There are activist CEOs and rogue CEOs. And then there’s Tesla’s Elon Musk.
Musk, co-founder and CEO at the electric car maker, has repeatedly run afoul of the Securities and Exchange Commission in the last year via his personal social posts on Twitter. His “considering taking Tesla private” tweet resulted in his ousting as chairman of the company’s board on top of a $20 million fine, and he egged the regulatory agency on even further in February with a production-related tweet that it felt violated a settlement previously reached between the two sides.
Throughout his lengthy standoff with the SEC, Musk remained defiant, often mocking the agency in tweets and saying he has “no respect” for it in an interview with “60 Minutes.” Putting himself in the SEC’s crosshairs hasn’t appeared to faze Musk, though back at Tesla someone’s stomach is surely turning.
“God help whomever that person is,” said Carol Nolan Drake, president and CEO at board- and investor-focused firm Carlow Consulting.
Drake was part of a three-person discussion on the “Activist C-suite” session at Compliance Week’s 2019 annual conference in Washington D.C. last month. The panel analyzed navigating disclosure in the age of corporate purpose, citing examples of both good and bad of senior leadership at companies taking a stand on certain issues.
Of course, it didn’t take long for Musk’s name to come up in a discussion of what to do when the CEO goes off the rails.
“Elon is going to do what he wants to do,” said Drake. “He’s such a brilliant person that there are many who will give him a pass and think that the SEC is being unreasonable, even if he’s tweeting about stock prices and potential opportunities to acquire companies—the things you and I would say, ‘We should never be talking about that on social media. That’s insider information you shouldn’t share.’ ”
“But is he allowed to get away with it because he is so brilliant? The answer is no.”
“Obviously, Tesla has lost a lot of market value, some of it due to Musk, but also from a production standpoint as well. If you’re having production problems, what is the CEO doing going over here being rogue as opposed to paying attention to getting the business operating better? It gets back to staying in your swim lane.”
David Dragics, former SVP of Investor Relations, CACI
David Dragics, senior vice president of investor relations at information technology company CACI from 1998-2018, echoed that sentiment, referring to Musk’s behavior as more of an “ego thing.” In that case, he says, it becomes a matter of control for the company.
“It then goes to the board, because what the CEO is doing gets back to reputation—damaging the reputation of the company by his comments,” Dragics said. “As you saw in the Musk situation, the SEC came down and said the general counsel has to approve his tweets and everything like that. That’s an embarrassment, and it’s something you want to avoid.”
Dragics continued, “Obviously, Tesla has lost a lot of market value, some of it due to Musk, but also from a production standpoint as well. If you’re having production problems, what is the CEO doing going over here being rogue as opposed to paying attention to getting the business operating better? It gets back to staying in your swim lane.”
Looking past Tesla and at companies in general, the losses go beyond market value and making or breaking a quarter, noted Sally Curley, CEO of investor relations and environmental, social, and governance (ESG) advisory firm CGIR.
“The other thing too—and nobody has tried to measure this—is the impact on employees, both existing and attracting new employees,” she said. “Does that turn some employees off from pursuing your organization as a place they’d like to work?
“There’s a fine line between what we would define as the activist C-suite or CEO, which is a purposeful and hopefully well-thought-out statement in support of or against something, versus a CEO or CFO, or board member for that matter, going off the script and doing their own thing.”
Whomever is tasked with reining in the CEO at a company, slowing down the process is key, advised Dragics. “There’s the first reaction; you want to guard against making that the permanent reaction,” he said. Ideally, you protect yourself from someone coming back to you and asking, “Why didn’t you warn us about this?”
Meanwhile, for companies where there isn’t a clear individual in this role, there’s an opportunity to own it from a risk management perspective, said Curley.
Determining whose job it is becomes key when considering the relative newness to the idea of the activist CEO. “About three years ago, this would not have been a discussion,” said Curley. Yet, results from the 2018 Edelman Trust Barometer, which Curley cited, indicate 84 percent of people “expect CEOs to inform conversations and policy debates on one or more pressing societal issues, including jobs, the economy, automation, regulation, and globalization.” In addition, 56 percent of respondents said they have no respect for a silent CEO.
“An activist CEO could be the best thing the company has had because people know where the company stands, assuming the board and everything else is in alignment,” said Drake. “With the advent of social media and other pressures on companies from competition overseas, changing dynamics of the workforce, you have people coming into the market who want to find jobs and work for companies that they admire. That could be your company, and you have an opportunity to really shape that message.”
The message isn’t always well received though, as Gillette learned with its #MeToo-inspired Super Bowl ad earlier this year that called on men to do better in reference to toxic masculinity. Immediate backlash on social media resulted in the shaving company pulling the ad, and many men called for a boycott of the brand.
Uber has also felt social media’s wrath, revealing recently in its initial public offering (IPO) prospectus that the #DeleteUber campaign in January 2017—which was sparked by the ride-sharing company’s decision to turn off surge pricing to John F. Kennedy International Airport in New York amid protests following President Trump’s travel ban—resulted in “hundreds of thousands” of customers deleting the app.
“That wasn’t even the CEO at the time coming out publicly—it was just an action by the company in a very politically divisive timeframe,” said Curley.
Nowadays, with more accessibility to CEOs, it often falls on their lap regardless. “It emanates from the top of the organization: Investors look at the CEO, and employees look at the CEO,” explained Dragics. Though only one person may be the focus, however, it takes more behind the scenes to help toe the fine line between activist and rogue.
“Everybody has to be on the same page, and if you’re not, you’ve got to lay the issues out, getting back to what’s the issue and what are the consequences,” Dragics said.
Takeaways from Compliance Week 2019
- Currently reading
How to handle an unpredictable CEO like Elon Musk