How do you solve a problem like Elon Musk? The impulsive chief executive of Tesla seems rarely out of the news. But it’s not always for the right reasons.
Within days of chalking up success with Dragon, the SpaceX spacecraft that last week safely travelled to and from the International Space Station, Musk is once again in hot water with the Securities and Exchange Commission (SEC), the US financial watchdog, over a tweet.
Tesla investors must hate turning on the news. But the board must dread it more; they’re the ones—particularly the chairman—who have to deal with the problem directly; not only confronting the CEO, but also taking the flak from investors and press.
Musk’s latest trouble stems from claims that a recent tweet to his 24 million followers about production volumes breached the terms of a September agreement with the SEC, which followed an earlier tweet about the possibility of taking Tesla private.
The terms of last year’s deal saw Musk agree to step down from chairing Tesla’s board and refrain from tweeting material information about the company without “pre-approval” from the company. The SEC has asked the courts to hold Musk in contempt following this latest tweet. Musk claims the information was already public and that the SEC is attempting to infringe his right to free speech.
Whatever the outcome, for investors and stakeholders there is a legitimate question to ask about whether Musk’s behaviour is potentially damaging for the prospects of the electric car maker.
Observers elsewhere will wonder what lessons can be drawn from the Musk twitter debacle that applies to moderating the behaviour of their own maverick chief executives.
The question is a live one for many company chairs frustrated by a chief executive possessing genius alongside a tendency for challenging behaviour. We all recall that Steve Jobs was sacked as CEO from Apple for erratic conduct only to return a decade later to become the saviour of the business.
So how does a board rein in a CEO gone rogue?
‘Cult of disruption’
There is much agreement that so called “visionary” CEOs, those who founded the company and its core mission or product, often prove challenging. Writing two years ago about Silicon Valley’s “disruptive” chief executives and their bad behaviour, novelist and tech writer Nicole Sallak Anderson concluded a “cult” of radical disruption has played a part in creating an environment in which some CEOs feel free to behave particularly badly.
And it is true that in the current era in which technology appears to advance overnight, investors have placed such a premium on “disruption” that it now sits on a transistor-encrusted pedestal.
However, board chairs have to adhere to norms of governance and ensure their companies have durability. If that is threatened by the wayward action of a chief executive they must act.
Kieran Moynihan, managing partner at Board Excellence, a leadership consultancy, warns that bad behaviour can present boardrooms with plenty go ways to get it wrong.
“Even for a very experienced, battle-hardened board, this is one of the toughest dilemmas they can face. Many boards have got this call spectacularly wrong,” he says.
Common pitfalls include taking out the problematic CEO prematurely or leaving them in post too long. Both can have significant negative effects, such prompting ire from those with strong relationship to the CEO and the company losing its way on performance. The board ability to function may also be undermined, damage done to the value of the company, and the culture of the company badly corrupted.
According to Moynihan the key remedies include having a chair with “gravitas” and “intellectual firepower” focused on ensuring the CEO still works for the board; a strong non-executive team, unafraid of the CEO and with enough judgement to pick their battles; a strong executive team able to act as a counter-weight and ensure sensible collective behaviour; courage in the the board team to give the CEO some latitude but ultimately insist on a quid pro quo of respect for the board; and appropriate red lines on governance and respect for the board and shareholders that cannot be crossed.
“This is one of the most complex examples of the challenges in the ‘people equation’ of the board,” says Moynihan.
How you approach a problematic CEO can be determined by their disposition according to Karen Meager, managing partner at leadership consultancy Monkey Puzzle. She believes some “self-sabotaging” behaviour can be explained by mental health problems brought on by stress; in those instances it becomes about taking care of the CEO and understanding their mindset.
“If you are a genius you have a belief that other people just don’t see, so you trust your own instincts over everybody else. But that can trip over into crazy-looking behaviour,” she says.
Part of the answer is to help the CEO see where they really add value, says Meager. “Be strategic about picking your battles and stay focused on where the CEO can make the biggest impact for the company. If you can keep them focused on things that excite them, you get better work from them,” says Meager.
The important thing for a chairman is not to be carried away by the CEO’s aura, or “whirl wind” as Meager puts it, and the company’s close identification with the individual.
Others point to the hard questions a chair and and board will need to ask itself when faced with a CEO losing their grip.
Sir John Parker, an experienced company chairman, says: “There’s one important rule for a chairman: support the CEO 100% until the day you lose confidence, or the board loses confidence.”
According to Sir John, problematic behaviour in a CEO needs to be discussed by the board and the chairman seeking the views of a few large shareholders. The objective is to determine whether the chief executive remains “vital to the immediate future of the company”.
If the board concludes the CEO is still fundamental, a one-to-one conversation has to follow between chair and CEO. That would highlight the unwanted behaviours but stress that the CEO is still required. It would also work on what the CEO would do to change. Sir John believes there should then be three months in which CEO and chair meet regularly for counselling and advice. The CEO should also be asked to set the measures taken to change.
But Sir John issues a warning: some people do change, but will often change only temporarily, leaving the problem unresolved.
“In reality the chances are not great,” he says. “I’ve seen people [CEOs] change for a while, but ultimately you have to deal with it.
“I have also seen executives, who have had a great 360-degree feedback giving them a massive wake-up call, saying they did not recognise themselves because no one ever sat down with the analysis to say, this is how people see you and you have to sort yourself out.”