Tesla’s Corporate Governance Overview Need Essay Help

Table of Contents
Introduction Price Cuts and Share Price Plunge Reflect Irrational Governance Choices Conclusion References

Introduction

Tesla Corporation is an American automaker that develops electric vehicles and investigates renewable energy. It was established in 2003 and has had rapid expansion over the following two decades. Investors and other stakeholders are concerned about the company's leadership stability and corporate governance in light of recent occurrences. Negative events affecting the company include the CEO's deceptive tweets, staff turnover, fraudulent dealings, price cutbacks, share price plunges, weak corporate governance, and the founder's unpredictable conduct.

Price Reductions and Share Price Fall

During the fourth quarter of 2019, Tesla recorded record output, which represented a 13 percent increase over the previous period. However, investors responded with a sell-off, and analysts criticized the gains (Boudette, 2019). The corporation reduced the price of all models by $2,000 in response to a federal tax credit for electric vehicles. However, critics said that the business was protecting itself against declining demand following the Model 3's initial mass-market release (Boudette, 2019). In addition, the company encountered significant supply chain issues when delivering automobiles to clients. Tesla was driven by sluggish deliveries to buy three tracking businesses to expedite the process (Boudette, 2019). In spite of the difficulties, the company's third-quarter profits climbed.

Erratic Conduct

Investors are uneasy about Musk's behavior in recent years. For example, he smoked marijuana during an appearance on the Joe Rogan program. This occurred at a time when the company's chief accounting officer (Dave Morton) had resigned after less than a month of service (Bomey, 2018). These instances prompted questions about the leadership stability at Tesla. Consequently, they caused a 6.3 percent fall in the share price of the company (Bomey, 2019). To fulfill the strong demand, the CEO has been pressed repeatedly to prioritize accelerating the manufacturing of electric vehicles. Musk has previously stated on Twitter that he was aiming to take the firm private and had acquired the necessary cash. Morton stated that the focus on Tesla and the pressure to perform within the company compelled his resignation (Bomey, 2019). The need to succeed was one of the primary drivers of the corporation's high turnover rate. Musk says that pressure is necessary for the corporation to achieve its objectives.

Decisions Regarding Corporate Governance

Multiple actions made by the company's chief executive officer have been questioned by investors and the Securities and Exchange Commission (SEC). In a 2018 filing, Tesla stated that Musk had spent $10 million on the purchase of Tesla shares and planned to spend an additional $20 million to increase his shareholding (Maidenberg, 2018). He acquired around 30,000 shares through a trust, increasing his stake in the company to approximately 20 percent. The SEC had accused him of fraud, and a settlement agreement with the agency cost him and his company $20 million in fines apiece (Henning, 2018). Musk was compelled to step aside as chairman of the firm and appoint a replacement for the next three years. It has been asserted that he has been preoccupied with his detractors to the exclusion of more vital issues concerning the company's future (Goldstein, 2018). For instance, he has been encouraged to concentrate on growing manufacturing capacity to satisfy the company's strong demand.

Musk was charged by the SEC of deceiving investors when he claimed to have secured money to take Tesla private. It was unethical for the CEO of a publicly traded company to deceive investors with claims of becoming private. In a tweet, he said he had the funds to acquire the company and would offer $420 per share to investors (Goldstein, 2018). He originally refused to settle, but subsequently consented to stricter terms with a lighter penalty (Goldstein, 2018). For instance, the new conditions doubled the penalty and disqualified him from the company's chairmanship for three years, as opposed to two years in the original terms (Henning, 2018). The ruling demonstrated the SEC's determination to compel corporations to alter their business practices. The penalty was a constructive step toward helping the company's future governance alignment. The settlement alleviated investor anxiety while Musk runs other businesses. It allowed him to retain his post as chief executive.

Musk startled investors at the start of 2019 by choosing Zach Kirkhorn, a vice president of finance aged 34, as the company's chief financial officer. Deepak Ahuja would be replaced by Kirkhorn, who joined Tesla in 2008. He returned in 2017 after the previous CFO, Jason Wheeler, resigned. He had quit in 2015 after seven years of service (Higgins, 2019). The revelation of Kirkhorn's hiring surprised investors, resulting in a 4.5 percent decrease in the company's stock price (Higgins, 2019). The news was made at the conclusion of a conference call with analysts, throwing further doubt on Musk's leadership abilities.

Conclusion

Elon Musk's unpredictable conduct and questionable actions have caused investors to be concerned. Negative effects have resulted from his involvement in fraud, the high turnover rate, his questionable decisions about the selection of top executives, and the company's shaky governance. Analysts attribute the decline in share price to his erratic behavior, which has the potential to undermine his leadership and damage the corporation's governance.

References

Bomey, N. (2018). Investors are concerned about Musk's actions and Tesla's turnover. Arizona Republic. Web.

Boudette, N. E. (2019). Tesla boasts record production, yet reduces pricing, causing its stock to decline. New York's Times. Web.

Goldstein, M. (2018). Elon Musk resigns as chairman of Tesla in a settlement with the SEC for a tweet disparaging the company. New York's Times. Web.

Henning, P. J. (2018). How the SEC attempts to impose conventional corporate governance on Tesla. New York's Times. Web.

Higgins, T. (2019). Musk's unexpected choice for Tesla's CFO is a relative unknown. This publication is the Wall Street Journal. Web.

Maidenberg, M. (2018). Musk invests $10 million in Tesla shares and plans to invest an additional $20 million. This publication is the Wall Street Journal. Web.

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