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Is Integrity an Issue for Elon Musk?

Yesterday we learned of Elon having twins with a former Tesla employee, now a current executive at one of his companies. While there is so much other news happening in the world, from an ongoing world pandemic, to our climate crisis, to rampant gun violence across the nation, Elon Musk and Shivon Zilis are trending after the failed attempt to hide the 2021 births. The pair may have sought to keep the births secret because Zilis is an employee of Musk’s. There’s also the issue of timing: Musk’s ex-girlfriend Grimes delivered their second child only weeks after Zilis and Musk’s twins were born. Musk has five documented children from a previous marriage, bringing the total number of Musk’s children to nine.

With everything else going on in our world, is this something we should care about?

As an investor, I have a few thoughts.

Executives really can have as many kids as they want, and yet this recent news raises some questions and has implications for shareholders as well as employees:

  • Are Elon and Shivon in violation of the Tesla code of conduct that requires employee relationships be discussed with Human Resources, Compliance Department or a Manager? Very possibly. Codes of Conduct are generally in place to promote a positive workplace environment, to encourage integrity, as well as to reduce ethics and compliance risk.

  • Is it appropriate for Musk to pursue relationships with employees given the power-imbalance between a CEO and an employee?

When evaluating a CEO, investors look for certain competencies and traits. We need to be able to trust that the CEO is playing by the rules and abiding by them. CEOs set the cultural tone for the company, for the employees and for the overall brand. CEOs, particularly those in the spotlight, should really never violate a code of conduct as that behavior erodes confidence and can jeopardize workplace culture.

As investors, we want to know that the CEO in charge of the company is both focused on the company and is making sound and conscientious decisions consistently. Many would say that having nine children is an extreme number for someone who purports to be working to address climate change. And his behavior is extreme, which calls into question his ability to lead well. Nine children, three born in the same year to two different women while also being accused of and paying off a sexual harassment situation shows poor judgement for a CEO on a world stage.

Personality and character are important components to effective leadership. Investors need to see that a CEO exhibits good judgment and strong decision making skills.

While perhaps not the standard way to judge a CEO, through their parenting (though I am told that Ferdinand Piëch, of the Porsche family who led Volkswagen for more than twenty years–with not always positive results– had 13 children with four women), personal life decisions and conduct do reflect on the ability to lead effectively.

Attempting to hide these two additional children, while also starting and leading multiple companies does call into question Musk’s priorities and how he is able to prioritize what needs to happen across all of his various ventures. In this case, his decisions in his life are absolutely a concern for shareholders.

Musk’s recent controversial bid to acquire Twitter has stalled and backing out would come with a hefty $1BN penalty. This issue is just one data point and yet the news is layered upon his flagrant actions and lack of attention to (in fact, firm denial of) racial discrimination and sexual harassment at Tesla which are serious issues. His dismissal of the need to attend to human capital management at his companies is echoed here in his personal life. From an investor perspective, he is showing poor judgment in addition to a lack of transparency. In a time when we are needing more transparency– especially with his history of sexual harassment–Musk should have disclosed any and all relationships with employees at any of his companies.

Shareholders are needing more transparency from Tesla’s CEO, given his reported history of sexual harrassment, and record of poor human capital management at his factories.

Additionally, Tesla’s CEO is in the public eye and, for better or for worse, a role model for many. He is responsible for many thousands of employees and for the design and manufacturing of consumer products that need to be safe --in addition to sustainably built, and with parts ethically sourced.

Transparency and knowing what to expect builds trust with all stakeholders, especially investors. With these recent actions, Elon is showing us he is erratic and is not able to think out (or care about) the consequences of his actions and how they may affect others in his life or in his companies. That is a big issue for investors. Without a board of directors stepping in to provide accountability for his actions (rather than rubber stamp them) we at Nia view Tesla as showing poor governance, which can be a risk to future earnings.

This investor issue is timely, as I will be traveling to Austin to speak at the Tesla AGM this August 4th. My speech will request attention to improving human capital management at Tesla. Specifically, we are asking the board to reconsider company use of forced arbitration in employee contracts, as the practice is highly associated with perpetuating the power imbalance in sexual harassments and racial discrimination cases.

For Tesla to continue to lead in innovation, attracting and retaining top talent will be necessary. Nurturing an inclusive and positive work environment will be essential. As investors, we want to see Tesla, its employees, and especially its CEO model the highest standards leading to a brand of trust, transparency and integrity.


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