As part of a settlement with the US Securities and Exchange Commision (SEC), Tesla will replace Elon Musk with an independent chairman and add two new directors to its board.
Elon Musk – who remains the company’s CEO – has seen his crazy Twitter tantrums finally come to bite him. Aside from all the fuss surrounding his wild unsupported claim that British diver Vernon Unsworth is a “pedo”, and that bizarre public circus involving Russian assassins and his penis size, it was a particular tweet in August that got him in what is probably the toughest spot in his career.
Musk has been focused on taking Tesla private for most of the year, and on August 7, he announced he had “funding secured” for the mammoth operation.
His tweet was incredibly controversial, and many financial analysts and critics considered the funding claim as nothing but a trick to artificially inflate the price of the company.
Am considering taking Tesla private at $420. Funding secured.
— Elon Musk (@elonmusk) August 7, 2018
The phrase “funding secured” was even turned into a hilarious meme by the Twitterverse.
Eventually, the claim did put him in the crosshairs of the SEC, and the agency finally sued Musk in federal court after deeming his infamous Twitter post as misleading for investors.
On September 29, Musk reached a deal with the SEC to resolve the securities fraud charges filed against him.
Initially, Musk didn’t want to give in to any settlement, but pressure from stockholders, investors and lawyers forced him to cut a deal. Now he’s obligated to step aside as chairman for three years and pay a $20 million fine – although the arrangement will allow him to remain as CEO.
The settlement also rules that Tesla will need to add two additional independent directors and create a permanent committee of independent directors to monitor disclosures and potential conflicts of interest.
The settlement blames Tesla for failing to put a leash on Musk and not procuring that investors receive vital information in a proper and timely manner.
No doubt Musk is considered the driving force behind the positive disruption to the automotive industry that Tesla represents. But his lack of composure on social media has increasingly raised concerns among investors and stockholders about his ability to continue operating the company.
SEC chairman Jay Clayton said the settlement sent a specific message.
“When companies and corporate insiders make statements, they must act responsibly, including endeavouring to ensure the statements are not false or misleading,” he said.
Former Vice President Al Gore, Boeing CEO Jim McNerney, and Ford Motor CEO Alan Mulally are the names being floated around as possible outsider candidates for the chairmanship.
“The SEC settlement is a moment for the board and the company to take a deep breath and rethink,” Dieter Waizenegger, executive director of CtW Investment Group, said as reported by Bloomberg.
“This board really needs to evolve – it needs more women and more people of color. It’s a very insular board.”
Although you could say Musk had it coming, the settlement isn’t short of surprising. Rarely has the US government ordered a company to change their CEO and chairman, and even more uncommon is for the regulatory agency to demand those positions to be occupied by independents or outsiders.
Only three of the current Tesla Board directors could be considered as true independents, and thus possible chairman candidates. Aussie Telstra CEO Robyn Denholm, Linda Johnson Rice, head of Johnson Publishing company, and James Murdoch, CEO of Twenty-First Century Fox.
No word yet on whether the new chairman will be required to pass Musk’s famous brainteaser for new hires.