Tesla needs to put a seat belt on Elon Musk – Chester Spatt

Golub Distinguished Visiting Professor of Finance, Chester Spatt

From MarketWatch

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 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 his management team. Investors would like Musk to have more self-control and act more like other legendary leaders, such as the late Steve Jobs of Apple and Amazon.com’s Jeff Bezos.

For that to have a chance, Tesla’s management team 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, the management team must be ready to take the wheel.

Tesla also needs 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.

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.

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.

Read the full post at MarketWatch.

Chester Spatt is Golub Distinguished Visiting Professor of Finance at the MIT Sloan School and Distinguished Senior Fellow at the Golub Center.

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