Last week Tesla shareholders largely voted against proposals to install an independent chairperson at Tesla, replacing Musk who is the company’s CEO and “product architect”.
At SpaceX, Musk’s private space transportation firm, Gwynne Shotwell acts as president and chief operating officer (COO), with responsibility for the company’s day-to-day operations. But Tesla’s executive team is more akin to a startup than a Fortune 500 company: it has operated for years without a COO and has only a chief technical and a chief financial officer acting alongside Musk.
The installation of an independent chairman at Tesla would be a positive step in curtailing Musk, but investors should go further and replace him with a new CEO or a powerful COO with day-to-day responsibility for corporate operations.
Tesla remains a compelling growth company at the forefront of a technological revolution. It has an ideal position in which to benefit from the global phasing out of fossil fuel producing cars to electric vehicles and is already a popular brand in the global auto market today.
But without a corporate-minded chief executive to lead Tesla, equity and debt investors are going to be subject to the whims of one man, and in the case of Musk, impulsiveness and occasional ill-discipline.
Musk tweeted on August 7, that he was considering taking Tesla private and had secured funding to do so at $420 a share, retracting the claim on August 24, announcing Tesla would stay public.
The US Securities and Exchange Commission said to be investigating the tech impresario for the episode, given it could be connived as market manipulation. At the very least Musk disclosed material information in a manner which could be deemed irresponsible by the regulator.
In public companies, almost every utterance by a CEO can be determined as material information, which is why most stick to traditional regulatory disclosures when announcing their company}s strategy, and investors must be able to have faith that public strategic statements by CEOs are realistic and actionable.
So how should Tesla investors react if Musk mused on Twitter about acquiring a rival firm and was thinking about raising equity or debt capital to do so?
The August 7 tweet shows that they could not trust that information was accurate. This would leave a question over whether bond spreads should react or if its stock should go up or down on the basis of that hypothetical tweet.
Without an operational CEO or a COO responsible for running Tesla as a business, investors cannot have faith that here is a coherent corporate strategy at Tesla.
Tesla uses capital markets to raise funds and benefits hugely form being a large listed US stock. But its investors need to have faith that the company is being run rationally and decisions are being taken for operationally sound reasons and with investor returns in mind.
In an interview with US morning show CBS This Morning, Musk said he did not really consider himself “a businessman” but an engineer and a “technologist”.
He added there are plenty of analysts on Wall Street who probably agreed that he was not a businessman and when he looked at, ranked and listed his priorities it was not on based on return on investments.
That is the opposite of how most CEOs operate.
There is a strong argument that a company's raison d'etre should not just be shareholder returns, but no CEO can run a company without a thought for its owners.
Musk owns 20% of Tesla, but there seems to be little protection for those that own the remaining 80% of the company.
Tesla investors should be fighting to change that and have a strong presence on the executive team who has their interests in mind.