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 June 5, 2025

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Governance Structure of Tesla

Governance Structure of Tesla

Introduction:

Tesla Inc. is famous for its automobiles especially the electrical one, Tesla was the first company that constructed electrical automobiles in the automotive industry. Tesla has been moved forward in innovating in self driving vehicles, the company has launched its self driving automobiles in the U.S. Musk has been working really hard to fulfill the objectives of Tesla and was victorious in achieving the targets. Since the establishment of Tesla Inc, the company has faced a lot of problems but it also has achieved quite a lot in a few years. The company after six years of its establishment produced the first electrical car in the world and generated a good amount of revenue (Vynakov, Savolova & Skrynnyk, 2016). However, it is known that the Chairman, Elon Musk has been tweeting really bold statements lately. Due to the statement Tesla and the Chairman was sued and this created a bad reputation for the company (Ferris, 2019). The writer will analyze the pre-existing governance structure of the company and how did the tweet impact the company and the market.

Tesla Organizational Structure: divisional and flexible -  Research-Methodology

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Background of Tesla and the governance structure

Tesla was founded in 2003 by Martin Eberhard and Marc Tarpening. Moreover, the company didn’t first start to manufacture automobiles instead it used to make tools of an automobiles and sold a battery called tzero. Furthermore, they always had a vision of manufacturing automobiles particularly the electrical ones but didn’t have the resources to manufacture it. They heard a speech from Elon Musk and made their decision to get him involved in the company as soon as possible. As Elon Musk came into the company, he changed the face of Tesla (Dzialo, 2018). Through his vision and consistent hard work Tesla Inc. is now one of the famous and successful companies in the automobile industry. The electrical cars manufactured by Tesla Inc. is used all over the world especially in China, America and Europe (Vynakov, et al., 2016). Governance structure in a company is important to hinder any threats or issues. The governance structure is efficient when it is constructed in compliance of different measures, correct incentives for workers, work environment that permits the workplace to communicate freely without any hesitation and encourages moral conduct in all the situations (Bucko, 2018). The pre-existing governance structure used for Tesla Inc. is the corporate governance; corporate governance means “the set of mechanisms used to manage the relationship among stakeholders and to determine and control the strategic direction and performance of organizations” (Hanson, Hitt, Ireland & Hokisson, 2001, p. 292). The Corporate Governance structure of Tesla Inc. includes Board Structure, Duties of the Board of Directors, Board Procedures, Board Committees, Director Orientation, Board Compensation, Incentivizing Company Personnel, Claw back Policy, Auditor Rotation, Communications and Stockholders and Periodic Review of the Corporate Governance Guidelines. The detailed version of the Corporate Governance structure is given under Appendix.

Governance Flaws in the Firm:

Tesla Inc has flaws in its Corporate governance, according to Ferris (2019), the unpredictable attitude of Chief Executive of the company is putting the company in danger. The Board of Directors cannot control him due to the fact that they all have close relation with Musk. The chairman has time and again written tweets that jeopardizes the company and is a way to leak information publicly. Moreover, there is a high turnover rate in the senior management of Tesla Inc, Dane Butswinkas left the company within two months. According to CBS (2018), the main issue that needs to handled under corporate governance is the Board of Directors. The directors need to step up and not let Musk announce such tweets, the board needs to be firm in management and observing the activities of the company. Due to close relations with the Chairman, the directors don’t question Musk about his wrong doings. The Board of Directors need to be step up and should do their job correctly if they don’t want Tesla Inc. facing multiple problems and issues at a time. For a Corporate Governance to be effective and have a greater impact, the company should “strengthen the effectiveness” of the Board of Directors (Hanson et al., p. 291).

Impact of the Tweet on the CEO, Market and the Firm

Elon Musk tweeted on August 7,2018 that he is considering to take Tesla Inc. at $420 per stock with secured funding. He retweeted multiple times again given below:

Fig 1: Multiple re-tweets of Elon Musk after announcement of privatization of the company (Olson, 2018)

The tweet created an uproar in the industry as well as among the customers, after the tweet the stock market experienced fluctuations in the stock price (McGregor, 2018). The tweet had a lot of attention of different stakeholders especially the Securities and Exchange Commission (SEC) which sued Musk of fraud. After the judgement was passed, Musk steeped down from the post for three year and the company hired an independent CEO. Elon Musk and the company were fined twenty million dollars and Tesla Inc. was instructed to hire 2 independent directors and construct a “formal disclosure committee” to monitor interaction with Musk. Moreover, Tesla was also told to add a securities law firm approved by the SEC, the tweet about the privatization of the company was a bold move by the Chairman. This created a bad reputation of Tesla Inc. that opposed the leadership of Musk and that if he is a reliable chairman for the company or not (Slane, Makower & Green, 2018).

 

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Explanation by the Firm:

After the tweet created an uproar in the market and among the stockholders, Musk after six days explained why he tweeted such statement. He explained that he wanted to discuss the matter with the stockholders and he thought it was incorrect to disclose important information about the privatization with major investors. After the tweet was posted on social media, a reporter asked the head of Investor Relations of Tesla about the term funding secured and whether is there a buyer for the company. Th employee replied that ‘I actually don’t know, but I would assume that given we went full-on public with this, the offer is as firm as it gets” (Slane et al., 2018). Musk also added that before his tweet, a Saudi Arabia wealth fund credited a two billion stake in the company that is why the Chairman was firm in privatizing the company (Salina, 2018).   

Conclusion:

In conclusion, Tesla has been generating a good amount of money through their deliveries of electrical automobiles all over the world. The new innovations in the automobile industry by the company has changed the way we see an automobile. However, the company has a weak corporate governance in terms of Board of Directors who aren’t questioning the Chairman for his bold statement on his personal social media account. The Board of Director must oversee all the governance structure and its workings but in Musk’s case the directors are unable to do so and have to pay a hefty twenty million dollars fine to the SEC. The Chairman then explained it that he wrote that statement due to the discussions with the Arab fund of buying a two million dollars stake. To properly govern the corporate structure the Board of Directors must take a stand against the chairman.

 

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References:

CBS, (2018), Tesla’s board problem: Too many ties to CEO Elon Musk, News, reviewed on 9 June 2020 < https://www.cbsnews.com/news/experts-say-tesla-board-may-have-too-many-ties-to-ceo-musk/>

Ferris, R. (2019), Elon Musk’s tweets show that Tesla’s board either can’t or won’t try to keep him in check, News, CNBC, reviewed on 9 June 2020 < https://www.cnbc.com/2019/02/27/teslas-directors-seem-to-be-incapable-of-restraining-musk.html>

McGregor, J. (2018), The enormous task ahead for Tesla’s board, News, Washington Post, reviewed on 9 June 2020 < https://www.washingtonpost.com/business/2018/08/17/enormous-task-ahead-teslas-board/>

Olson, A. (2018), CEO Elon Musk tweets about Tesla buyout, News, Fox News, reviewed on 9 June 2020 < https://www.fox5ny.com/news/ceo-elon-musk-tweets-about-tesla-buyout>

Salinas, S. (2018), SEC charges Tesla CEO Elon Musk with fraud, News, CNBC, reviewed on 9 June 2020 < https://www.cnbc.com/2018/09/27/tesla-falls-4percent-on-report-elon-musk-sued-by-sec.html>

Slane, J., Makower, S., & Green, J. (2018), Corporate Governance Case Study: Tesla, Twitter, and the Good Weed, Report, Harvard Law School Forum on Corporate Law, reviewed on 9 June 2020 < https://corpgov.law.harvard.edu/2018/12/10/corporate-governance-case-study-tesla-twitter-and-the-good-weed/>

 

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