It’s official: after being accused of fraud by The US Securities and Exchange Commission (SEC), Musk will now step down as Tesla chair. In recent months, the outspoken business magnate has caused a stir for his online actions, with shares in the company taking a hit. But what impact, if any, could the Elon Musk fraud incident and the resulting new chair have on the electric car manufacturer?
Elon Musk fraud: Why is Musk stepping down?
Last week, it emerged that the US SEC had accused Musk of fraud after “false and misleading tweets” over plans to take Tesla private. In August, Musk tweeted that he was “considering taking Tesla private at $420. Funding secured.” Since no such funding had been secured, the SEC alleged that the tweets were harmful to investors.
Timeline for US tech giants
- April 1, 2020
- February 24, 2020
Musk has subsequently reached a deal with the SEC meaning he must step down as chair of Tesla within 45 days (but remain as CEO) and pay a $20m fine.
The Elon Musk fraud incident is the latest example of the Tesla CEO courting controversy, largely through misguided tweets.
Musk is currently being sued for $75,000 defamation by Vernon Unsworth, a British diver involved in the rescue of 12 boys and their football coach from a flooded cave in Thailand in July, after Musk tweeted that Unsworth was a “paedophile”.
Recently, the Tesla CEO appeared on a live web show hosted by comedian Joe Rogan and was filmed smoking a marijuana joint.
What could this mean for Tesla?
Although Musk stepping down as chairman is unlikely to drastically impact the day-to-day running of the company, it does signify the reigning in of its somewhat erratic CEO. Financial blogger at Fiscal Nerd Stacy Caprio told Verdict:
“A chairman is not an active member of a company or its success. It is more of a figurehead, and someone who helps run meetings. Musk stepping down will only have an impact on company perception and not on how successful the company is or how it is run moving forward.”
Although the identity of the new chairperson has not yet been disclosed, under the deal, two independent board members must be appointed as well as “new committee of independent directors and put in place additional controls and procedures to oversee Musk’s communications.” In other words, the deal may be an attempt for the Tesla board to limit the number of unfortunate headlines featuring Musk.
According to Inc., Tesla’s board has included Musk, his brother, and four other people tied to Musk, meaning outsider influence may go some way to curbing Musk’s impulsive actions both on and offline.
Parallels can be drawn between this situation and another involving Steve Jobs and John Scully. In 1985, then-CEO of Apple John Scully ousted the difficult-to-work-with Apple founder as head of the Macintosh division after sales of Apple products slowed.
Good news for shareholders
The incident is unlikely to dramatically alter the public’s perception of Tesla, the exertion of greater control over Musk may reassure investors, with Tesla stocks surging by 17% on Monday after falling on Friday.
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Managing director of LeaseFetcher Will Craig believes that Tesla could in fact benefit:
“I actually think that Elon Musk stepping down as chair will benefit Tesla in the long run. I think a lot of investors have become increasingly concerned about Musk’s erratic behaviour and the damage that it’s causing the brand, so they’ll probably welcome this decision.
“There’s nothing wrong with unconventionality in business per-se, but for a company as ambitious as Tesla, you need someone at the helm who’s not as divisive and who can reach out to different groups of people.”
Will it really have a long-term impact on Tesla’s reputation?
However, for others, the fact that Musk has remained as CEO means he will remain the figurehead of the electric car company.
PR, social media and marketing consultant Mike Driehorst believes that it may be business as usual:
“From a public relations/public perception point of view, the US SEC penalty on Elon Musk and Tesla is nothing more than a slap on the wrist. Yes, a $20m fine for Mr Musk sounds like a big deal but, in the big picture, it’s really nothing more than a nuisance.
“Mr Musk still retains his CEO title at Tesla. Therefore, he’s still the face and the driving force being the company. He’ll still tweet with nearly reckless abandon, drive his managers and employees, and we’ll still hear tales of Mr Musk sleeping in the factory.
“The net effect on Mr Musk and Tesla is nothing. It’s business as usual.”
Although Musk’s recent media coverage may have damaged his reputation, it may be the case that negative coverage is better than no coverage at all. Co-founder of development and marketing agency Lumas Raphael Sebban believes the company needs media coverage to stop it from becoming just another car company:
“Musk got unfavourable media attention, but we can say that the press and the tech journalist love him. He is an excellent entrepreneur and CEO. He got crazy ideas, and he is not afraid of tweeting all day about those ideas. So I think Musk stepping down from Tesla, will get Tesla less media attention, and a company start-up like Tesla really needs this attention.
“I would say Elon Musk stepping down is bad for the company but good for the stock. Investors will get a more stable CEO, but less press coverage. The company needs the press, but Tesla will be a lot less attractive without Elon.”