Elon Musk and the G in ESG

February 7, 2024  •   David Pring-Mill

By David Pring-Mill

If Tesla were a normal company and its CEO behaved as abnormally as Elon Musk, they would have long ago been fired. Of course, there are exceptions to every rule.

Tesla’s emergence didn’t merely electrify more vehicles; it disrupted the Big Three automakers – a feat in and of itself, given the high barriers to entry and homogenous market. However, since then, Teslas have caught fire. Tesla’s Autopilot feature has spelled death for road users, representing a new frontier where invisible calculations and human error intersect with still-to-be-determined legal implications. Again, not a normal company.

As for its CEO, Musk, a uniquely polarizing figure, has been involved in multiple groundbreaking ventures. SpaceX essentially absorbed duties from NASA, perhaps the most inspiring U.S. federal agency – then, NASA was put in the position of chaperone, conducting a dubious investigation into possible drug use at their contractor’s workplace, following Musk’s erratic behaviors. Increasingly, those behaviors are seen as a threat to the current valuation of $1 trillion in assets and the stability of entire sectors.

All of this inspires a serious reevaluation of the G in ESG, Governance – but what does it truly mean to govern responsibly and ethically in today’s complex business world? Is the alienation of potential investors and stakeholders a personality mismatch, or a governance failure?

Tesla lost Linda Johnson Rice as a director because she was reportedly fed up with Musk’s conduct, according to recent reporting in the Wall Street Journal. There have also reportedly been whispered concerns among the board about alleged drug use playing a role in the CEO’s unusual comments and behaviors, though this could also be attributed to his publicly disclosed mental health issues.

Supporters and critics tend to agree that Elon Musk creates value but also jeopardizes it. What is that worth? Not as much as the board thinks, according to the Delaware judge who voided Elon Musk’s unparalleled $56 billion pay package, describing it as “an unfathomable sum” that is unfair to shareholders. The judge questioned the objectivity and clarity of a board that was “perhaps starry eyed by Musk’s superstar appeal” and prone to an optimism bias. The CEO’s compensation, negotiated in 2018, was tied to Tesla’s stock performance and would have been worth around $51 billion based on Tesla’s stock price at the time of the ruling. Musk responded by advising other business leaders against incorporating in Delaware.

To evaluate governance, we can look not just to Musk’s contemporaries but also to history in order to understand how the C-suite’s Overton window changes.

The G in ESG means different things to different people, especially amid major technological transitions.

In the ’90s, AT&T’s Robert Allen was pressured to retire early due to lagging stock growth, never mind that he capably led the company through a time of technological transition after regulators broke up AT&T’s monopoly. In 2012, when an activist investor found out that Yahoo!’s CEO Scott Thompson had embellished his academic credentials, Thompson got the axe. Meanwhile, in the “glass cliff” phenomenon, women leaders and other marginalized individuals are elevated to leadership positions during periods of company crisis or downturn, then ruthlessly criticized for what they inherited. Their success or failure could redefine not just their careers but also the opportunities for others like them in the future.

Despite the standards of governance being applied elsewhere, Musk continues to lead, securing key defense contracts while playing devil’s advocate for hostile actors. And, until recently, receiving unparalleled compensation in the process.

And yet… while writing parts of this article via speech-to-text on a walk, I looked up to see a Tesla parking nearby, having been alerted to its presence by its soft purr. Taking in the Tesla and the focus-splitting cacophony of clunky internal combustion engines from the rest of the roadway, it occurred to me that those conventional vehicles will one day, perhaps not too far in the future, be seen as archaic. But Elon Musk’s management style also increasingly feels misplaced, a remnant of an interval where executive power could be wielded with inconsistent standards and selective accountability.

Meanwhile, the future of EVs belongs to diverse stakeholders – from Panasonic’s battery tech to the low-cost, third-generation EV model being developed at Ford, under the stewardship of a former Tesla engineering director.

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