant risk to Tesla. Musk’s personal habits don’t actually seem to pose any threat to Tesla’s results, or for that matter to SpaceX (although it’s a private company).
So is his foray into politics. Musk, for example, has relentlessly criticized President Joe Biden. In the US political system, that’s not a risk.
For example, investors have largely ignored previous WSJ articles about Musk’s drug use. Independent directors and investors seem to believe that the so-called “key man” risk lies in Musk not being in charge.
Of course, all that could change if Tesla’s performance lags. Tesla has underperformed among the so-called “Great 7 Stocks” in recent weeks as EV sales have stagnated in the United States.
All eyes will be on the actions of Tesla’s independent directors as they evaluate Mr. Musk’s efforts to raise Tesla’s stock. He wants to increase voting power in Tesla stock to 25% before the automaker moves into AI and robotics. Otherwise, he threatened to develop these technologies outside Tesla.
The photo may still be cloudy.
[ad_2]
Source link
