Elon Musk has gone where no CEO has gone before, campaigning with Donald Trump, jumping for joy on stage with the presidential candidate, spouting inflammatory political rhetoric on social media, and even handing out $1 million in daily prizes to… Registered voters. Countries.
Given Trump’s polarizing personality, you might wonder whether the Tesla CEO’s high-profile political partisanship threatens to turn off some potential car buyers. According to Tesla’s lawyers, the answer is not at all.
In the company’s most recent 10-Q filing with the Securities and Exchange Commission, Tesla did not mention Trump or any of Musk’s political activities in the section on “risk factors,” which has not been updated since Tesla’s report. Annual report for January. The long list of potential risks in the annual report notes that the company relies heavily on Musk’s services (“Technoking”) and that employees may leave or look elsewhere “due to various factors” that may include “any negative publicity relating to us.” “.
But when it comes to Tesla Technoking’s high-profile move linking his personal brand to MAGA politics, something that has increased dramatically since July when Musk publicly endorsed Trump and announced a Super Pac, it’s clear the company doesn’t see any specific business risks.
Some Tesla investors aren’t so calm. Dozens of Shareholders recently asked Tesla To reveal data about the extent to which Musk’s policies affect employment and sales. Some said Musk should either stop campaigning or step down as CEO.
As with many things Musk does, his immersion in politics challenges established norms, including the precise language of regulatory filings. Experts in corporate leadership and securities say political activity is not something that typically shows up in reports filed with the Securities and Exchange Commission. But there is little precedent for Musk, the face and chairman of a publicly traded company and one of the world’s richest people, showing such a deep and committed dedication to one of the world’s most controversial political figures.
“It would be odd at best to include a single CEO as a risk factor,” said Hilary Sell, director of the Cboe U.S. Securities Exchange, Cboe Futures Exchange, and Cboe SEF professor at Georgetown University. “If a director feels that way about the CEO, he or she has a fiduciary duty to reconsider the CEO.”
The SEC requires companies to disclose all types of information, and companies can volunteer additional risks, as long as those risks are material — meaning they would significantly change business operations or regulations. Companies are often upfront about their executives’ extracurricular activities (see a meta about Mark Zuckerberg’s penchant for extreme sports, or Tesla’s own comments about Musk’s interest in other business ventures). But some problems did arise – in 2008, Apple I faced questions About whether it had a duty to disclose Steve Jobs’ deteriorating health.
The US Supreme Court ruled so earlier this year Investors cannot sue over omissions In an SEC filing. The SEC itself could theoretically bring a case, but the agency does not mandate disclosure of political activities, and doing so would likely be criticized as an affront to free speech. (Or in Apple’s case, a violation of privacy).
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And since Musk’s political activities are far from secret, investors are not fully aware, notes Alan Horwich, a former securities lawyer turned professor emeritus at Northwestern University. The question becomes whether Tesla knows something about how Musk’s political sideshow will impact stock value, and is failing to provide that in response to persistent shareholder questions.
“We know what he intends to do, but do they know what risks he risks after doing this to the company?” Horwich said. His advice to former clients when questions about disclosure arise: If there’s any internal debate about whether a risk is material or not, “Why don’t you disclose it?”
In private Forum For Tesla shareholders, which the company organized ahead of quarterly earnings earlier this week, one investor asked whether the board had made efforts to ensure that Musk’s “political involvement does not detract from Tesla’s core mission and protects shareholder value and brand integrity.” The post received 533 upvotes from investors, who collectively own more than 397,000 Tesla shares, according to a company tally.
Tesla did not respond to Fortune’s request for comment.
Investors have become accustomed to Musk’s antics
Musk has more leeway to run the company as he wants than most other CEOs of publicly traded companies, thanks to investor votes on a pay package that gives him roughly 20% control of Tesla, adds Adam Walk, a management professor at the University of Notre Dame. . That vote share plus his deep brand connections gives him more power over the board than his peers, who may have to manage things like large political donations or endorsements by board members.
It’s also not unusual for Musk to get involved in affairs that might cause problems for other CEOs at public companies — some might argue it’s part of his brand. He famously smoked pot on Joe Rogan’s podcast in 2018. He has a history of clashing with government agencies that oversee his various businesses, which include space exploration company SpaceX, tunneling company the Boring Co, human agriculture company Neuralink, and artificial intelligence developer. X.AI, to name a few.
When the FAA went after SpaceX over rocket launches, so did Musk He threatened to sue For regulatory bypass. I have He said Democrats find his social network he denounce “Weaponizing” government agencies in response to the FTC’s privacy investigation.
Musk’s alliance with Trump raises the stakes. Trump’s win could be a boon for Tesla given that Trump has mentioned hiring Musk to be his “cost-cutting secretary.”
But whichever way the election goes, it’s clear that Musk’s full support of Trump puts Tesla in a brighter spotlight than CEOs who donate to or endorse a political candidate or cause face.
“In general, CEOs tend to exercise some caution about getting too deeply involved in politics, because not all shareholders agree,” says Sells, the Georgetown University professor.
“There are certainly reasons to believe that this type of repeated behavior by the CEO of a public company could pose a serious risk to the value of the company,” Chris Poliquin said, without speculating on whether such entrenched political ties should be reported to the SEC. Professor of Management at the University of California Anderson School of Management.
As investors awaited Tesla’s quarterly results this week, the company’s stock has fallen 14% since Musk’s endorsement of Trump in mid-July. In contrast, the Standard & Poor’s 500 rose by 3% during the same period.
Tesla continued to report modest 2% growth in vehicle sales, however Topped profit targets on Wall Street Thanks to regulatory approval sales for other automakers and strength in its energy business. Musk said his “best guess” is that next year’s “car growth” will increase by 20% to 30%.
Tesla stock is now up 7% since Musk’s endorsement of Trump.
“Devoted student. Bacon advocate. Beer scholar. Troublemaker. Falls down a lot. Typical coffee enthusiast.”