Elon Musk and Tesla Will Be Radically Different After Today. Here’s Why

December 28, 2018, 11:22 AM UTC

Friday begins a new age for Tesla Inc.’s board and Elon Musk’s Twitter feed.

It’s the deadline the Securities and Exchange Commission set for the electric-car maker to add two new independent directors, plus take a series of steps to better check its volatile chief executive officer’s presence on social media. Those measures include setting up a board committee and employing a securities lawyer to oversee governing senior executives’ tweets and posts on other platforms that are material to the company.

Musk’s communications, in particular, are required to be more closely scrutinized under the agreement Tesla reached in September to settle a lawsuit over the CEO’s tweets about taking the company private. The carmaker already complied with the SEC’s order to name a new chairman by tapping existing director Robyn Denholm to take over from Musk in November.

The SEC moved to punish Tesla and Musk because it alleged he committed fraud by tweeting that he had the “funding secured” to take the company private at $420 a share. The agency said this and other claims the CEO made on Aug. 7 were false and misleading and impacted Tesla’s stock, which closed that day at $379.57, just short of a record.

The shares sold off within days and plunged to $264.77 by Sept. 28, the day after the SEC sued Musk and raised the prospect of banning him from being CEO. He and Tesla settled the following day.

Musk’s Bristling

During the 90 days that the SEC gave Tesla to implement procedures and controls to oversee Musk’s communications, the CEO has publicly lambasted the agency and bristled at the notion that he’ll change his Twitter habits or be reined in by the board.

In an interview with “60 Minutes” aired this month, Musk said he didn’t respect the agency and that no one was reviewing his posts before he sent them. When asked by correspondent Lesley Stahl how Tesla would know if his tweets would move the market if they weren’t being read beforehand, Musk replied: “Well, I guess we might make some mistakes. Who knows?” He added: “Nobody’s perfect.”

Musk also said it was “unrealistic” to think that Denholm would watch over him, noting that he’s Tesla’s largest shareholder. “I can just call for a shareholder vote and get anything done that I want,” he said. (He complained later that this portion of the interview was selectively edited.)

Troublesome Tweets

In October, Musk wrote that the tweets that cost him a $20 million penalty paid to the SEC were “worth it.” He also sent cryptic posts about deleting his titles at Tesla and obliquely needled the agency in the process.

Five days after reaching the settlement, Musk referred to the SEC as the “Shortseller Enrichment Commission” and mockingly wrote that it was “doing incredible work.”

Tesla’s new independent directors will join a board that’s been long criticized for poor governance.

Last month, a union-affiliated investor group and officials representing major pension funds in four states sent a letter to board members noting that five of the eight non-executive directors on the board had professional or personal ties to Musk. The investors pushed for Tesla’s board to go beyond the terms of the SEC’s settlement by setting timelines for some directors to leave, among other measures.

Legal Shakeup

Tesla’s legal department has been going through shakeups in the months since Musk’s run-in with the SEC.

The company tapped Dane Butswinkas, the Washington trial lawyer who represented the CEO in his legal battle with the agency, earlier this month to become general counsel. He’ll replace Todd Maron, who’s leaving Tesla in January after five years. Before he joined the company, he represented Musk through two divorces.

And in November, Phil Rothenberg, a vice president on Tesla’s legal staff, left to became general counsel at Sonder, a hospitality startup. Rothenberg previously worked at the SEC.

Defamation Defense

For all the hubbub over Musk’s tweeting, a lawyer representing Musk in a defamation lawsuit brought by a cave explorer he called a pedophile in July is downplaying how seriously the public takes some of his client’s posts.

In a motion to dismiss the lawsuit filed Thursday, Musk’s lawyer said his client’s insults weren’t intended to be statements of fact but were made in the middle of a “schoolyard spat on social media.” No one would reasonably believe he had private knowledge that the British cave explorer, Vernon Unsworth, was attracted to children or engaged in sexual activity with them, his lawyer wrote.

Musk’s lawyer, John Hueston, referred to Twitter as “a social networking website infamous for invective and hyperbole” and said that it is “rife with sophomoric commentary.”