How ought to a company board reply to a CEO publicly insulting and shaming a sitting president?
It’s not a query that the majority want to think about, since few chief executives dare to straight criticize the White Home. When CEOs do communicate out towards a federal directive, their messages are normally delivered behind closed doorways, or in a collective open letter. However this week, Elon Musk modified all that and compelled the difficulty in a chronic public spat with Donald Trump.
The pair had a much-anticipated falling out over Trump’s price range, additionally known as the “big beautiful bill,” on Thursday, which rapidly obtained private. Musk requested his social media followers if it was time to create a brand new political celebration, mentioned that Trump’s tariffs would trigger a recession, and even claimed that Trump’s identify was in authorities paperwork about Jeffrey Epstein, the convicted sexual offender. “That is the real reason they have not been made public,” Musk wrote.
The feud has already been expensive for Musk and his many companies, together with Tesla. The automaker’s shares took a tumble because the back-and-forth took over the information cycle, dropping 14% in on Thursday, and costing shareholders $150 billion. Now analysts warn that feuding with Trump might price Tesla billions, contemplating that Trump might repeal electrical car tax credit and different measures which have boosted Tesla’s earnings. The corporate might additionally face growing regulatory obstacles round its autonomous driving autos, the expertise that’s meant to drive Tesla’s future and has been cited by inventory watchers as a cause for the inventory’s sustained eye-popping efficiency. Tesla bull and Wedbush analyst Dan Ives appeared to talk for buyers early on Friday when he wrote in a analysis notice: “This needs to calm down.”
At an everyday firm, there’s a strong probability that the occasions of the previous couple of days would spur a board to dismiss a CEO. However will the Tesla board fireplace Musk to guard public shareholders from potential damages?
“They should,” Charles Elson, founding director of the Weinberg Middle for Company Governance on the College of Delaware, instructed Fortune. “But they won’t.”
A quiet board
The Trump-Musk spat is simply the newest in a collection of occasions which have pressured the query of what function Tesla’s board really performs within the firm.
“Over the years, Musk’s behavior has become more outrageous,” says Elson. “The board’s lack of response makes you wonder, ‘Who are these people? Why are they there?’”
It has lengthy confronted criticisms for being too near Musk, and due to this fact prepared to miss quite a few administration points. As an example, it famously accepted Musk’s much-disputed 2018 pay bundle for $56 billion, and has silently witnessed a 12 months of high-profile divisive conduct from the chief govt that has led to public protests and clients distancing themselves from the corporate. And latest allegations about Musk’s drug use echo experiences which have surfaced up to now with out placing Musk’s function in danger.
There are a number of contributing components as to why that’s. Musk is a controlling shareholder in Tesla, the place he holds 22% of the voting energy, making it further difficult for board members to have the votes wanted to pressure him out. The board can be in a tricky place in that firing Musk might tank the inventory, contemplating that his identify is so carefully related to the corporate.
Many administrators even have significantly shut ties to Musk. That features his brother Kimbal Musk, an entrepreneur and restaurant proprietor, and Joe Gebbia, a cofounder of Airbnb and a pal of Musk’s. There aren’t any automotive business or inexperienced power CEOs within the group, as one may anticipate at a typical EV firm.
The administrators are additionally paid very properly. This 12 months, a Delaware court docket ordered the board to offer again greater than $900 billion in pay after discovering it had paid itself too handsomely. Robyn Denholm, Tesla board chair since 2018, earned $600 million, excess of individuals with the identical place at different firms. The court docket discovered “the compensation was so significant, it made it really almost impossible for them to be independent directors,” says Elson.
“It is difficult to get a man to understand something when his salary depends on his not understanding it,” says Nell Minow, a company governance skilled, quoting Upton Sinclair. “That’s this board.”
To make sure, this 12 months, there have been indicators earlier this 12 months that Tesla’s administrators had been taking extra management over the corporate’s governance. Final month, the Wall Road Journal reported final month that the board had begun searching for a successor and chosen a search agency to help them. It additionally reported that the board had met with Trump weeks earlier than he introduced he could be spending much less time on the White Home. It appeared that between the backlash towards Tesla provoked by Musk’s give attention to Washington, and Tesla’s shrinking share value, lastly pushed the board to behave.
However the board denied the report outright, with Denholm calling it “absolutely false.”
May something change?
Even contemplating his personal predilection for battle, Elon Musk’s newest squabble is in a class of its personal.
However board specialists agree that to anticipate motion from the Tesla board is misguided. “There have been so many ‘Now the board has to do something moments,’ and they have failed every time,” says Minow. “I no longer feel that there is such a thing as ‘Now they have to do something.’”
There are technically ways in which shareholders might transfer the needle in the event that they needed Musk out. They might vote administrators off the board through shareholder proxy votes, and hope that new administrators would fireplace Musk. Or they may attempt to sue the board for not kicking Musk to the curb when he put the model in danger and cut up his focus between Washington and Tesla. However a shareholder who needed to try this would wish to come clean with a 3% stake within the firm, factors out Ann Lipton, affiliate dean for school analysis at Tulane College’s Regulation College, and governance legal guidelines make all of it however unattainable to do.
“No shareholder is going to be able to show that this board is acting in bad faith by failing to replace Musk as CEO, which is really the level that they’d have to show,” she mentioned.
It’s nonetheless theoretically potential {that a} Tesla board director might attempt to result in change by suggesting Musk go. However they must make peace with doubtlessly dropping their roles, says Elson.
“They would say, ‘Look, I will vote to move him along. And if I lose, I leave. I can’t do this anymore,’” says Elson. Whether or not they’ll try this relies on whether or not they’re individuals of precept, he added, or “people of convenience.”
“We’ll have to see,” he mentioned.
This story was initially featured on Fortune.com
