Corporate Governance and Ethical Standards in Tesla

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Introduction
Tesla motors was founded by two friends, Marc Tarpenning and Martin Eberhand in
20013. Later, it was branded to Tesla Inc., after it went into full production of electric vehicles. It
is now the market leader in electric vehicle production. Its Chairman and CEO Elon Musk, a
world renown investor and innovator led the company into a mission of acceleration of motor
vehicles into sustainable energy. It strategically placed itself to acquire Solar City, a company
that was founded by Peter and Lyndon Rive who are Musk’s cousin. The proposition by Tesla to
acquire the solar power company did elicit widespread criticism given the two entities strong
connections. This lead to a closer scrutiny of corporate governance and the roles of chairman and
CEO , the board structure and the risk management.
Ethical codes and rules of various business organizations and communities have existed
since the 19th century as issued and adopted documents. Growing competition and requirements
for companies from society, including environmental and ethical issues, required a rethinking of
business practices and goals, and the development of new rules. Proponents of the introduction
of ethical standards proceeded from the thesis of the need to form a new type of relationship
between employees and employers (or a new basis - non-material labor motivation), between
companies and the state, between companies as partners.1 All this created new competitive
advantages and conditions in the period of information evolution and globalization of business.
What motivated Tesla Chairman (until Sep 2018) and CEO Elon Musk
1 Chen, Y. and Perez, Y., 2018

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Elon Musk saw the need and the evolving market need to require more electric cars in the
near future than the petrol and diesel vehicles. This is because of the evolving sustainability and
environmental issues facing the world. The world is going green due to many effects of bio-
diesel and other toxic fumes caused by cars and other machines. Most of the manufactures are
going electric because the world is going that direction. Elon Musk was motivated by the
sustainability of the environment and the fact the electric is the future. There was an opportunity
in this field and Elon Musk fast captured it. Musk is widely recognised as a keyman of Tesla and
the face of the company. As the Wall Street Journal highlighted, “Musk (and related parties)
owns enough stock that it’s very unlikely the rest of the shareholders would enact something he
doesn’t want.
Tesla has a dual role arrangement, with Musk taking on the role of both Chairman and
CEO.2 Musk has served as Tesla’s Chairman since 2004 and as its CEO since 2008. This was a
contentious issue brought up by CtW Investment Group, which had called for the split of the two
roles, as well as for additional independent directors to be added to Tesla’s board, while the
SolarCity acquisition discussions were ongoing. Having been described as a charismatic
visionary, the immense hype surrounding Tesla’s electric vehicles may be largely attributable to
Musk’s skilful promotion of Tesla as more than just a car company. With Musk driving the
company forward, investors have bought into Tesla’s mission, propelling the company to
become one of the U.S.’ most valuable automobile companies. The company has even surpassed
mature players in the motor vehicle industry such as Ford Motors – despite reporting
significantly smaller sales volumes. Additionally, Musk’s significant ownership in Tesla makes
2 Chen, Yurong, Shamsud Chowdhury, Carole Donada, and Yannick Perez. 2018.

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him the firm’s largest shareholder. 3While Tesla only has a single class of stock, its bylaws
contain supermajority provisions which make it extremely difficult for shareholders to instigate
any major changes without obtaining more than two-thirds of shareholder support.
International practice of ethical standards
The main ways of developing ethical standards in business is the adoption of generally
accepted documents of various international organizations, as well as the adoption of ethical
codes of individual companies.4
Ethical codes of companies
As already noted, another direction in the development of corporate ethical standards is the
adoption of ethical codes of individual companies. Practice shows that the codes of companies
are very different from each other, these differences are based on different goals and objectives
of the document.
Code of Corporate EthicsCode of corporate ethics can perform three main functions:
1) reputational;
2) managerial;
3) the function of the development of corporate culture.
3 Dibble, Christopher. (2018).
4 Grant, Patricia, Surendra Arjoon, and Peter McGhee. (2017): 41-65.