18:11 GMT27 February 2020
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    Elon Musk is stepping down as chairman of Tesla, after a lawsuit brought by the US Securities and Exchange Commission. The legal action followed tweets the executive posted that caused Tesla's share prices to plunge. Radio Sputnik has discussed the lawsuit, Professor of Law and director of the Center on Corporate Governance at Columbia Law School.

    John Coffee: I think the lawsuit was thoroughly justified. There just is no doubt that he had not secured funding and that he had made misstatements that moved the market in a very volatile fashion. What was controversial was the settlement and in my view the settlement is quite reasonable. It poses a $20 million fine on him, but as a billionaire that’s not going to affect him much at all. The real question was whether he would be allowed to stay in office and the SEC has only asked that he stepped down as chairman. He remains the CEO and obviously the controlling influence at a company that he founded and that only he really clearly can understand. I think that it is a reasonable settlement. It reflects the fact that he was reckless, but he was not willfully intentionally fraudulent. He didn’t try to steal money from the shareholders. There was no ill-gotten gain here because he was just making statements that really were based on unsupportable inferences and hopes rather than actual facts. For the future, the question is: is the company under strong leadership? I’m afraid that the board is still weak; the addition of two directors is a step in the right direction, but not strong enough medicine. And, frankly, Mr. Musk, although a brilliant entrepreneur, needs adult supervision. He is just too much of an impulsive person.

    Sputnik: He’s been banned now from being the Chair of the board for at least three years; what do you think the impact will be on his influence over company management?

    John Coffee: I would hope they get an outsider to come in as this chair, someone who’s got some real experience in corporate governance and can be a mature influence; someone who can tell Mr. Musk that he’s going too far. First of all, I think this company needs a protocol, a set of procedures under which Mr. Musk can’t tweet messages to the world about the company without at least giving them to the company’s legal and professional staff for a review and a vetting. Because he just will make these kind of odd-ball statements that have no adequate basis in fact and one way to deal with that is to require him to clear his statements with the legal staff, the board of directors, possibly the chairman of the audit committee but something that puts a filter between him and the kind stream of consciousness narrative that he’s giving the world.

    Sputnik: How do you think this is going to affect the attractiveness of his company to investors and, perhaps, the share price? Right after this announcement his shares went up and then they went back down…

    John Coffee: I think that we’re going to see a volatile stock because there’re a lot of uncertainties. They need to refinance their debt. They need to compete with very large companies who are also trying to develop electric cars. To his credit, he has probably developed the superior product in electric cars to this point but it’s a constant competition and he is giving signs of being a little bit tired and a little overworked. I can’t predict the future, but I would predict that the stock price will be volatile and will move up and down on a bench that wouldn’t change the price of a General Motors.

    Sputnik: Is reputation of a CEO really important to investors? He had this scandal with the Thai cave diver, the guy who saved the boys who were stuck in the cave; he smoked cannabis live during a broadcast, I believe it was legal in the state that he did it. He does a lot of things that are off the cuff and a little bit scandalous; does that affect.

    John Coffee: You’re quite right. He is an erratic impulsive person. The personality is different than the more buttoned down personality of the typical American chief executive. But he is a founder who’s built not only of this company but some other companies and achieved real results with them. I think the company needs him to be their visionary entrepreneuring leader, but they need someone else to have judgement and some control over his more erratic compulsive acts.

    Sputnik: How do you think Musk is going to deal with this? It’s not that big of a crisis to him I guess; I think he was just put in his place a bit. The $20 million is not a big deal to Musk; I think he won’t miss it that much…

    John Coffee: What bothered him, the reason that he withdrew from this settlement is that the SEC always provides in a settlement that once you settle with it you can’t go out and proclaim your innocence and say “don’t look at this settlement I really did nothing wrong.” That’s what he wanted to do – he wanted to say “I’ve settled with them but I’m totally innocent of these charges” and that would have violated the settlement and therefore to the surprise of his own lawyers he backed away and cancelled the deal. And that caused the SEC to be more punitive. They originally weren’t going to seek a bar order, but when he backed away from the deal they were going to show that they could be tough and were not to be played with. So, they put in a request in their complaint they filed in a court on Thursday that he’d be barred as an executive director. That was kind of a nuclear threat that got him to change his mind and finally come back a day later. I’m sure it’s somewhat humiliating for him, but it was silly on his part as his own lawyers must have told him, to reject the deal that was actually quite reasonable. The SEC was not being as harsh as they could have been in their proposed settlement.

    The views expressed in this article are those of the speaker, and do not necessarily reflect those of Sputnik.

    The views and opinions expressed in the article do not necessarily reflect those of Sputnik.


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