How do you square the board taking their fiduciary responsibilities seriously when dealing with a CEO that causes massive valuation changes to the company stock every time he sends out a half baked tweet?
Elon has a responsibility to be truthful, clear, and complete in his public statements about matters like this. A sensible process would be to run the exact wording of major announcements — like the plan to go private — by the Board, Tesla’s lawyers, and the CFO (or other relevant executives).
That said, Elon has only made this mistake once, and hopefully he will follow a sensible process in the future. So, I think removing Elon as CEO (before he is ready to execute a succession plan) would do more harm than good.
What Elon did was wrong because what he said was unclear and incomplete, and therefore potentially misleading. As jcasetnl said:
It cannot be open season for a public company to make material misstatements, especially on something as serious as taking a company private. The stakes of allowing such a thing from such a publicly visible company implies the markets are completely lawless.
Even if what you say is technically true, it’s still important to be clear and complete in what you say to avoid inadvertently misleading market participants. I believe that Elon did not lie — he did not intend to say anything he knew to be false, and he did not intend to deceive anyone — but he was so careless in the way he made the announcement that many people got the wrong idea. Clearly, we don’t want this kind of behaviour to become a pattern in the stock market. That’s why I see enforcement action against Elon as justified, although I believe removal as CEO would be a step too far.
I don’t know how seriously I take the idea that Elon’s tweets did real financial harm to investors. Tesla’s stock price has
fluctuated wildly for years. On August 7, the day of Elon’s tweets, the stock price moved 11%. On August 2, before any of this happened, the stock moved 16%. On July 3, it moved 7%. On June 6, it moved 10%. On April 3, it moved up 6%, then up 7% the day after, and 6.5% the day after that. On March 28, it moved 8%. On a February 8, it moved 9%.
So, an 11% price move isn’t that out of the ordinary for Tesla. These daily price movements are more noise than signal, and trading on a short-term basis is highly risky, speculative, and random. The price movement on August 2 had more impact on investors. What Elon did doesn’t seem to have more effect than just the semi-random, ordinary volatility of Tesla stock.
I believe focusing on short-term stock price movements is irrational. We should evaluate stock prices on a 5-year timeframe, not a 5-day timeframe. So the Board should certainly not be concerned with these day-to-day fluctuations. It would be better if they didn’t check the stock price every day, and just ignored the noise and distraction of daily trading activity.
