Senator Warren Seeks Answers From Tesla Board About Musk’s Possible Conflicts Of Interest
The Tesla board is on the proverbial hot seat. Has the Tesla Board of Directors failed to meet its legal duty with regard to the actions of Tesla’s Chief Executive Officer, Elon Musk, in the aftermath of his purchase of Twitter?
That’s the central topic Senator Elizabeth Warren, chair of the Senate Subcommittee on Fiscal Responsibility and Economic Growth, focused on in a letter addressed to Dr. Robyn Denholm, Tesla’s Chair of the Board. Warren outlined how state and federal laws impose on the officers and directors of every company a series of fiduciary duties to the company, its workers, and its shareholders.
She added that there is a stringent requirement that they provide disclosures about conflicts of interest, misappropriation of corporate assets, and other actions by their executives that may impact these stakeholders.
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The issue began in April 2022 when Musk announced that he intended to purchase Twitter, a deal he completed in October. Upon completion of the acquisition, Musk became Twitter’s CEO. With a debt-ridden financial structure, subsequent employee layoffs on a large scale, and an unprecedented increase in hate speech on the platform, regulators started expressing concern. Additionally, advertisers fled the platform. It seems as if Musk’s plan is little more than to take all of Twitter’s financial resources and just pour them back into servicing the debt. He also provided a warning of potential bankruptcy.
The basic structure of Musk’s deal to buy Twitter and his actions since becoming CEO raise a number of concerns for Senator Warren.
While these business practices may damage Twitter’s eventual viability, the reason Warren wrote to Denholm and the Tesla board was, rather, to remind them that it is their responsibility to ensure that — amidst all the Twitter chaos — Musk continues to be an effective Tesla CEO and that he fulfills his legal obligation to act in the best interests of Tesla and all of its shareholders — not just himself.
Senator Elizabeth Warren is asking hard questions of the Tesla Board about its oversight of CEO Elon Musk. Areas of her greatest concern include:
- conflicts of interest;
- manipulation of algorithms;
- possible employee policy violations;
- (lack of) shareholder protections; and,
- (lack of) formal and informal agreements between Tesla and Twitter.
Warren needs an assurance that a controlling shareholder like Musk “does not treat the company as a private plaything.”
In case you haven’t followed Warren’s career, before becoming the first woman ever elected to the MA Senate in 2012, she served as chair of the Congressional Oversight Panel for the Troubled Asset Relief Program (TARP) — the oversight board set up in the aftermath of the 2009 financial crisis to protect taxpayers, hold Wall Street accountable, and help homeowners get back on their feet.
Consumer protection is in her DNA.
A Lack of Fiduciary Duty Hovers over the Tesla Board
The essence of fiduciary duty on the part of the Tesla board — that legal responsibility for care, loyalty, good faith, and confidentiality when serving the best interests of a beneficiary — was questioned several times in Warren’s letter. Concerns have arisen about Musk’s mercurial leadership at Tesla while he attempts to right his newest acquisition, Twitter.
Warren explicitly stated that it “remains unclear whether the Tesla Board – which has key decision making authority within the company – is adequately governing the company or if it has established clear rules and policies to address the risks to Tesla posed by Mr. Musk’s dual roles.”
We who follow Tesla know that Musk has made inappropriate comments this year about:
- the Director of the National Institute of Allergy and Infectious Diseases, Dr. Anthony Fauci;
- free speech rights, followed by censure of Twitter comments;
- accusations about Paul Pelosi, husband to the US Speaker of the House;
- bots, Hunter Biden, QAnon, and other conspiracy theories;
- gender identifying pronouns;
- “woke theory;” and,
- so many more.
Such disturbing conduct by a CEO caused Warren to pose several questions to the Tesla board, with a January 3, 2023 deadline for reply.
Limits on Musk: What specific guardrails and oversight has the Board put in place to ensure that Musk is meeting his fiduciary and management responsibilities at Tesla while also running operations at Twitter? Many shareholders would like to know.
Protections and conflicts of interest: What protections has the Board put in place to protect Tesla from conflicts of interest created by Musk’s acquisition of Twitter? How are these protections enforced?
Agreements in place: Are there any formal or informal agreements between Tesla and Twitter, or between Musk and Twitter? What is the nature of these agreements?
Advertising: What provisions has the Board put in place to address the conflicts of interest regarding advertising policy? What guarantees are in place to ensure that Tesla does not overpay for advertising on Twitter? What guarantees are in place to ensure Musk does not offer more favorable advertising rates to Tesla’s competitors?
Ripple effect of Twitter hate speech: What is the Board’s evaluation of the consequences of the public’s association of Tesla’s CEO with his decisions at Twitter regarding hate speech, re-platforming Nazis, virulent sexism, climate misinformation, and sharply increased use of racist language, symbols, and memes?
Algorithms: In order to avoid the apparent conflicts of interest, has the Board received any formal or informal assurances from Musk that he will shape Twitter’s operations or algorithms to advance Tesla’s interests? In order to avoid antitrust violations, what assurances has the Board received from Musk that he will not shape Twitter’s operations or algorithms to advance Tesla’s interests?
Misappropriate of Tesla resources: Has the Board reviewed Musk’s activities as Tesla CEO to ensure that Tesla’s resources are not appropriated for the benefit of Twitter? If so, has the Board identified any concerns and taken any action to protect Tesla?
Employee cross-pollination: What are the results of the Board’s review of Musk’s use of Tesla employees to benefit Twitter? How many and what Tesla employees were used by Musk for the benefit of Twitter, how were they reimbursed, and how did they apportion their time between the two companies? Were employee policies violated? Were any Tesla employees terminated or threatened with job loss for refusing to work on non-Tesla related issues? Has the Board taken any actions to ward off any similar employee raids in the future?
Stock sales: Did Board members have any specific concerns about Musk’s sale of Tesla stock to fund the Twitter purchase or his ongoing use of Tesla stock as collateral for debt incurred in the Twitter purchase? What actions has the Board taken to protect Tesla shareholders in the event that Musk is forced to sell additional Tesla stock due to margin calls or the need to pay Twitter debt?
Shareholder lawsuits: Tesla is currently being sued by its shareholders for compensating Musk with billions in Tesla stock. Are there any provisions in Musk’s employment contract that prevent him from selling additional shares of Tesla in quantities that would further lower the stock price and injure shareholders?
Other CEO positions: Has the Board explored other possible conflicts of interest, misappropriation of resources, or other concerns created by Musk’s position as CEO of Tesla and his role in other corporations, including Neuralink, SpaceX, and The Boring Company?
Senator Warren reminded Denholm that the Tesla Board’s fiduciary duties include a subsidiary obligation to prevent the company from breaking the law. “Despite these threats and despite the independent legal obligations of the Tesla Board,” Warren wrote, “it appears that the Board has taken no action to protect the company, and Tesla’s stock price has plunged.”
Warren noted that “Tesla’s losses did not occur in a vacuum.” Even though some of the Tesla losses can be attributed to factors other than Musk’s “decision to take over Twitter, there appears to be a direct link.” Beyond the legal issues that Musk may face with regards to the issues raised in the letter, the Tesla Board, Warren stated, “has independent legal obligations that it must fulfill.”
We’ll look forward to the Tesla board responses on January 3. Will they take responsibility for the free-wheeling manner in which they have allowed Musk to wield control? Will they lash out at Warren and include her in what’s commonly called a Democratic “partisan charade?” Will they nod in slight acquiescence and assign Musk a new title, so as to appear as to be cooperating?
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