Elon Musk’s reported drug use has Tesla Inc. board members going through a well-known quandary: having to determine what, if something, to do concerning the chief govt subjecting administrators and shareholders alike to nice monetary and authorized danger.
The Wall Avenue Journal’s article describing Musk’s historical past of leisure drug use and ongoing consumption of ketamine is the newest in an extended line of assessments for a board full of the CEO’s acolytes — a number of of whom agreed lower than six months in the past to return $735 million to settle a lawsuit alleging that they had excessively compensated themselves.
Shareholders voiced dissatisfaction with the board final 12 months over Tesla’s succession planning, and accused Musk of being distracted by his commitments to different corporations. His chaotic 2022 takeover of Twitter Inc., the social media firm he’s renamed X Corp., contributed to Tesla shedding $672 billion in market capitalization that 12 months.
Earlier than that, administrators rode out litigation associated to Musk’s doomed effort to take Tesla private in 2018, and his calling a cave explorer concerned within the rescue of a youth soccer crew in Thailand that 12 months a pedophile. Additionally they testified in proceedings associated to the $55 billion compensation package deal they organized for Musk, and in a trial difficult Tesla’s $2.6 billion acquisition of SolarCity, the struggling energy supplier run by Musk’s cousins.
The report by the Journal — which mentioned Musk has used LSD, cocaine, ecstasy and psychedelic mushrooms, typically at non-public events — isn’t even the Tesla board’s first brush with drug-related points. Weeks after the New York Instances reported in August 2018 that administrators had expressed concern about Musk’s use of Ambien, he puffed a blunt containing marijuana on comic Joe Rogan’s podcast.
Lawsuit Fodder
Tesla’s board took minimal motion within the wake of these episodes. It changed Musk as chairman and named two new unbiased administrators as required by the settlement of fraud prices introduced by the US Securities and Change Fee. It might face extra litigation over its dealing with of Musk’s drug use, mentioned Stephen Diamond, who teaches programs on company governance at Santa Clara College’s Faculty of Regulation.
“This will give ammunition to class-action lawyers on behalf of disgruntled shareholders at Tesla, if they can tie evidence of drug use to his actual role as an executive,” Diamond mentioned. “The Tesla board has an obligation to discern what’s going on here.”
Whereas Musk’s drug use has the potential to hurt his different enterprises — notably House Exploration Applied sciences Corp., a US authorities contractor — he derives extra of his fortune from Tesla than some other firm. His shares and exercisable inventory choices are value $97.6 billion, or about 44% of his $219.4 billion web value, in response to the Bloomberg Billionaires Index.
“Whatever I’m doing, I should obviously keep doing it!” Musk posted on X, citing Tesla and SpaceX being the world’s Most worthy automobile and area corporations. “If drugs actually helped improve my net productivity over time, I would definitely take them!”
Board Breakdown
Tesla’s longest-serving administrators are Musk, 52, and his youthful brother, Kimbal — each have been on the board since 2004. Kimbal’s reelection to the board has gotten pushback in recent times from an investor essential of his lack of relevant industry experience and a proxy adviser involved about objectivity.
Proxy advisers additionally opposed the 2022 reelection of Ira Ehrenpreis, a enterprise capitalist who has been on the board since 2007. They cited concern concerning the quantity of borrowing towards Tesla inventory by Musk and different administrators, and a half measure the board took in response to a shareholder proposal for annual director elections that received majority assist in 2021.
The one different comparatively long-tenured director on the board is Robyn Denholm, who joined in 2014 and have become chair in 2018. Months after her elevation to the place, which was linked to the SEC suing Musk and Tesla over his take-private tweeting, she praised Musk’s use of the social media platform.
“Twitter is part of everyday business for many executives today,” Denholm mentioned in a March 2019 interview. “From my perspective, he uses it wisely.”
Tesla’s 4 different administrators are James Murdoch, the previous twenty first Century Fox CEO appointed in 2017; Kathleen Wilson-Thompson, the previous human-resources chief of Walgreens Boots Alliance Inc. who joined in 2018; and Joe Gebbia and JB Straubel, who have been elected to the board final 12 months. Gebbia co-founded Airbnb Inc., and Straubel is a co-founder of Tesla.
Musk has shut relationships with Murdoch, Gebbia and Straubel. Throughout testimony in Delaware Chancery Courtroom over his Tesla compensation package deal in 2022, the CEO fielded questions from a plaintiff’s lawyer about vacationing with Murdoch on a number of events.
After Musk tweeted about making an attempt to take Tesla non-public, Gebbia texted his reward, calling it a “baller move.” Musk and Straubel’s ties date again to Tesla’s founding in 2003.
D&O Insurance coverage
Whereas Tesla’s administrators have been well-compensated, being a board member has at occasions been dangerous. In April 2020, the corporate disclosed that it had determined to not renew its administrators’ and officers’ legal responsibility coverage, because of excessive premiums quoted by insurers. Musk agreed to personally present protection, which the board decided wouldn’t impair administrators’ unbiased judgment.
After catching flak for the association, which initially was deliberate to final a 12 months, Tesla disclosed in October 2020 that it had lined up a customary insurance coverage coverage for its administrators and officers. It paid Musk $3 million for 90 days’ value of interim protection that he supplied.
Musk’s reported drug use could briefly hit Tesla’s shares, mentioned Gene Munster, a managing companion at Deepwater Asset Administration. However those that have held on by means of the CEO’s antics have been rewarded — the inventory has soared 1,168% since Musk’s marijuana toke in September 2018.
“A small percentage of investors will sell their stock over the next week and put some pressure on shares,” Munster mentioned Sunday. “Most investors won’t care, because it falls into the category that if you want to profit from Elon, you have to put up with his controversies.”
