Elon Musk has reached a settlement with the United States Securities and Exchange Commission (SEC) following charges of securities fraud after he took to Twitter to announce this intention of de-listing Tesla, which resulted in the price of shares soaring to the to the detriment of short-sellers hedging on the stock’s decline.
According to a statement from the SEC, Musk was guilty of creating a misleading impression that taking Tesla, private was subject only to Musk choosing to do so and not a shareholder vote.
The agreement will see Musk pay a fine of $20 million, as well as step down as the chairperson of Tesla within 45 days. The SEC has also ordered the company to add two independent members to the board. According to Chris Potgieter, Head of Private Client Securities at Old Mutual, the news that Musk was permitted to remain in the role of CEO of Tesla came as a relief too many investors. “However, his recent behaviour and the apparent inability of the Tesla board of directors to rein him in suggests that the chairperson’s disregard for the shareholders of Tesla presents a risk to the long-term sustainability of the company.”
He says, “While the clean-energy electric-car maker is a company any socially responsible investor should love to invest in, the lack of action taken by the board in response to Musk’s recent behaviour highlights a potential problem with the management of Tesla and presents a significant governance risk to investors.”
He adds anecdotally that Musk’s disregard for Tesla shareholders was also apparent the day he described Wall Street analysts’ questions at a recent meeting as "dry," "boring" and "boneheaded". Potgieter says, “This incident was comparable to the day Jeff Skilling, the CEO of Enron – the once darling of Wall Street, whose demise shocked investors to their core – insulted a Wall Street analyst for asking why Enron refused to provide a balance sheet prior a shareholder meeting.”
“Non-financial indicators - such as environmental, social and governance scores - should be considered by investor’s just as important indicators of performance as the financial indicators provided by balance sheets and earnings statements. ESG scores – in particular, corporate governance – are indicators of both good management, which are one of best predictors of long-term sustainability and company performance,” concludes Potgieter.
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