Last week, Senator Elizabeth Warren, a Democrat from Massachusetts, sent a letter to the Securities and Exchange Commission (SEC) urging the financial regulator to investigate Tesla’s board of directors for potential conflicts of interest with CEO Elon Musk. This letter follows a similar correspondence from Warren to the SEC in July of 2023, in which she called for an investigation into Musk and the board for their handling of possible misappropriation of Tesla resources and conflicts of interest.
According to Warren, new evidence has emerged in recent months that raises concerns about the independence of the Tesla board from Musk. She points to a ruling from the Delaware Court of Chancery, which found that the board had breached its fiduciary duties by approving Musk’s $56 billion compensation plan. The court stated that Musk had a significant level of control over the board and that his relationships with some members dated back over 15 years.
Warren argues that there is a pattern of inaction from the board in response to Musk’s actions that may harm shareholders. She highlights a situation where Musk publicly stated that he would be uncomfortable growing Tesla as a leader in artificial intelligence (AI) unless he had a significant level of control over the company. The senator also notes that some board members have financial interests in Musk’s privately held companies, which could raise concerns about the board’s independence in cases where Musk pits the interests of Tesla against those of his other companies.
Karan is triggered by Elon per usual
— ALX 🇺🇸 (@alx) March 25, 2024
In her letter, Warren emphasizes that the board has a legal obligation to address and disclose conflicts of interest and other risks that could affect its independence. Yet, she claims that the board has taken no action to address these risks or protect shareholders. In her view, it appears that the board operates with the assumption that Musk, or the self-named “Technoking”, can do no wrong.
Tesla has not issued a public response to Warren’s letter, but Musk has taken to X, formerly Twitter, to claim that one of the senator’s advisors is the father of former FTX CEO Sam Bankman-Fried, who is currently serving a prison sentence for fraud. He then insinuated that this may be the source of Warren’s concerns about Tesla’s board. However, there is no evidence to support this claim, and Warren has not publicly commented on Musk’s post.
This back-and-forth between Warren and Musk raises questions about the relationship between Tesla’s board and Musk and the extent of his control over the company. It also highlights the potential conflicts of interest that may arise when a CEO also has significant interests in other privately held companies. As one of the largest and most well-known electric vehicle manufacturers, any issues with Tesla’s corporate governance could have significant implications for the company and its shareholders.
The SEC has not yet publicly commented on Warren’s letter or whether they will launch an investigation into Tesla’s board. However, the regulator has a duty to protect investors and ensure that companies are operating in their best interests. Consequently, they may choose to launch a formal investigation to address any concerns raised by Warren’s letters and the court’s ruling. Ultimately, the outcome of this investigation could have far-reaching consequences for Tesla and its CEO, as well as other companies where CEOs hold significant control over the board.
