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Managing the Modern Workplace
V&E International Labor & Employment Resources

Executives Behaving Badly: Applying the “Musk Principles”

The SEC recently sought to have Elon Musk, CEO of Tesla, Inc., held in contempt because Musk tweeted that “Tesla made 0 cars in 2011, but will make around 500k in 2019,” followed by a second tweet in which he wrote “Meant to say annualized production rate at end of 2019 probably around 500k, ie 10k cars/week. Deliveries for year still estimated to be about 400k.”

It goes without saying that brilliant and creative entrepreneurs are often not equipped to be executives in public companies. When a privately held company decides to go public, it is important that its executives are aware of the compliance requirements for publicly held companies. Don’t assume that an executive with prior experience at a public company is business savvy and does not need training around basic governance and compliance matters. Making this assumption can be risky. Consider an annual training on governance and compliance essentials, including social media considerations.

Understanding the degree to which key executives are prone to impulsive or unpredictable behavior, and the degree to which the company’s reputation is particularly tied to the personalities of those executives, is imperative. The Board should be made aware if an executive has exhibited warning signs of or noncompliant behavior in the past, so it is not taken by surprise. This type of knowledge should factor into the Board’s succession planning and crisis preparation. Also, thought needs to be given to what information should be shared with shareholders. Drafting risk factors for disclosures by public companies around key personalities can be a sensitive but critical task. Lastly, establishing the procedures and policies through which key personnel have access to the independent directors can be critical for companies with key executives who may be prone to impulsive or unpredictable behavior.

Ultimately, it is the job of in-house counsel to first protect the company, and to a lesser extent the executives, although as interests diverge this can be a difficult balance to strike (We will have programs related to these issues in June).

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Authors

Thomas H. Wilson

Thomas H. Wilson Partner

Sarah E. Fortt

Sarah E. Fortt Senior Associate