Musk's defiant, rebel CEO persona is putting his company and its investors at risk, say management experts

Key Points
  • The rebel CEO persona Musk has been cultivating in recent months isn't doing him, or the company's stock, any favors.
  • High-level executive departures like the two announced Friday at Tesla are a sign that the organization needs more structure.
  • Visionary CEOs and company founders often don't have the skills or patience to scale up their businesses as they grow.
Elon Musk smokes marijuana with Joe Rogan's during a taping of Rogan's podcast show. 
Source: YouTube

Tesla CEO Elon Musk capped off his summer of erratic behavior Thursday night by smoking pot during an almost three-hour interview on the Joe Rogan podcast.

The rebel CEO persona Musk has been cultivating in recent months isn't doing him, or the company's stock, any favors, executive leadership consultants say.

And there's evidence that some of his investors are getting fed up. Tesla's shares fell by more than 8 percent in intraday trading Friday. His infamous "funding secured" tweet in August has attracted a federal securities investigation.

The dysfunction is costing Tesla more than just its reputation. The company is bleeding talent and hemorrhaging cash. Musk's Aug. 7 tweet saying he was thinking about taking the electric car maker private at $420 a share sent the stock soaring 11 percent, near an all-time high, that day to $387.46. Securities lawyers say his off-the-cuff comments will likely draw fines from the SEC for the company and exposed Musk to possible criminal charges. At the very least, all of those gains — and then some — have since been erased. Tesla's value has fallen by almost a third as more than $21 billion in market capitalization has been wiped away from that tweet through Friday.

The shares, which bounced back a bit Monday but are still down 18 percent over the past year, remain highly volatile and heavily traded. Out of its top 20 heaviest trading days, six have occurred since March, with four of them in the last month.

Professor Jeffrey Sonnenfeld, senior associate dean for leadership studies at Yale University School of Management, said Musk's attacks on the media, his vulgar characterization of a British diver who helped rescue a Thai soccer team trapped in a cave and his most recent conduct show "tremendous sensitivity to criticism, emotional strain, cruelty, egoism, lack of self-control and recklessness."

"He is disdainful of those who made him wealthy, his investors, and hostile to any who fail to worship him — believing his own deified brilliance and omnipotence," he said. "The ego that drives this thinking shows lack of judgment."

Although CEOs typically benefit from what psychologists call "idiosyncrasy credits" — allowing them more latitude to take risks, act flamboyant and otherwise push the envelope than rank-and-file employees — Musk is pushing it too far, Sonnenfeld and others say.

Musk's cult of personality, much like that of Virgin Atlantic CEO Richard Branson, gives him more freedom than most to defy convention. Both are seen as visionaries who have broken barriers in their respective fields. Both are restless with just one company, and both are corporate bad boys, often seen with models and actresses. Branson was famously photographed kite surfing with a nude model in 2009. Musk was with then-girlfriend and experimental pop singer Grimes when he made his now infamous tweet. Their bold plans, innovative ideas and sometimes outrageous behavior have won fans across the globe.

"There's a level of charisma and individual style, but there's a question of when that tips a line," said Robert Galford, who teaches executive leadership at Harvard University and is a managing partner of consulting firm the Center for Leading Organizations. "Our creatives have always been provocateurs; they always challenge the status quo. It doesn't mean he has to challenge the status quo in every dimension."

Professor Nicholas Pearce, who teaches organizational management at the Kellogg School of Management at Northwestern University, said there's a fascination with "edgy, trendy leaders who are willing to push the envelope." Unlike Branson, who relied mostly on private equity money to fund his business ventures, Musk has gone to the public markets for financing. That carries a higher degree of responsibility.

"There has to be a recognition in any leader's journey that their behavior isn't solely as a private citizen with individual consequences, but their words and actions have an institutional ripple effect," Pearce said. Their conduct "can betray the confidence of the people who follow them, look to them for leadership and invest in their organizations."

"Boards cannot afford to look away when their leaders are behaving badly," he said. Tesla didn't return requests for comment.

Entrepreneurs often possess a bravado that inspires and excites their staff and persuades people to invest, Pearce said. Though Musk didn't found Tesla, his DNA is very much a part of the company. He was one of its original investors and chairman of the board in 2004 before becoming CEO in 2008. But entrepreneurs like Musk aren't always the best executives to run the organizations they've helped create.

"The bro culture, grow at all costs, act with reckless abandon is more acceptable at a startup because every day can be the difference between dying and surviving," he said. But that rarely lasts over the long term, he said.

High-level executive departures like the two that became public Friday at Tesla are one sign the organization needs more structure and someone to help keep Musk in line. Chief Accounting Officer Dave Morton resigned after about a month on the job, while Chief People Officer Gaby Toledano reportedly isn't returning after an extended leave of absence. Engineering leader Doug Field and communications chief Sarah O'Brien also resigned in recent weeks — just some of the 41 executives that have departed so far this year, according to data collected by Tesla short-seller Jim Chanos.

Retaining C-suite talent is one of the three main pillars of good leaders, said professor Tiziana Casciaro, who teaches leadership development at the University of Toronto. The other two are setting a clear direction for the company and communicating that vision to employees, investors and the public. Musk created some doubt about his leadership ability when he casually threw out the idea of taking Tesla private last month, only to backpedal a few weeks later, she said.

Though tweeting has become an effective way for leaders to communicate directly with the public, it becomes ineffective if a leader such as Musk changes his mind on something that big, she added.

His recent behavior shows "cracks in the leadership buckets" and can reflect dysfunction within the organization, Casciaro said.

"Unavoidably, there will be calls for moving toward a more structured managerial leadership," she said, adding that reining in Musk while still giving him the freedom to innovate won't be a simple task for the board and the rest of the C-suite. Investors prefer steady, boring and predictable. But that doesn't necessarily come with a "fantastically imaginative" mind like Musk's, she said. "Investors want both."

Although company founders and visionary CEOs like Musk are difficult to replace, they often don't have the skills or patience to scale up their businesses as they grow. Apple brought in John Sculley, head of PepsiCo's soft drink business, to help run the company in 1983, six years after it was founded by then-CEO Steve Jobs and Steve Wozniak. Jobs' personality was so difficult, he was ousted two years later. (Apple brought Jobs back in 1997.) Uber forced out co-founder Travis Kalanick last year after a series of scandals that exposed a drinking and sex-fueled culture at the ride- hailing company, bringing in Expedia CEO Dara Khosrowshahi to replace him.

Tesla's board bears the responsibility of making sure Musk isn't taking on too much and has whatever support he needs. Musk himself has complained about being stretched too thin between Tesla, its solar business, SpaceX and the Boring Co. The last year has been an "excruciating" one for Musk, he told The New York Times in an interview last month.

"He's not making good decisions. You've got to wonder if Musk has too much on his plate," said professor Anita M. McGahan, who teaches strategic management at the University of Toronto. She and other management experts say the corporate structure of the company appears to be flawed.

Acting out may be Musk's way of dealing with the pressure, said Casciaro. Being a CEO of just one company, let alone two or three, is a high-pressure, high-stress job. Ensuring the well-being of top executives should be a key priority for a board.

His defiant behavior may provide some "support or escape, or relief from all the tension, all the stress of the ups and downs of making a company this unusual work," she said. "He may be over-stretched and out of psychological resources to handle all of this turmoil and pressure."

Tesla has been looking for a strong No. 2 for years, even approaching Facebook Chief Operating Officer Sheryl Sandberg at one point, Musk recently said. He didn't elaborate on why they haven't found anyone yet.

"It's a balancing act; you don't want to lose the spark. How the board, executive ranks will handle this will be interesting," Casciaro said. "I don't envy them, because it's not a simple task."