It was on 7th August, 2018, that Elon Musk, the maverick founder of Tesla Motors tweeted, that he was considering taking Tesla private, by buying back its shares from the public at USD 420 per share, and that he had secured the funding for it. It was an impulsive tweet, with no basis whatsoever. It created a chaos in the American stock markets. Trading in the shares of Tesla was suspended and its share price fell, amidst chaos and confusion in the stock markets. It hurt shareholder interest and warranted strict action from the regulator.
SEC, the American regulator of securities/stock markets swiftly got into action. It sued him for securities fraud and corporate misgovernance and decided that he was not fit to lead a company. His other misbehaviour, which included smoking marijuana, wielding a sword on a webcast and attacking a British rescue diver at Thailand, by calling him a paedophile must have added to the SEC’s ire. It thus came down heavily on him as well as Tesla.
In a quick settlement between SEC, Tesla and Elon Musk, the company and its temperamental founder agreed to pay a fine of $20mn each, Musk agreed to step down as the Chairman of Tesla within 45 days and agreed that he cannot be appointed as its chairman for three years thereafter. The SEC let him continue as CEO, subject to appointment of an outsider as its chairman, the appointment of two independent directors to keep a check on him and the set up of a Board committee to set up controls over his unpredictable communications, that severely hurt shareholder interest. This amicable settlement avoided a lengthy legal battle which would have ensued, had SEC thrown out Musk as the CEO of Tesla and was in the best interests of the company. His running of the company as it CEO was critical for the company since he oversees every detail of Tesla’s design and technology and has driven the company to great heights. He, however, got a much-needed slap on the wrist and will now function under Board control.
The Indian regulators need to learn from the Tesla story where due to the immediate action of the SEC, the shareholder interests/wealth was protected and a maverick founder/CEO of the company was restrained and shackled under controls. The hands of the Board of Directors were strengthened and shareholder interests were shielded from his unpredictable behaviour. In India the likes of Chanda Kochhar, Shikha Sharma and Rana Kapoor were found to be indulging in far more serious malpractices viz. window dressing of accounts, which have immensely hurt shareholder interest, but SEBI has been a mute spectator, with no action taken against any of them. SEBI needs to protect shareholder interest, as its prime duty and mandate and must restrain the company directors/promoters from indulging in any acts that harm shareholder interest, as SEC did in the case of Tesla and Elon Musk.
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