Elon Musk's tweets show that Tesla's board either can't or won't try to keep him in check

Key Points
  • The newest dispute between Tesla CEO Elon Musk and the SEC highlights Tesla's governance issues.
  • A judge ordered Musk on Tuesday to explain why he should not be held in contempt.
  • Musk tweeted information about Tesla production that the SEC said was inaccurate and not screened.
  • Industry watchers think Tesla's board is not taking sufficient action.
Tesla CEO Elon Musk lashes out at the SEC again — Five experts break down what to watch next

Elon Musk's renewed feud with the Securities and Exchange Commission after another errant tweet raises concern over the Tesla board's ability to control the electric car maker's strong-willed and unpredictable CEO.

"His board has to act," said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. "They seem to be incapable of acting, which is very disappointing."

The board's independence and ability to restrain Musk have been frequently called into question. Several board members have close ties to Musk either through family or business. Board members include his brother Kimbal Musk, a restaurateur and Tesla investor, and Antonio Gracias, a long-time investor who also sits on the boards of Musk's companies Solar City and SpaceX.

Tesla declined to comment for this article.

The SEC accused Musk on Monday of violating his Sept. 29 agreement with the agency, which settled securities fraud charges for allegedly misleading investors with a series of inaccurate tweets last summer saying he had secured the funds necessary to take Tesla private at $420 a share. Musk agreed to pay fine of $20 million, step down as chairman for three years and refrain from tweeting material information about the company's operations and finances without company review and approval. Tesla also had to pay $20 million.

Tweets on Feb. 19 have Musk in the SEC's crosshair again and pushing for contempt charges. He has until March 11 to explain to a federal judge in New York why he shouldn't be held in contempt after tweeting production numbers for 2019 that were inaccurate and that Musk corrected later that day. The SEC said Musk sent the tweets without submitting them for review or getting company approval.

Under the deal, Tesla was also required to add two independent directors to the board. Software mogul Larry Ellison, chairman and chief technology officer of Oracle, and Kathleen Wilson-Thompson, global chief human resources officer of pharmacy chain Walgreens Boots Alliance, joined the board in December.

It also promoted Australia telecom executive Robyn Denholm, who joined Tesla's board in 2014, to replace Musk as chair in early November.

But it is unclear how much power she actually has over Musk, Kelley Blue Book editor Matt DeLorenzo said Tuesday on CNBC's "Power Lunch."

"There was this agreement to bring in Robyn Denholm as the chairman, and the real question here is: Is that window dressing? I mean the question is, "Who is sort of Elon's boss and how is this issue going to be addressed?'" DeLorenzo said.

After the SEC's filed its most recent complaint, Musk took to twitter again to criticize the agency, saying "Something is broken with SEC oversight."

Even with the new additions, Musk seems to control the board, including who is appointed and removed, Elson said. Any attempt to rein him in results potentially in their replacement.

"And they value, I guess, being on the board more than acting as normal board members would in such a situation," Elson said. "In most companies, they would be gone."

In its complaint, the SEC cited an interview Musk gave with CBS' "60 Minutes" in December when he said the company doesn't need to review his tweets.

Asked how the company would know if he is planning to send a potentially stock-moving tweet without being able to read it, Musk told the news show, "Well, I guess we might make mistakes. Who knows?"

Turnover in Tesla's executive ranks have also raised red flags, especially the sudden departure of former General Counsel Dane Butswinkas, who left after just two months on the job. Tesla has lost more than 40 executives since 2016.

"That should be a signal of something," Elson said.

Former SEC Chairman Harvey Pitt told CNBC that Musk should be held in contempt for his comments. Although Pitt said he does not know why Butswinkas left, he thinks many recently departed executives may feel Musk doesn't listen to them.

"For somebody who's a high-powered, very capable lawyer as he was and is, that has to be incredibly frustrating,"
Pitt said Tuesday on "Squawk Box." "I think the same problem exists in a lot of areas, and unless the board steps up its oversight, we will continue to see this huge amount of turnover."