Tesla’s board members are struggling to control a chief executive who, according to some directors, is out of control. Elon Musk, co-founder and general manager of the electric car maker, caused a public storm by announcing on Twitter last week that he wanted to turn Tesla into a private company. In recent days, according to people familiar with the subject, some members of his team have sent a stern message: stop tweeting.
Mr. Musk did not consider these tips. He continued to post messages on Twitter, to publicly prepare the company’s strategy and, in some cases, to make statements questionable accuracy. This has only aggravated the chaos experienced by the company in difficulty. Tesla’s board members are also quick to take on the possible consequences of Mr. Musk’s public statements. While it is customary for boards to retain the services of lawyers to advise them on complex matters, Tesla’s outside directors have hired two law firms to represent them.
The independent directors have retained Paul, Weiss, Rifkind, Wharton & Garrison to help them conduct a survey with the Securities and Exchange Commission regarding these positions, but directors expect a thorough investigation, according to one person. And three of these directors separately engaged the Latham & Watkins law firm to advise them in considering any proposal by Mr. Musk to deprive the company of its duties.
Tesla refused to make Mr. Musk available for an interview. The tumult is the latest blow to Tesla, which has experienced financial difficulties and faces growing investor questions about the company’s ability to meet Musk’s ambitious business goals.
Some board members were alarmed by what they saw as Musk’s erratic behavior, according to three people familiar with the thinking of some directors. The directors were blinded Last week; Musk claimed on Twitter that he had obtained “financing” for a possible agreement to convert Tesla from a publicly traded company into a private company. Such a transaction would probably cost more than $ 10 billion.
Musk said this week he is in talks with the Saudi government’s central investment fund for possibly negotiating a privatization deal with Tesla. But there was no indication that Mr. Musk had committed to funding such a deal, and the Securities and Exchange Commission contacted the company last week about Mr. Musk’s Twitter messages, which resulted in the termination of the agreement. Shares of the company. Trade.
Even before the controversy surrounding the privatization deal, Tesla and his board of directors have been the subject of scrutiny because of the close ties of several directors with Mr. Musk.
One of the directors is Mr. Musk’s brother, Kimbal. Antonio Gracias and Steve Jurvetson, both directors of SpaceX, Mr. Musk’s rocket company. Mr. Jurvetson was on leave from the Tesla Board of Directors since the end of last year, after resigning from his venture capital business on the grounds of allegations of misconduct. He denied these allegations. Tesla said Mr. Jurvetson had not participated in the board’s discussions on a possible buyout.
Another board member, Ira Ehrenpreis, is an investor in SpaceX. Brad W. Buss had been a chief financial officer of SolarCity, the solar panel manufacturer headed by Mr. Musk’s cousin and where Mr. Musk was formerly chairman. Tesla acquired SolarCity in 2016.
Until last year, Robyn Denholm, managing director of an Australian telecommunications company, was the only director with no direct links to Mr. Musk.
The independence of the board became a problem when Mr. Musk announced the acquisition of SolarCity who was struggling at the time. Some institutional shareholders have complained that the transaction was not in the best interest of Tesla. Glass Lewis, a shareholder advisory service, termed it “barely veiled bailout” of one of Mr. Musk’s outside investments.
The California State Teachers’ Retirement System and four other significant investors later called Tesla to add external directors and strengthen its corporate governance.
In response, Tesla added two independent directors last year – James R. Murdoch, son of Rupert Murdoch and executive director of 21st Century Fox, and Linda Johnson Rice, president, and CEO of Johnson Publishing. Even this initiative has been controversial. Some investors objected to the addition of Mr. Murdoch because of his involvement in the telephone piracy scandal in which British tabloids led by the Murdoch family were found listening to voice messages from celebrities, politicians and a murdered teenager.
Former members of the board of directors with Mr. Musk continue to present a problem.
The personal relationship of an independent director was found to be too narrow for him to sit on a committee set up by the board of directors to evaluate the potential privatization of Mr. Musk, according to two familiar people. As a result, this key committee has only three members.
Operational issues have also plagued Tesla, and he struggled to meet Musk’s production targets for the Model 3 sedan, the company’s first mainstream offering and a vehicle that he believes are essential to making the company profitable.
“The problems faced by Tesla are related to a lack of operational maturity,” said Roger McNamee, founder of Silver Lake, who is now managing director of private equity firm Elevation Partners. “The market has been remarkably patient because Tesla is struggling to change its production.”
Mr. Musk has tested this patience over the last few months. He publicly denigrated financial analysts and insulted a diver who helped save members of a Thai football team.
The frustrations of council members have intensified in recent days.
The directors were upset that Mr. Musk’s tweets forced them to rush out a public statement explaining a transaction that was at an embryonic stage, according to people familiar with the thinking of the board members.
Several executives recently told Musk that he should stop using Twitter, one of them urging him to stick with the construction of cars and the launch of rockets, according to people familiar with the council’s communications. Tesla employees, including the company’s public relations staff, echoed this point, another person said.
Last Monday, Mr. Musk was back on Twitter. He posted a message that he is “excited to be working with Silver Lake and Goldman Sachs” as financial advisors on his proposal to privatize Tesla.
But neither Goldman nor Silver Lake – a private equity firm specializing in technology investments – have signed with Tesla or Mr. Musk to play these roles, according to people familiar with the subject.
Tuesday, Goldman was in discussions with Tesla on a possible role but had nothing finalized. Silver Lake, for its part, wants to invest in any privatization deal, but it is not acting in an advisory capacity.