Strategic Management for Tesla Inc. (Essay Sample)

Strategic Management
By
Institution
Course
Professor
Submission Date
Background and Pre-existing Governance Structures of the Firm
Tesla Inc. was formed by Martin Eberhard and Marc Tarpenning on July 1st, 2003, formerly as Tesla motors. The founders started the company when General Motors recalled its EV1 electric car and later destroyed all of them. Martin was the chief executive officer of Tesla motor while Tarpenning was the Chief Financial Officer. The company received funding from different sources such as PayPal, where Elon Musk's contribution to the company amounts to over $30 million. Musk served as the chairman of the company, starting in 2004.
Later in 2007, Eberhard resigned as a chief executive officer, though remained as an advisory to the company and a shareholder. Notably, corporate governance is the practice and rule followed by the board to control the company (Hanson et al. 2016). The company released its first complete electric roadster, which achieved unprecedented 245 miles on a single charge. Nonetheless, the company stops the production of this car to concentrate on Model S sedan cars. Also, the company released model X and diversified its production to solar energy products. In 2007, Elon Musk made several tweets claiming to secure funding to privatize the company; as a result, Elon and the firm got fined $20 million each for the remarks (Strauss & Smith 2019).
An Analysis Describing of Governance Flaws in the Firm
The company majorly depended on the decisions made by Elon Musk. Most of the corporate governance board members remained almost invisible for many before that epic scenario where Elon engaged in a series of tweets discussing moved to privatize Tesla. Elon was the Chairman and the CEO, guiding the company to a massive increase in electric car stock prices (Milosheska 2013, p.212). Tesla had a nine-member board, which included Musk and his brother Kimbal. The governance of the company risk as most board members did little management insight into the firm's day-to-day operations. Given this, at least five of the eight non-executive board of the company had a strong bond with Musk and one of Musk's firms, putting the organization's loyalty into question. As regards these close ties meant that the board members could not deliver to their full potential; since they felt the need to maintain the integration.
William Klepper, a professor at Columbia Business School, postulated that when a committee is composed of members with close ties, the committee tends to turn to cheer board. This aspect made it hard for Musk to conduct the management of Tesla since most member puts less insight into the management perspectives. Therefore, it was crucial to examine the corporate governance and compensation structure to enhance a proper process that will put the board independently and adequately oversee the company's operation. Besides, the Telecommunication Company of Australia, which is part of the Tesla Company, had only one director with close ties to Musk (Mangram 2012, p.295). Given this, the firm's investors felt a lack of independence in the management board.
Despite the firm adding two new directors, some of the investors had lost trust in the company and withdrew their investments. Despite having issues with the independence of corporate governance members, the company also did consider its management's decisions dangerous. For instance, before Musk came up with an idea of turn the company private, the directors had a series of questionable independence. The company collectively analyzes its seven out of directors through the Nasdaq Stock market to determine their independence (Chen & Perez 2018, p.60). There result depicted that the members had no close ties with Musk. This aspect presented another step to the falling of the firm.
Later on, Tesla stock experienced a decrease in the prices after Musk tweet on August 7th. The shares gradually started falling since the scenario; for instance, on Monday, the stock fallen by 19 per cent closing at $308.44 million (Bhavani 2018). This aspect proved the independence of the board and commenced the falling of the company. Furthermore, the company lacked a chief operating officer who oversees day-to-day operations and allows the chief executive officer to concentrate on other plans. This aspect meant that Musk had to monitor other at least three firms that required management.
Effects of the Tweet upon the Firm, the CEO and the Market
The infamous tweets happened on August 7th. Musk tweets had diverse meanings in several contexts; therefore, every individual, including the board, lawyers, investors, and the public, defined it differently. However, most people believed that the tweet "Am considering taking Tesla private at $420. Funding secured", meant that Musk was considering taking the publicly traded firm private. Notably, this tweet led to diverse effects. The company experienced a short rise by 11 per cent in the share traded in the stock market, but after some days, the share commences falling on a Monday proceeding with a tweet the firm's shares fell by almost 19 per cent (Cornell 2016). Moreover, Tesla Inc. received a fine worth $20 million as compliance with security exchange compliance, which discourages members from making personal state on behalf of the company in the market.
Besides, the company started receiving enquiring from investors to change its corporate governance, where two more directors were recruited to the board to oversee proper corporate governance. On the chief side, Musk was directed to step down as the chairman, though, was allowed to remain as the CEO of the company. Besides, Musk received a $ 20 million fine for conducting personal responsibility on behalf of the corporate. The SEC hinders corporate governance members from conducting business on behalf of the company without corporate consultation. On the market side, the company started to experience roller-coaster performances in the market with a fall in the value of the shares in the stock market. For instance, on Monday, proceeding that infamous tweet, the company recorded a 19 per cent fall in the share market (Barney & Hesterly 2010, p.15). Given this, the company shares were not traded highly like other days. Investors also put on hold trading with the company as they await the aftermath of Musk's tweet, claiming to turn the publicly traded firm private. The doubt proceeded when the company failed to provide a clear meaning of the tweet. The tweet damaged the company's