The settlement was the culmination of weeks of controversy for the PayPal founder. His effectiveness at the helm of Tesla has been brought into question due to his increasingly erratic behaviour, which had led to speculation over the way in which he had been coping with a punishing 120 hours a week workload.
The SEC had charged the tech trailblazer with making “false and misleading statements” to investors via Twitter, after he indicated that he had secured funding to take the company private at $420 a share. Unfortunately, it soon became clear that the communique hadn’t been approved by other executives and that funding was not as secure as had been suggested.
Under the terms of the settlement, Mr Musk has neither admitted nor denied the SEC's findings, but it will probably be the most expensive 280 characters he’ll ever type. The US regulator had been seeking much stiffer sanctions, as it claimed the tweets had precipitated a 6 per cent hike in Tesla’s share price and caused “significant market disruption”, with short-sellers out of pocket in the aftermath.
Ironically, Tesla’s share price jumped following the SEC announcement. It could be that the market reacted positively (perhaps hopefully) to the prospect of an independent chairman who would act as a foil to the eccentricities of the chief executive, although investors also received news that Tesla had hit a key production target of 50,000 Model 3 vehicles during the third quarter of 2018. This is particularly significant given the group has repeatedly fallen short of its own manufacturing targets, placing enormous strain on an overstretched balance sheet.
Even if Tesla delivers on the production front, it’s unlikely to distract attention from Elon Musk’s very public ordeal – it provides good theatre, if nothing else. The trouble is that because Tesla has been run more along the lines of a fiefdom, the rate of executive departures has been alarming, a point not lost on those short-sellers. The argument runs that the dominance of its founder has given way to an inadequate management set-up, so even though the EV manufacturer has the jump on competitors in terms of battery production, autonomous hardware and related data, the board might not be equipped to run the show if the chief executive runs afoul of the SEC again, or succumbs to the cumulative effects of sleep deprivation.
Of course, key-person dependency risk isn’t confined to the boardroom; critical personnel are usually dotted across businesses. It’s not just a case of determining if the second in command in a business has been mentored as a future leader and is aware of organisational issues beyond their responsibility. It’s also about focusing on critical functions within specific industries; a chief technology officer within a digital business, or a chief geologist at an oil and gas company.
Many of our readers will also be aware how this risk factor extends into the realms of managed money. Capital is drawn to star stock-pickers such as Neil Woodford or Terry Smith as if they were magnets, and think of the market impact of Bill Gross’s abrupt departure from Pimco in 2014, although that was almost certainly a case of when push came to shove. Speculation had mounted that senior executives at Pimco’s parent – German insurer Allianz – had become concerned over his management style, including a very public spat with his then heir-apparent Mohamed El-Erian, not to mention a letter he penned to investors that was essentially an elegy to his dead cat. There was also an SEC investigation over whether an exchange traded fund managed by Mr Gross had doctored its performance statistics.
