Accounting Theory Report: Tesla's Challenges and Legitimacy Theory

This report examines the impact of Elon Musk's actions on Tesla, specifically focusing on the company's stock plunge following the CEO's behavior and executive resignations. The report introduces legitimacy theory, defining it as the mechanism that supports organizations in developing social and environmental disclosures to meet societal expectations and ensure survival. It emphasizes the importance of aligning corporate actions with societal norms to maintain legitimacy and avoid penalties. The analysis then applies legitimacy theory to the Tesla case, highlighting how Musk's actions, including smoking marijuana during an interview and insensitive comments, undermined the company's social contract and led to a loss of shareholder trust and financial instability. The report concludes that Tesla's failure to adhere to legitimacy principles resulted in a decline in its image and share value, underscoring the critical role of social and environmental considerations in corporate governance.