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Faculty Viewpoints

SEC Settlement Won’t Fix Tesla

Tesla may have reached a settlement with the SEC, Yale SOM’s Jeffrey Sonnenfeld writes, but the company’s board still needs to address the problems created by its brilliant, self-destructive CEO.

Tesla dealership
  • Jeffrey A. Sonnenfeld
    Senior Associate Dean for Leadership Studies & Lester Crown Professor in the Practice of Management

This article originally appeared in Chief Executive.

As Tesla’s Shakespearean drama unfolded last week, one wondered if the Tesla board was using Jim Jones’ Jonestown suicide pact as their strategic plan. Saturday’s dramatic settlement with the SEC doesn’t change that. They are drinking the founder’s Kool-Aid. Charismatic CEOs can be brilliant visionaries, but they can also be their own worst enemy and a great threat to the future of an enterprise. They see the world differently and take bigger risks than most normal people would assume. Thus, most fail. But those who succeed often righteously believe in their own indispensability and immortality.

Musk’s U-turn with regulators, which will leave him as CEO but oust him from being Tesla’s chairman for three years and force Musk and the company to pay $40 million in fines, will not change who he is, or how he leads. Some founders can become self-destructive as they become rigid in technology biases and their operational leadership, disparaging critics as parallel to the cowardly naysayers who tried to bring them down in their beginnings.

This is what happened with Edwin Land of Polaroid, Ken Olsen of Digital Equipment, William Norris of Control Data, Seymour Cray of Cray Supercomputing and An Wang of Wang Laboraties, among others. I knew these technology titans and they were no less brilliant and courageous than Musk, and no less stubborn. That is what led to the creation—and the self-destruction—of their enterprises.

Here are the issues Tesla’s board must now tackle:

Must have a Musk plan. He should be retained and contained. Musk is key to the company’s elevated value and the board should find him a scientific, industrial, and ambassadorial role. Limit his ability to speak for the enterprise on financial matters. In situations of distress, Steve Jobs, Martha Stewart, and Steve Madden have shown that this is possible. Also, in non-crisis successions, visionaries such as Sam Walton of Walmart, Ray Kroc of McDonald’s, and Howard Schultz of Starbucks were able to slide into such ambassadorial roles.

Consider an interim CEO. Mark Fields, the triumphant recent past CEO of Ford, would take this job with the right assurances. He delivered the best profits in Ford’s history, is on the frontier of autonomous driving technology, and is revered in the industry. Ensure him support on operating changes, tech updates, distribution improvements, parts, etc. Musk insists that Tesla own its own stores, which could become a problem as that company scales. The company may want work with franchisees in certain areas, but Musk would resist. Tesla is behind in Level III technology and missed out on laser-driven LIDAR enhanced sensors, relying strictly on radar and analog cameras.

Fix the board. They need to get out of the bunker. The SEC settlement is a step in this direction. It has Tesla bringing in two new independent directors from outside and establishing a new committee, according to the Wall Street Journal. The board’s current composition is weak, sycophantic, and under-equipped.

Financial plan. Tesla’s cash drain must be addressed, as the company currently has only $2 billion cash, $10 billion in debt, and huge capital investment needs. There must be a plan for moving forward. Vendors are being squeezed.

Operational plan. Reassure customers and vendors that the unparalleled turnover is about to end. Tesla has lost 30 vital top leaders in just 18 months!

Past struggles with CEOs including Mark Zuckerberg at Facebook, Travis Kalanick at Uber, John Schnatter at Papa John’s, and Andrew Mason at Groupon suggest we can save the enterprise from its creators and his cult-like supporters.

Department: Faculty Viewpoints