Elon Musk Steps Down as Tesla Board Chair, Reaches Settlement with SEC
A pivotal moment for Tesla unfolds as Elon Musk settles with the SEC and resigns as board chair, marking a new chapter for the electric car giant.
Tesla Inc. (TSLA) and its visionary founder, Elon Musk, have agreed to pay $20 million each to the U.S. Securities and Exchange Commission (SEC) to resolve allegations related to misleading communications. As part of this settlement, Musk will resign as Tesla’s board chair but will continue to serve as CEO. This development concludes a turbulent two-month period marked by intense scrutiny and uncertainty for both Tesla and Musk.
Background of the SEC Charges Against Musk
On September 27, the SEC filed charges against Musk for tweets he posted in early August, where he indicated plans to take Tesla private at $420 per share, claiming secured funding. These tweets sparked widespread confusion among investors and raised questions about the legitimacy of the funding and the involvement of Tesla’s leadership.
The SEC alleges that these statements lacked factual support and caused market disruption, adversely affecting investors. Musk’s subsequent highly publicized actions, including smoking marijuana during a webcast and wielding a sword, further intensified investor concerns.
According to Reuters, experts in corporate governance and investors believe the settlement could ultimately benefit Tesla by imposing stronger oversight in light of Musk’s controversial behavior.
Implications for Tesla’s Governance
Elon Musk has been integral to Tesla’s identity and success since its inception. Removing him entirely could have had dire consequences. Steven Heim, director at Boston Common Asset Management, noted that the settlement allows for increased governance controls without forcing Musk’s departure, which he described as a potentially devastating outcome.
Beyond the financial penalties, Tesla must now appoint an independent board chair, add two independent directors, and establish a committee to oversee Musk’s communications in accordance with the settlement.
SEC Chair Jay Clayton emphasized that resolving the matter swiftly serves the best interests of the markets and Tesla shareholders. Following the SEC’s announcement, Tesla’s market capitalization fell by approximately $7 billion to $45.2 billion by Friday. However, allowing Musk to remain CEO may have mitigated further negative impacts. Ivan Feinseth of Tigress Financial Partners referred to the settlement as a "slap on the wrist," underscoring the importance of Musk’s continued leadership for Tesla’s future.
Looking Ahead: What This Means for Tesla
The settlement awaits court approval to become official. Once finalized, Musk must step down as board chair within 45 days and will be barred from the position for at least three years.
Interestingly, Musk had previously walked away from an earlier deal that would have required him to relinquish key leadership roles for two years alongside a smaller fine. Reports indicated he was prepared to contest the SEC in court before reaching this agreement.
Tesla’s board now faces the challenge of selecting an independent chair who can effectively collaborate with a CEO known for his unpredictability. Erik Gordon, a business professor at the University of Michigan, highlighted the critical question of whether Musk’s allies on the board will support appointing a strong chair capable of providing necessary oversight.
As of now, no clear candidates have emerged to fill the chair position.
If you have news tips for Investopedia reporters, please contact us at tips@investopedia.com.
Discover the latest news and current events in Company News as of 30-06-2019. The article titled " Elon Musk Steps Down as Tesla Board Chair, Reaches Settlement with SEC " provides you with the most relevant and reliable information in the Company News field. Each news piece is thoroughly analyzed to deliver valuable insights to our readers.
The information in " Elon Musk Steps Down as Tesla Board Chair, Reaches Settlement with SEC " helps you make better-informed decisions within the Company News category. Our news articles are continuously updated and adhere to journalistic standards.