I know it’s probably been like, almost an hour since you thought about Elon Musk, right? Well, I’m here to finally remedy that, by letting you know that Elon reportedly forced the Tesla board to pull out of a fairly generous settlement with the Securities and Exchange Commission by threatening to resign from Tesla if the Tesla board did not publicly defend and support him, according to the New York Times.
Due to the inordinate amount of influence Elon Musk holds over the perception and image of Tesla, the board felt that they had no choice but to agree to Musk’s demands and reject the settlement, as detailed by the Times. Here’s a snippet:
But Mr. Musk had given the board little choice: In a phone call with directors before their lawyers went back to federal regulators with a final decision, Mr. Musk threatened to resign on the spot if the board insisted that he and the company enter into the settlement. Not only that, he demanded the board publicly extol his integrity.
Threatened with the abrupt departure of the man who is arguably Tesla’s single most important asset, the board caved to his demands, according to three people familiar with the board’s decision.
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The settlement was the SEC’s way of punishing Musk for claiming to have funding secured to take Tesla private, which turned out not to be the case, which the SEC felt constituted “false and misleading statements and material omissions” that harmed investors.
We asked Tesla for comment but have not heard back yet.
The settlement was also quite accommodating to both Musk and Tesla, all things considered. According to the initial terms of the settlement, both Musk and Tesla would have to pay a $10 million dollar fine, and while Musk would lose his board chairmanship and cannot serve in that position for two years, he’d be able to retain his position as Tesla CEO.
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Really, it could have been much worse, and you could argue the SEC was taking it easy on Tesla. But it wasn’t enough for Musk. Jalopnik reached out to Tesla about Musk’s threat to resign and we’ll update if we hear anything.
Last Thursday, Tesla’s board released a statement in support of Musk:
“Tesla and the board of directors are fully confident in Elon, his integrity, and his leadership of the company, which has resulted in the most successful US auto company in over a century. Our focus remains on the continued ramp of Model 3 production and delivering for our customers, shareholders and employees.”
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Eventually, on Saturday, Musk accepted the settlement, but his stonewalling caused the fines to double to $20 million for him and Tesla, and a year added to the length of time he had to wait before taking back the position of board chairman.
Another New York Times story quotes Jeffrey Sonnenfeld, a Yale School of Management professor, who describes Musk’s ultimatum to his board like this:
“What it tells us is this board, as a strategic plan, must be using the Jim Jones-Jonestown suicide pact. They are drinking the Kool-Aid of the founder. It is completely as self-destructive as Musk is.”
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The article also quotes John C. Coffee Jr, a Colombia Law School professor:
“Rejecting such a favorable settlement is proof that he needs monitoring. He didn’t have a legal leg to stand on, and I’m sure his lawyer told him that. But he got very touchy about not being able to proclaim his innocence.”
The idea that a CEO of an important carmaker would demand his board blindly defend him, despite his clear mistakes, even at the cost of an extra $20 million dollars and a less favorable SEC settlement should be shocking.
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But, of course, that’s not how the world works anymore. Considering everything, I guess I’d be shocked if it didn’t go something like this.
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